Here's a question that'll mess with your head: What if I told you there's a blockchain worth billions of dollars where validators don't get paid, don't need millions in staked tokens, and literally just choose who to trust based on reputation?
Sound crazy? That's Stellar.
While Bitcoin miners burn electricity competing to solve puzzles, and Ethereum validators lock up 32 ETH ($50,000+) to participate, Stellar validators do something radically different: they talk to each other, build trust networks, and reach consensus through something called Federated Byzantine Agreement.
No mining rewards. No staking yields. Just organizations running validators because they believe in the network and want to protect their own interests in it.
And somehow, this system processes billions of dollars in transactions, settles cross-border payments in 5 seconds, and has only halted once in its entire history—for 67 minutes in 2019.
Let me explain how this actually works, because once you understand Stellar's governance model, you'll realize why it might be the most pragmatic approach to running a decentralized financial network.
Forget Everything You Know About Blockchain Governance
Most blockchains work like this:
- Bitcoin: Whoever has the most mining power wins
- Ethereum: Whoever stakes the most ETH gets the most voting power
- Many PoS chains: Token holders vote on proposals
Stellar? Completely different.
On Stellar, trust is granted, not bought.
You don't become influential by buying tokens. You become influential by:
- Running reliable validator nodes
- Being transparent about who you are (real organization, not anonymous)
- Convincing other validators to trust you
- Maintaining excellent uptime and responsiveness
- Coordinating with the community on network upgrades
This system is called the Stellar Consensus Protocol (SCP), and it's based on something called Federated Byzantine Agreement—a mouthful that basically means "validators choose who to trust, and the network reaches consensus when enough trusted validators agree."
How SCP Actually Works: The Trust Network
Imagine you're starting a business and need to decide who to trust with important decisions. You wouldn't just trust whoever has the most money. You'd trust people with good reputations, track records, and aligned incentives.
That's exactly how Stellar works.
Step 1: Every Validator Builds a Quorum Set
When you run a Stellar validator, you configure something called a quorum set—basically a list of other validators you trust.
Let's say you're running a validator for a payment company. Your quorum set might include:
- Stellar Development Foundation (SDF) - They built the network, obviously trustworthy
- IBM - Major financial institution with skin in the game
- SatoshiPay - European payment company, geographically diverse
- Blockdaemon - Infrastructure provider with excellent uptime
- Your own three validators - For redundancy
You also set a threshold—the minimum number from your quorum set that must agree before you accept a transaction.
For example: "I need 5 out of 7 of these organizations to agree before I'll accept a new ledger."
Step 2: Quorum Slices Create Overlapping Trust
Here's where it gets interesting. Your quorum set overlaps with other validators' quorum sets, creating a web of trust.
Let's say:
- You trust SDF, IBM, and SatoshiPay
- IBM trusts you, SDF, and Blockdaemon
- SDF trusts you, IBM, SatoshiPay, and Blockdaemon
These overlapping trust relationships form quorum slices—smaller subsets of the network that can reach agreement independently, but whose agreements overlap enough to create network-wide consensus.
It's like a Venn diagram where all the circles intersect. As long as there's enough overlap, the whole network agrees on the same truth.
Step 3: Federated Voting Reaches Consensus
When a transaction comes in, validators go through three phases:
Phase 1: Vote
"I think this transaction is valid, but I'm not sure if it's safe to act on yet."
Phase 2: Accept
"Enough validators in my quorum set agree this is valid. I'm accepting it, but still waiting for final confirmation."
Phase 3: Confirm
"It's safe. My entire quorum slice has accepted this. Even if some validators in my quorum haven't confirmed yet, they won't be able to confirm anything contradictory. This transaction is final."
The whole process takes 3-5 seconds.
Compare that to Bitcoin (1 hour for full confirmation) or Ethereum (2-15 minutes), and you see why Stellar is perfect for real-time payments.
The Power Players: Tier 1 Validators
Not all validators are created equal on Stellar. There's a special group called Tier 1 Organizations—these are the validators that most other validators trust, so they essentially carry the network's safety and liveness on their shoulders.
As of 2025, there are 7 Tier 1 Organizations:
- Stellar Development Foundation (SDF)
- SatoshiPay
- Blockdaemon
- Public Node
- Lobstr
- Whalestack
- *(One more organization)
Each Tier 1 organization runs three validators for redundancy. Why three? Because if one goes down for maintenance or has issues, the other two can still vote on the organization's behalf.
These validators are also geographically distributed—if all three were in the same data center and that data center went down, the organization's entire voting power would disappear.
What Makes a Tier 1 Validator?
You can't just declare yourself Tier 1. You have to earn it. Here's what it takes:
Technical Requirements:
- Run three full validators with excellent uptime
- Publish complete history archives
- Geographic and infrastructure diversity
- Proper monitoring and alerting systems
- Commitment to upgrading software promptly
Transparency Requirements:
- Publish a stellar.toml file with organizational info
- Use SEP-20 to self-verify your validators
- Publicly disclose your quorum set configuration
- Maintain communication channels with other validators
Operational Requirements:
- Coordinate quorum set changes with other validators
- Participate in network governance discussions
- Respond quickly to network incidents
- Maintain 99.9%+ uptime
Most importantly: Other validators have to trust you enough to add you to their quorum sets. You can have perfect infrastructure, but if nobody trusts you, you're not Tier 1.
The 2025 Goal: Doubling Network Resilience
Right now, Stellar can handle 2 Tier 1 organizations failing before the network halts. That's called a "fault tolerance of 2."
By the end of 2025, SDF wants to increase that to 13 Tier 1 organizations with a fault tolerance of 4—meaning the network could handle 4 organizations going offline simultaneously.
Why is this important? Because resilience matters. If you're MoneyGram moving millions of dollars in remittances, or a CBDC issuing digital currency for an entire country, you need confidence that the network won't halt just because two validators go down.
Doubling the fault tolerance means doubling the network's robustness.
The Challenge: Finding the Right Validators
You can't just add random validators to hit a number. Remember, Stellar's security is based on reputation and trust, not computational power or stake.
Adding 100 sketchy validators that nobody trusts doesn't improve the network. Adding 6 high-quality, reputable organizations that everyone trusts? That's meaningful.
SDF has published an evaluation framework with 8 dimensions they consider when adding new Tier 1 validators:
- Organizational mission alignment - Do they care about Stellar's success?
- Identity and real-world presence - Are they transparent about who they are?
- Operational excellence - Can they maintain excellent uptime?
- Geographic diversity - Are they in a different region than existing validators?
- Jurisdictional diversity - Different legal jurisdictions reduce regulatory risk
- Infrastructure diversity - Different cloud providers, ISPs, hardware
- Economic diversity - Different revenue models and business interests
- Technical competence - Do they understand how to run validators properly?
Each dimension is evaluated using a risk matrix similar to what security professionals use. The goal? Add diversity across all dimensions while maintaining network security.
How Governance Actually Happens: The 2024 Smart Contracts Delay
Theory is great, but let's look at how Stellar's governance works in practice.
In January 2024, Stellar was about to launch Protocol 20—a major upgrade adding Ethereum-style smart contracts through a platform called Soroban.
The launch date was set: January 30, 2024.
Then, on January 25, SDF found a bug. It was minor, unlikely to cause major issues, and SDF initially decided to proceed with the launch as planned.
But the developer community pushed back. They said: "This bug could affect applications. We should delay and fix it properly."
SDF listened. They decided to "disarm" their validators—meaning configure them to vote against the upgrade on January 30.
Then something fascinating happened: 6 out of 7 Tier 1 organizations also chose to disarm, including SDF, SatoshiPay, Blockdaemon, Public Node, Lobstr, and Whalestack.
With only 1 Tier 1 organization voting for the upgrade, there wasn't sufficient quorum to proceed. The upgrade was postponed.
Here's the important part: SDF didn't dictate this. They made a recommendation, but each validator made its own decision. The network delayed the upgrade because the validator community chose to delay it.
This is governance through consensus, not authority.
The bug was fixed, and Protocol 20 successfully launched later in 2024, bringing smart contracts to Stellar.
No Rewards? Why Would Anyone Run a Validator?
Here's the part that blows people's minds: Stellar validators don't get paid.
No block rewards. No transaction fees. No staking yields. Zero financial incentive.
So why do organizations spend money running validators?
Because they have skin in the game.
- MoneyGram runs validators because they use Stellar to process millions in remittances. If the network fails, their business suffers.
- Asset issuers run validators to ensure the network securing their assets is reliable.
- Payment companies run validators because Stellar's speed and cost make their products competitive.
- Infrastructure providers run validators to support clients building on Stellar.
In other words: validators run nodes because they benefit from Stellar's success and want to protect their investment in the ecosystem.
This creates better incentive alignment than mining or staking. Validators aren't just chasing rewards—they're protecting infrastructure they depend on.
The Safety vs. Liveness Tradeoff
SCP prioritizes safety over liveness, which is a fancy way of saying: Stellar would rather halt than process incorrect transactions.
Most consensus mechanisms can only guarantee two out of three properties:
- Safety: No conflicting transactions are finalized
- Liveness: The network keeps making progress
- Fault tolerance: The network handles node failures
SCP chooses safety and fault tolerance. If too many validators disagree or go offline, the network halts rather than risking a fork.
This has only happened once: May 15, 2019, for 67 minutes.
What caused it? Validator configuration issues. Some validators had misconfigured quorum sets that created a situation where the network couldn't reach consensus.
When it happened:
- Validators noticed immediately
- They convened a "war room" using public communication channels
- They diagnosed the issue
- They fixed configurations
- The network resumed
After that, SDF worked with validators to:
- Clarify best practices for quorum configuration
- Formalize communication channels
- Set expectations for Tier 1 validators
- Create a response plan for future incidents
Since then? Zero halts. The network has processed 2.6 billion operations (in 2024 alone) without a single minute of downtime.
What Makes Stellar Different: The Bottom-Up Governance Model
Most blockchains are top-down:
- Bitcoin: Miners with the most hash power control consensus
- Ethereum: Validators with the most staked ETH have the most influence
- Many DAOs: Token holders vote, and whales dominate
Stellar is bottom-up:
- Validators choose who to trust
- No one can buy influence
- Community standards matter more than capital
- Misbehavior can be addressed by removing trust, not by buying more stake
This creates a fundamentally different power dynamic.
In Proof of Stake, if you disagree with how things are run, your options are:
- Buy more tokens (expensive)
- Fork the network (risky and divisive)
- Complain on Twitter (mostly useless)
On Stellar, if a validator starts acting maliciously or against community standards:
- Other validators remove them from quorum sets
- The bad actor loses all influence immediately
- No fork required, no tokens needed
Power is granted by the community and can be revoked by the community.
The Transparency Advantage
Every aspect of Stellar's governance is public:
- Validator identities (real organizations, not pseudonyms)
- Quorum set configurations (you can see who trusts whom)
- Network history (complete archives available)
- Communication channels (war rooms, forums, GitHub discussions)
You can visit tools like Stellarbeat or Raar and literally see:
- Every validator on the network
- Their uptime statistics
- Who they trust
- How quorum slices overlap
- Network health in real-time
This transparency allows for:
- Community accountability
- Informed decision-making
- Early detection of problems
- Collaborative problem-solving
Compare this to many PoS networks where large validators are pseudonymous, and you see why institutions trust Stellar for critical financial infrastructure.
Real-World Impact: When Governance Matters
Stellar's governance model isn't just theoretical. It's proven itself in production:
Circle's USDC: Circle chose Stellar (alongside Ethereum and others) to issue USDC, partly because of the network's reliability and governance structure.
MoneyGram: Integrated Stellar for cross-border payments, trusting the network to handle millions in daily transaction volume.
IBM World Wire: Built their cross-border payment system on Stellar, requiring high confidence in network governance.
Franklin Templeton & WisdomTree: Major financial institutions chose Stellar for tokenized assets because the governance model provides accountability.
Ukraine CBDC Exploration: Governments considering Stellar for central bank digital currencies need confidence in governance stability.
These aren't speculative use cases. These are real businesses and institutions trusting Stellar's governance with critical infrastructure.
The Challenges Ahead
Stellar's governance model isn't perfect. It faces real challenges:
1. Balancing Decentralization and Efficiency
7 Tier 1 organizations is efficient but arguably too centralized. 100 might be more decentralized but harder to coordinate. Finding the right balance is ongoing work.
2. The SDF Influence Question
SDF is just one validator among many, but they also fund development, maintain tooling, and set technical direction. Some argue this creates too much centralization. SDF argues they're working to progressively decentralize control.
3. New Validator Onboarding
Getting from 7 to 13 Tier 1 organizations requires finding the right candidates and convincing existing validators to trust them. It's not a quick process.
4. Coordinating Upgrades
With more validators, coordinating major protocol upgrades becomes more complex. The Protocol 20 delay showed this can be a feature (community input matters), but it can also slow development.
5. Geographic and Jurisdictional Concentration
Many current validators are in North America and Europe. More diversity is needed, but finding qualified validators in other regions takes time.
Why This Model Might Be the Future
Stellar's governance model represents a pragmatic middle ground:
More decentralized than traditional finance (no single bank or company controls the network)
More practical than pure crypto anarchism (validators are known, accountable organizations, not anonymous actors)
More sustainable than mining (no energy waste)
More accessible than pure PoS (you don't need millions in capital to participate)
More resilient than centralized systems (no single point of failure)
For financial institutions, governments, and businesses considering blockchain adoption, this model makes sense. It provides:
- Accountability (know who's running validators)
- Reliability (proven uptime and governance)
- Efficiency (fast, cheap transactions)
- Flexibility (upgradeable through community consensus)
- Security (mathematically proven safety)
The Bottom Line
Stellar's validator governance model is weird. It doesn't fit neatly into the "decentralized vs. centralized" debate. It's not pure democracy (one validator, one vote). It's not plutocracy (richest validators don't automatically win). It's not technocracy (smartest validators don't dictate everything).
It's trust-based, reputation-driven, community-governed, bottom-up consensus—and somehow, it works.
94 validators. 7 Tier 1 organizations. 2.6 billion operations processed in 2024. $32 billion in payment volume. 3-5 second finality. One 67-minute halt in the network's entire history.
Those numbers tell the story of a governance model that prioritizes pragmatism over purity, accountability over anonymity, and real-world adoption over ideological purity.
Whether you think that's the future of blockchain governance or a compromise too far, you can't argue with the results.
And as Stellar expands to 13 Tier 1 validators with 4x fault tolerance by the end of 2025, the model is only getting stronger.
Because at the end of the day, governance isn't about having the most mining power or the biggest bag of tokens.
It's about building systems people can trust.
And on Stellar, trust isn't bought—it's earned.
What do you think of Stellar's trust-based governance model? Is it more practical than pure PoS/PoW, or too centralized? Drop your thoughts in the comments!
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