The lumen — also known as XLM — is the native asset of the Stellar network.
Lumens can be used for sending money to people overseas or as a bridge currency between tokens on the Stellar network. An account must also hold a small stake of lumens for every other Stellar token it holds. Because it’s blockchain-based, people can hold the XLM cryptocurrency locally on their laptop or phone even if they lack a bank account.
The lumen also serves as a kind of universal translator between each currency supported by the network. This allows banks, businesses, and people using Stellar to send any currency quickly and cheaply across borders. It works because Stellar has a decentralized exchange built into the protocol.
As an example, if one user wants to send dollars to another user who wants yuan, the Stellar protocol can route a payment in US dollars through its order books so it comes out on the other end as Chinese yuan automatically. Under the hood, Stellar can convert yuan to dollars directly, or, if it’s more efficient, use lumens in the middle. This happens in around 5 seconds and for a fee of one ten-thousandth of a cent. The key requirement is that sufficient liquidity in dollars and yuan be available on the network.
In addition to serving as a universal currency translator, lumens also protect the integrity of the network by preventing spam. Transaction fees are paid in lumens, and every Stellar account must maintain a minimum balance too. The transaction fees and minimum balance are low enough that legitimate users don’t really notice them but are high enough to keep spammers from becoming a nuisance.