CRYPTO MOVERS AND PRICES
Crypto was broadly lower this morning with altcoins underperforming. Spot volumes are as high as they have been this week on the downdraft.
Crypto Story of the Day
Yesterday, the Stellar network suffered technical issues that resulted in exchanges halting withdrawals of the asset. Stellar (XLM), like other alt-coins, has seen significant growth in the past week, adding USD 2.7 billion, or 30%, to its market cap. Despite the technical challenge, XLM’s price didn’t experience any obvious reaction to the news. The episode showcases the seeming propensity of crypto investors to ignore warning signs of technical risk.
According to an announcement from the Stellar Development Foundation (SDF), the organization’s validator nodes “temporarily stopped validating transactions on the Stellar network.” Validator nodes act as miners on the Stellar network by processing transactions. According to Stellar explorer site stellarbeat.io, the network has 18 active validator nodes, 3 of which belong to SDF.
In the announcement, SDF didn’t reveal how many of its nodes went offline. While not explaining the exact details of the outage, SDF stated that “the Stellar network is still online” and that, “[b]ecause it is decentralized” and most validator nodes “are still functioning, the network continues to process transactions.”
The SDF’s public Horizon API, which facilitates interaction with the network was “also temporarily down” according to the announcement. As of 3 p.m. EST, both the Horizon API and validator nodes had been restored to normal functionality. Overall, downtime lasted about 11 hours. The incident resulted in BitStamp and Bitfinex halting withdrawals of the coin.
As indicated by SDF, the network continued processing transactions. Exchanges are known to halt deposits or withdrawals when a network issue is detected in order to safeguard user funds. XLM, which reached a 3-year high market cap of USD 12.5 billion amid a broad alt-coin rally, didn’t show an obvious reaction to the technical issue. Stellar has previously suffered from major technical issues related to the functioning of its blockchain. For example, in 2019 “the Stellar network halted for 67 minutes due to an inability to reach consensus.”
The practical effects of the technical issues to Stellar users are unclear, however, the halting of withdrawals suggests that exchanges had reason to doubt the soundness of using the network. Yet, some crypto investors have seemingly shaken off any concerns, which are described as being “designed so all the world’s financial systems can work together on a single network.” Moreover, Stellar has previously encountered incidents that have affected the usability of the network, establishing a pattern of technical issues.
Having said that, we’ve previously pointed out crypto investors’ propensity for ignoring technical risks, i.e. continued DeFi hacks, ETH’s network upgrades and November 2020 chain split, and ETH Classic’s 51% attacks. This episode is the latest in a pattern of investors ignoring such warning signs.