Stellar Network Brings DeFi to the Unbanked With Smart Contract Platform

Banking the unbanked has been touted as one of the core use-cases of crypto since its inception—but the industry’s faced challenges in the form of high transaction fees and a lack of dedicated infrastructure.

The launch of the Soroban smart contract platform on Stellar is aiming to change that.

Launched earlier this year with the Protocol 20 update, the upgrade to the Stellar network introduces smart contracts into the Stellar ecosystem—and aims to bring the industry closer to its goal of becoming the digital financial rails for those without access to banks or other financial services.

“Stellar is ten years old this year,” Nick Gilbert, Director of Product at the Stellar Development Foundation, told Decrypt. “The first eight years or so was spent establishing cross border payments, on-ramps, and off-ramps, in order to really build out a fully fleshed-out ecosystem on Stellar. The next step was smart contract functionality.”

Why smart contracts on Stellar matter

Soroban is a Rust-based smart contracts platform designed for “scale and sensibility,” leveraging the wide-ranging Stellar ecosystem.

That ecosystem means that when developers build products or applications on Stellar, they aren’t building for a potential future customer who isn’t there yet because the infrastructure doesn’t exist. Instead, they’re building for real customers who can access their products right now—and can afford the transaction fees needed to play.

“Existing services built on DeFi are not broadly accessible—particularly to underbanked, unbanked, and people living in the developing world,” Gilbert said, adding that transaction costs like Ethereum and CEX fees are “not economically tenable to these users.”

The Stellar Development Foundation believes that the ease of access with which people can join the Stellar ecosystem via its network of on-ramps—coupled with low transaction fees and the launch of the Soroban smart contracts platform—make Stellar a more attractive destination for developers to build their next project.

Building DeFi on Stellar

“One area that has great potential is decentralized finance (DeFi),” Gilbert said. “If our focus is serving the unbanked market, the ramp network we have allows the whole unbanked community to actually interact with DeFi,”  she explained. “It opens up a fairly large addressable market of people that didn't even have access to DeFi previously,” he added.

According to Gilbert, developers need the reassurance of working with an established chain. “Building DeFi products on a "new" chain introduces risks,” he said. “Will there be users? Is there sufficient liquidity?”

While smart contracts may be new to Stellar, it’s a well-established ecosystem, which has grown to over eight million accounts, plus an array of applications, wallets, developer tools, users, and volume.

Seasoned developers choosing to build on Stellar also benefit from not having to learn a new or unique programming language to get started. Soroban utilizes Rust as a language, and WASM as an execution environment.

“Soroban isn’t trying to reinvent the wheel like some alternatives,” Gilbert said of the decision to use Rust, adding that the aim was, “making it as easy as possible for developers to go from idea to deployment. Developers can create more, faster.”

“The launch of Soroban smart contracts,” Gilbert explained, “means that developers will be able to build products like AMMs and lend/borrow markets for the unbanked demographic—with the peace of mind that they’ll be able to access and afford it.” And, he added, what developers build on Soroban “actually has a path to connect with real world payment rails.”