Introduction
Ethereum is unquestionably the most used smart contract platform in the whole blockchain ecosystem. However, its scaling issues have paved the way for the development of additional smart contract blockchains, all of which aim to accomplish the same objective: serve the needs of the masses while keeping the properties of being trustless, immutable, permissionless, transparent, and censorship-resistant.
The issue is that many of these platforms lack Ethereum’s critical mass of developers, users, and projects. Despite their potential, they are also much younger. As a result, they’re battling for the critical mindshare of blockchain participants: potential ecosystem development has been delayed by the scarcity of critical interoperability technologies.
Nonetheless, these problems are not unsolvable. Today we will provide you with broad insights on how the NEAR protocol evolves and which are its main characteristics.
As per our traditional template, we will cover the following sections: the team behind the project, the underlying technology, its consensus mechanism, the tokenomics, the governance and who decided to invest in it.
Team
The public mainnet of NEAR has been launched in October 2020 and was created by Illia Polosukhin and Alexander Skidanov, two engineers who entered the crypto field in 2017–2018.
Illia has extensive expertise in the deep learning and language understanding research developed during its previous activity within Google as engineering manager. On the other side, Alexander provides additional knowledge about non-blockchain sharded databases with his previous job within Microsoft and MemSQL where he serves as Director of Engineering.
In late 2017 and early 2018, the team investigated programmable smart contract systems and crypto payments. They discovered that the existing state of the tech didn’t satisfy their objectives and started designing a blockchain that could. In August 2018, Illia and Alex assembled a team of engineers to create the NEAR Protocol.
As the team stated in their early writings: “We got together a dream team of builders: 3 ICPC Gold medallist (Mikhail was 2-time world champion), 3 early MemSQL (built sharding for the distributed database), 4 Xooglers (built distributed systems at scale).”
Partner and investment
The established track record in large tech helped the company get pre-launch investment from investors such as a16z, who led a $21 million fundraising round in March 2020. After making the switch to cryptocurrency, their widely circulated whiteboard series demonstrated an in-depth understanding of blockchain scalability and sharding — including the advantages and disadvantages of the methodologies used by Ethereum 2.0 and Polkadot. A16Z has been joined by investors including Libertus, Blockchange, Animal Ventures and various undisclosed ethereum projects founders. There was also participation from existing investors (Pantera, Electric) and others listed here.
Technology
NEAR protocol makes a point of being as developer-friendly as possible in order to differentiate itself from the several other smart contract options.
The platform attempts to deliver a scalable, trustless blockchain through sharding in a shared-security setting. Once sharding is enabled on NEAR, the network expects to change the number of shards supported on a regular basis in response to user demand. The project refers to this demand-based scaling strategy as “Dynamic re-sharding,” since it enables the network to pay for just the infrastructure and scalability it requires at any given moment. Dynamic re-sharding may be a more cost-effective method of expanding and safeguarding a sharded network, since storage needs for nodes may alter in response to demand.
The platform claims a limit of 100,000 TPS when used in conjunction with a block creation mechanism dubbed Doomslug. According to the authors, it allows the network to attain some degree of practical finality after a single round of communication, with a resolution component enabling BFT following a second round. In Doomslug, practical finality (or Doomslug finality) refers to the state of a block being irreversible until at least one participant is slashed. Additionally, Doomslug enables the network to continue creating and confirming blocks as long as more than half of the validator set is online and honest, while the ending mechanism will stop if less than two-thirds of participants are online.
NEAR implements its own variation of PoS: a method named Thresholded Proof-of-Stake (TPOS) that supports one-second block times and two to three second transaction finality where there is no built-in delegation mechanism. The name of NEAR’s consensus mechanism is Nightshade where the system is modeled as a single blockchain. Each block’s transaction list is partitioned into physical parts, one for each shard. All pieces combine to form a single block. It is important to highlight that chunks can only be verified by nodes that manage the shard’s state.
Each logical block should theoretically include all transactions for all shards. However, since it would be prohibitively costly to broadcast a logical block over the whole network, it is never launched. Rather than that, each network member retains state for the shards for which they verify transactions and any extra shards they choose to monitor.
Once a miner creates a block, it gathers the validator nodes’ signatures. A block’s weight is therefore equal to the aggregate stake of all signers whose signatures are included in the block. A chain’s weight is equal to the sum of its block weights. Additionally, the consensus makes use of a finality device that adds extra slicing conditions for increased chain security.
The inflationary block rewards on NEAR are locked at 5% APY. Because the payout is proportionate to the stake, pooling staked tokens has no advantage in TPOS. This might theoretically increase the network’s decentralization by removing the incentive to pool resources. Each shard has a maximum of 100 “seats” for validators. The cost of buying a seat is proportional to the entire amount of NEAR staked, and validators and delegators may always unstake (or unbond).
Each shard is protected by a subset of validator nodes, which broadcast the shard’s current status as a portion of each new block.
Interoperability
NEAR has actively encouraged interoperability, most notably with its ETH-NEAR “Rainbow Bridge.” This Bridge is composed of an Ethereum light client written in Rust as an NEAR contract and an Ethereum light client written in Solidity as an Ethereum contract.
The promise of completely trustless transfers across the two chains is quite appealing. However, there are certain constraints on finality. As NEAR notes, “the latency for ETH->NEAR interactions is equal to the pace at which X Ethereum blocks are generated, which is around 6 minutes for 25 blocks.” The delay between NEAR and ETH contacts is now 4 hours, but will decrease to around 14 seconds after EIP-665 is adopted.”
Four hours is not a long time. However, this EIP-665 (an Ethereum Improvement Proposal, not a Star Wars droid) will significantly improve matters.
For certain applications, a four-hour delay will be enough. For others, third parties may be able to alleviate friction by allowing speedier withdrawals to the ETH chain.
The Rainbow Bridge has been released during the first half of April 2021: the whole team has spent notable time in the implementation specifics and edge circumstances, and has also made the specification more amenable to encouraging hacking. With the bridge establishment, NEAR became a low-cost, scalable alternative to the numerous Layer 2 platforms developing in the Ethereum realm.
Governance
NEAR introduces a few components of on-chain governance: the White Paper expresses reservations about relying too heavily on the on-chain approach, stating that it “…suffers from the requirement to precisely specify each case, may encounter issues due to a lack of “human common sense” in some decisions, and is thus susceptible to certain attacks that an off-chain process would not.”
NEAR’s governance approach appears relatively half-baked in the lack of explicitly established norms. At the moment, only validators have the ability to vote on proposals. Their approval paved the way for the unrestricted mainnet deployment of NEAR.
The network’s governance is open to community input. Any individual or organization may submit or comment on an improvement idea. These governance debates occur within the context of the NEAR forum. Typically, proposals undergo a draft stage during which they are subject to community comment and review. If a suggestion receives sufficient support, the NEAR development team will create a specification and attempt to incorporate the modification. The proposal’s implementation date will be determined by the criticality of the modification (e.g., a hotfix for a critical bug would be administered almost immediately). Validators eventually decide whether or not to embrace a new protocol version by executing the most recent client release.
Ecosystem and use cases
NEAR has made a big effort to market itself as a developer-friendly platform. Its nodes run WASM, a standard that is supported by the majority of browsers. Smart contracts may be written in Rust or a JavaScript equivalent. The NEAR team has developed an environment that includes one-click deployments, unit testing, as well as other important tools. This might help the platform maintain its developer growth. Additionally, NEAR has devised a creative mechanism to reduce transaction costs: similar to meta transactions on Ethereum, developers may subsidize users’ expenses via DApp-managed accounts.
Aurora, an Ethereum Layer-2 protocol that emulates the Ethereum experience for developers and consumers on top of the NEAR Protocol. Aurora integrates two distinct pieces of technology to offer a seamless experience: a fully featured Ethereum Virtual Machine (EVM) and a robust cross-chain bridge. Developers may connect their Ethereum decentralized apps (dApps) to other Ethereum contracts and assets in minutes and deploy them on Aurora. Due to increased network activity on a worldwide scale, Ethereum transaction costs have hit all-time highs.
Aurora avoids these rising expenses by restricting gas prices to prevent them from increasing indefinitely, resulting in an average transaction cost of a few cents. Aurora enables developers to reuse existing Solidity and Vyper contracts, while consumers may access these apps smoothly through MetaMask and other Ethereum wallets. Simultaneously, Ethereum ERC-20 tokens and contract data will be transferred to Aurora through the trustless Aurora bridge (based on the Rainbow Bridge). Aurora redefines what is possible in the Ethereum ecosystem with its low transaction costs, best-in-class transaction finality, and scalability, while also extending NEAR’s ecosystem through the inclusion of every EVM-based application.
Case studies
DeFi is now live on NEAR and available to all users worldwide, owing to the introduction of the Rainbow Bridge, which enables any information that is cryptographically verifiable on NEAR to be utilized in Ethereum contracts and vice versa. All Ethereum-based assets, the total value of which is currently in the tens of billions, are now fully functioning in NEAR applications. Here below two mains case studies:
Flux
Flux is a native NEAR DApp. Flux is a safe trading platform that rewards validators for their work (with fees from open interest). Using Flux, stakeholders collaborate to create a decentralized, user-friendly, and scalable ecosystem. Flux’s decentralized prediction markets use derivatives to price the possibility of occurrences. It is unknown what kind of oracle technology will be employed to forecast the result of these marketplaces.
Developers may use Flux to construct marketplaces on anything like commodities, real-world events, or anything else.
It is the first cross-chain oracle for economically protected data feeds on the blockchain. Flux announced its connection with Aurora shortly after its NEAR debut, assisting in the ecosystem’s DeFi expansion.
As of the time of writing, TVL for Near’s DeFi is about $130M
Mintbase — NFTs Marketplace
NFTs are digital products that reside on the NEAR blockchain, and the creator may be informed and compensated for each purchase and sale. Mintbase is a broad-based NFT market that is more concerned with the overall NFT space than with a particular niche, such as gaming or art. Mintbase began on Ethereum but just received $1 million to expand to the NEAR market. What’s more, NEAR’s website mentions numerous well-known Ethereum DeFi DApps as “in development” projects, including AAVE, Maker, Chainlink, and Balancer. The latter two seem to be the most advanced; Chainlink oracles are now operating on NEAR, and Balancer has given integration grants to expedite the process.
Tokenomics
NEAR is the protocol’s native currency and unit of account. Its main functions are:
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Security purpose: stakers get rewards for staking their tokens and helping to secure the network. NEAR’s usage of Proof-of-Stake (PoS) protects Sybil against DDoS assaults.
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Network Fees: The network stores application data and allows it to be changed by issuing transactions. The network charges transaction fees to update this data. The NEAR network gathers and burns these fees: so increased use means more tokens destroyed. Developers get a minimal share of smart contract use costs and early application development increases network consumption efficiently. When a contract is invoked, a percentage of the network’s transaction costs goes to the contract. A system-level parameter sets a minimum value that developers may pick from.
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Token allocation:
Token release:
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Grants & Programs for the Community: These tokens are distributed over a 60-month period.
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Each core team member is subject to a four-year lockup with a 12-month cliff after launch.
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Prior Backers: Each prior backer is subject to a lockup period ranging from 12 to 36 months, with the majority being 24 months.
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The community auction took place in August 2020 in different segments, the information of which will be presented here. Over 120M tokens were given in total throughout the sale period. 25 million of these tokens have been freed, while the remaining are locked for 12 or 24 months linearly.
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Early Ecosystem: Lockups are normally between six and twelve months in length, however a few have been shorter or longer.
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Endowment of the Foundation: This endowment is divided into two components. The first half, which is not locked, will be deployed to assist in ensuring the network’s first stages run successfully. The second half is locked for 24 months linearly, since it is not intended to be accessible during the first stages.
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Funds for Operations: These grants will be begun in the second half of 2020 and early 2021. Tokens reserved for this purpose are subject to a 60-month linear lockup period.
NEAR Protocol started its mainnet on April 22, 2020, with a genesis block of 1 billion NEAR coins. Each year, 5% of new supply is granted as epoch rewards to sustain the network, with 90% going to validators (4.5 percent overall) with a total circulating supply of 60 million tokens and 10% going to the protocol treasury (0.5 percent total). 30% of transaction costs are rebated to contracts involved in the transaction, while the remaining 70% are burnt. Inflation, transfers, and vesting schedules did not commence until October 13, 2020, when the last phase of NEAR’s mainnet launch began. The NEAR Protocol secures and validates blockchain transactions via the use of Proof-of-Stake (PoS) consensus.
Conclusions and take aways
When evaluating a new platform into the crypto space, it is necessary to assess potential risks and constraints.
Each NEAR block is composed of those fragments, in contrast this with the “Beacon Chain” strategy in which a major chain (such as the Relay Chain in Polkadot) secures individual shard blockchains. This chunked method has one significant advantage: validators are not required to download the whole state of the blockchain. This minimizes the hardware requirements for nodes and simplifies the development of light clients, which benefits the network’s decentralization.
This might theoretically help simplify the creation of mobile-friendly clients, which is a goal of NEAR. Currently, NEAR has just one shard. Additional shards are being prepared to accommodate rising demand. This will put NEAR to the ultimate test, since cross-shard communication is one of the most challenging aspects of maintaining a sharded blockchain.
NEAR’s community board is where proposals and governance debates take place. In this regard, NEAR seems to be duplicating Ethereum’s social offchain layer. It will be fascinating to see whether the community can add more meat to these governance bones in the future; at the moment, everything seems to be rather ad hoc and poorly defined.
By 2021, value and data started to freely flow across crypto ecosystems. However, how will consumers get access to bridges, and what kind of friction will they encounter? While the solutions are not yet evident, widespread adoption will almost certainly require that the difficulties of interoperability be rendered transparent to consumers.
In general, NEAR’s ecosystem has fewer projects. To gain traction in 2021, it will need to attract more DApps and developers, or risk becoming a blockchain ghost town. The ecosystem’s attractiveness to consumers and developers, on the other hand, makes this situation less likely.
Disclaimer
This is not in any case financial advice, the goal of my research will always be to dive deep into projects and study it from different angles, I do include personal opinion based on my experience with similar projects that I have recently studied.
I am and will always be open to discussion.
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