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From what I can gather there is a clear distinction between currencies and assets, that mainly stems from people’s mindset regarding it. For example, currency (ex. USD) people willingly trade and exchange for goods and services. Assets (ex. gold) on the other hand people acquire and hold for long periods of time in hopes the asset will increase in value due to any number of factors.

At least with other alternatives (mainly Bitcoin), people seem to consider it much more of an asset than currency. Of course there are many factors that play into this, but a very major one is the inflation of it. Bitcoin for example will always be capped at a maximum supply of 21 million coins. When Stellar started 100 billion (I believe) Lumens were created. The network also had a system for inflation (for many reasons) of 1% per year.

Now as of protocol 12, inflation has been disabled. SDF of course owns a lot of the Lumens in existence, and distributes them on a continuous basis. But someday that is going to run out. At that point it enters a period of deflation due to the fact that Lumens get locked up through transaction fees. And although small, these will eat away at the supply of Lumens, driving up the value of everyone’s supply.


What are the incentives to trade Lumens and use them as a currency vs an asset? The incentive used to be inflation and knowing that more Lumens would always be created so the value of holding the asset would be minimal, more would always be created. Now that inflation no longer exists, it feels much more like an asset vs a currency.

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The primary function of XLM is to be the common base currency of asset exchange. This is evident in the fact that it is the only asset for which no trustline is required.

With a common base currency, the quantity of order books needed to fulfil any payment path is reduced significantly, which is good for liquidity on the network.

I believe that the network bias on XLM as a base currency is a very strong incentive for its use as a currency. I also argue that XLM's primarily function is to be a utility token (the utility being the facilitation of cross-asset exchange). The only case I can see for it being an asset is that increased usage of the network will increase demand for XLM in cross-asset trades.

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