Ecosystem Review: NEAR

 

This edition of the Ecosystem Review covers NEAR, which in technical terms, is a layer one, sharded, proof-of-stake blockchain, and in practical terms, targets to become the operating system (“OS”) for an open web.

Each transaction in the NEAR blockchain costs less then $0.01 and blocks are finalized in only 2 seconds, placing the protocol in the group of fast and cheap blockchains. The decision to dive deeper into Near this quarter is based on the attention it’s getting from the announcement of Blockchain Operating System and other apparently successful initiatives for expansion of the ecosystem, which have been reflecting in increased on-chain activity (Fig 1), despite the current market scenario.

Before revealing the main actor behind the spike in network activity, this article will review the protocol’s technical architecture, the staking and economics parameters and other relevant aspects, like cross-chain composability.

For the new and old fans of NEAR, the community is meeting up in person in the upcoming NEARCON, a 4-day event to take place in Lisbon in November.

The NEAR protocol is a proof-of-stake network which means that Sybil resistance is done by staking the native token, also called NEAR or Ⓝ. The time is measured in epochs. An epoch is made of 43,200 blocks. Ideally an epoch lasts about 12 hours, but in practice it lasts longer than that, since average block time is currently around 1.11 seconds according to nearblocks.io - the official block explorer.

NEAR is a layer one blockchain. Because of its sharded architecture, a block in NEAR includes one chunk for each shard, and the chunks respectively  include the transactions executed for its associated shard. In terms of network participants, the block producer is a heavy duty, since it requires participants to store the full ledger (aka full node) for all chunks. In order to scale and decentralize the set of operators, the protocol is designed to allow a lighter type of node in addition to the block proposer, called chunk-only producer, who creates blocks for single chunks.

NEAR features a runtime layer to execute code, and supports the deployment of applications, a.k.a smart contracts. Smart contracts are written in either JavaScript or Rust, and the NEAR SDK compiles the contracts into WebAssembly (WASM). The NEAR runtime uses the concept of Gas to unify the cost of execution and bandwidth. Each WASM instruction or pre-compiled function gets assigned a gas fee  based on measurements on a common-denominator computer. Same goes for weighting the used bandwidth based on general unified costs.

Gas is priced dynamically for each block, and adjusted based on the consumption of the limit in the previous block. When a smart contract wants to store some data, storage cost is computed, and the appropriate amount of NEAR tokens is “locked” on the account. When data is removed, tokens are unlocked. Unlike gas, these tokens are locked in the smart contract’s account, so the user doesn’t directly pay for it. 30% of gas fees users spend on a particular application will go to the contract’s account, generating revenue for the deployer via usage.An interesting aspect of the NEAR protocol lies in the accounts system: it natively supports account abstraction, which means that instead of identifying users by their public/private key pairs, it defines accounts as first-class entities. The implications in usability, are:

• users can use readable account names, ex: `chorusone.near`
• multiple key pairs with different permissions can be associated to a single account
• hierarchical accounts structure used to manage multiple smart contracts under one parent account - since each account holds only one smart contract
• accounts/public keys are created using transactions, they are stored and can be found querying the ledger.

A complete overview of the technicalities of the Protocol can be found in https://docs.near.org.

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Cross-chain Composability

As stated previously, NEAR has its own runtime, which is not compatible with the Ethereum Virtual Machine. However, using a Layer-2 like approach developers can deploy Ethereum-compatible applications to NEAR, and leverage its lower cost and higher throughput platform. It is the case of the Aurora project, an Ethereum Virtual Machine (EVM) built on top of the NEAR Protocol. The most popular tools built for EVM development are also available to be used on Aurora.Also adding to interoperability, the Rainbow Bridge plays an important role as it allows transferring assets between the Ethereum Blockchain and NEAR. The Rainbow Bridge protocol is a trustless, permissionless protocol for connecting blockchains, developed in-house, by the NEAR team.

The core idea behind it is to implement an Ethereum light client in Rust as a NEAR contract, and a NEAR light client in Solidity as an Ethereum contract. Trust assumptions are minimized using this protocol, as anyone can deploy your own instance as a smart contract. This can facilitate simple (e.g. a canonical token migration) and complex interactions between NEAR and ETH, for example, allowing ETH holders holding a given token to vote in your DAO on NEAR.

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Activity

In contrast to other ecosystems, the NEAR blockchain was able to keep up a relatively high level of daily transactions over the past year, despite the dramatic slow down the whole crypto space has seen. Activity metrics have spiked at a daily 1M transactions in August 2023, leaving behind previous heights of approximately 500k daily transactions (Fig 2).

Leveraging NEAR account system, and Flipside Crypto to plot the top accounts by number of transactions shown in Fig 3, the main driver of the increased activity can be spotted: the accounts and tokens related to Kai-Ching, or $KAIC, the token of KaiKai, a Singapore-based shopping app:

KaiKai is an application built by Cosmose, a nine-year-old company targeting the use of artificial intelligence to improve off-line shopping with ultra precise recommendations and advertising. Cosmose was featured in the list of the 100 world’s most promising private AI companies in 2022. With a team distributed across Warsaw, Shanghai, Hong Kong, Singapore, Tokyo and Paris, the company recently raised an undisclosed amount at a $500 million valuation, up from $100 million when it closed its $15 million Series A financing in 2020. The Near Foundation has made a strategic investment in Cosmose, announced in April '23, according to techcrunch.com.

Fig 4 illustrates the relevance of KAIKAI-related transactions in the ecosystem, in contrast with overall transaction volume.

KAIKAI uses AI to curate and personalize vendors’ offers and partnerships. In contrast with the conventional e-commerce, users shop online through the app but pick it up in person. With every purchase, users are rewarded with the $KAIC as cashback that never expires. The token is also used in the app to facilitate refunds, but at this point, it can not be traded anywhere, nor exchanged for Fiat.

This year, the Foundation also launched Near Horizon, a social platform to connect everyone involved in the ecosystem: builders, contributors and backers can create a profile to share and discuss ideas, hire members to the team, apply for funding etc. This came shortly after NEAR announced its transition to a Blockchain Operating System (BOS), an initiative to establish NEAR as the entry point into the decentralized internet - the Web3. BOS is designed to effortlessly create and distribute decentralized apps on any blockchain, not only on NEAR. BOS is focused on accessibility.

You can use javascript, the most popular programming language (according to statista.com) to create, fork and reuse components already published by other users; connect with a NEAR account to retrieve owned components; and deploy and host naturally open source apps on-chain. Not only adding value to the ecosystem, BOS seems like a good progress to the onboarding of developers to Web3.

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Staking and Economics

At the time of writing, the project was valued at more than $1 Billion (source: coinmarketcap.com ) and the NEAR token was traded at $1.04, not far from its launch price in October 2020 - see Fig 5. The Proof of Stake network is run by 213 nodes and secured by 604.9M of staked NEAR, equivalent to $630M, or 60% of the total token supply. Judging by the list of nodes, most of them are managed by professional infrastructure providers, and are distributed globally. The largest validator concentrates 7.8% of voting power and the super minority is formed by only the top 8 validators.

The annual inflation rate is 5% and the staking APR is 7% according to Staking Rewards. The inflation is distributed to stakers every epoch in the form of block rewards. The protocol supports staking delegation, which means that token holders can natively and securely stake their tokens with node operators they trust. During each epoch, validators’ voting power in the network remains constant. Changes to stake amounts are processed at the beginning of the next epochs, e.g. it takes a maximum of 12 hours to start participating in rewards after delegating NEAR. The unbonding period is also comparatively short: upon unstaking, users receive their tokens after 3 full epochs (36-48 hours). Follow the full staking guide in this link to learn how to create and fund a NEAR account, stake your tokens and withdraw rewards.


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