Is NEAR Poised to Take Off? But These Details Cannot Be Ignored!

At the start of 2022, the NEAR ecosystem seemed to show signs of an explosion. Previously, NEAR founder Illia Polosukhin publicly stated that the total number of daily active Accounts on the NEAR Protocol chain had exceeded 2 million. On January 4, NEAR's price broke through $17.41 billion, hitting a record high, and its market cap once surpassed $10 billion. NEAR's counter-trend performance was even more eye-catching. According to Defi Llama data, NEAR's daily trading volume increased by more than 29%, while the daily trading volume growth rates of the top five by total value locked—Ethereum, Terra, BSC, Avalanche, and SOL—were all negative.

Additionally, a recent annual report published by crypto venture capital firm Electric Capital shows that based on the average monthly active developer count for the full year of 2021, NEAR has risen to become the sixth-largest developer ecosystem, with the top five being Ethereum, Polkadot, Cosmos, Solana, and Bitcoin . Meanwhile, NEAR's average monthly active developer growth rate exceeded 4x, second only to Solana's 4.9x.

Has NEAR's public chain really reached the tipping point for an explosion? Can its upward momentum sustain? What are the underlying supports? This article attempts to provide a comprehensive and objective analysis for you in an appropriate length, for reference only.

Part 1, NEAR's Unique Positioning: Sharding Technology and Ethereum Layer2 Public Chain

Developers have long suffered from Ethereum's high costs, and the widely accepted solution is to improve on-chain scalability through sharding technology and Layer2 . With its unique sharding technology, NEAR has been compared to a "Layer2 representative" and "Ethereum Killer" by the outside world. Vitalik Buterin has also publicly stated: This opponent NEAR makes me anxious. Below is a general introduction to NEAR's sharding technology principles.

Sharding technology is difficult to implement, complex in design, and requires high security—this is also why ETH2.0 has been repeatedly delayed. Most public chains pursuing "scalability" take the technical path of centralized processing on high-end hardware to provide temporary throughput improvements. NEAR, on the other hand, allows low-end devices to participate in the network as nodes without purchasing high-end hardware, significantly lowering the barrier to entry.

Complementing this is NEAR's Doomslug consensus mechanism (a form of PoS), which can accelerate block creation rate while making it tamper-proof, and can still quickly complete trading confirmations even in extreme situations where half of the network's validation nodes go offline. At the same time, through state sharding technology, NEAR's number of shards can dynamically adjust according to network usage. Currently, NEAR's per-shard transactions per second has exceeded 1,000—this is also in an unoptimized state. Theoretically, because NEAR shards use a horizontal scaling mechanism, 10 shards can reach 10,000 TPS, and so on, with no upper limit.

Based on this unique design, the NEAR core team stated boldly in their 2021 annual summary report that the NEAR network currently uses only 13% of its performance. The report also outlined the progress of implementing sharding technology, in four phases—

Phase 0: November 2021, simplified Nightshade protocol launched, allowing NEAR's shards to be split across multiple nodes to improve operation speed;

Phase 1: Early this year, the system introduces a new role—shard chunk producers who produce only shard chunks and verify only one shard, eliminating the need for expensive hardware thereafter;

Phase 2: Q3 2022, both state and processing will be fully sharded, with validation nodes not needing to track all shards;

Phase 3: The network dynamically splits and merges shards based on resource usage, at which point NEAR achieves unlimited scaling.

The novel sharding technology design brings NEAR's gas fees close to zero compared to Ethereum. This makes NEAR, like Polygon and Arbitrum and other Layer2 concept public chains, a popular choice for承接Ethereum溢出projects. NEAR also used this to secure $21.6 million in funding led by a16z in May 2020, when the crypto market was generally sluggish.

Part 2, The Scaling Solution Aurora + $800 Million Incentive, the Direct Driver of This Rally

Of course, Aurora, the Ethereum scaling solution built on the NEAR network, plays a key role in attracting developers. Aurora, as an Ethereum-compatible virtual machine, allows developers to transfer ERC20 assets to the NEAR chain without modifying code, with trading fees virtually at 0. Therefore, developers regard it as NEAR's Layer2 scaling project. However, what makes it more developer-friendly compared to other EVM-compatible chains is that developers don't need to convert ETH into the corresponding native token to pay gas fees before entering a new ecosystem. Developers don't even need to hold NEAR—they can enjoy NEAR ecosystem services with just ETH. This may also be one of the reasons why NEAR's price and circulation performance have been mediocre.

However, this relatively user-friendly mechanism design is undoubtedly highly attractive to both users and developers. The well-known cross-chain project Celer cBridge and Synapse Protocol, as well as MetaMask wallet development company ConsenSys and Math Wallet, have recently partnered with Aurora one after another, committed to completing efficient asset cross-chain transfers and user cross-chain access. In October last year, Aurora also announced the completion of a $12 million first-round funding, with participation from Pantera Capital and other institutions.

Worth mentioning is that the Terra public chain, which has been surging during this period, has also contributed to NEAR ecosystem's momentum. On December 22 last year, Terra began integrating its stablecoin UST into the NEAR and Aurora ecosystems. Subsequently, users can directly bridge Terra's assets or other supported chain assets to Aurora through Allbridge. Affected by this, on December 28, NEAR Protocol co-founder Illia Polosukhin tweeted that the total number of daily active Accounts on NEAR Protocol had exceeded 2 million. On January 9, the cross-chain bridge project Allbridge officially stated that since joining Aurora in December last year, assets bridged from other public chains to Aurora through Allbridge have exceeded $14 million. Data shows that Aurora's total value locked has once surpassed $500 million. It can be said that Terra, currently ranked second in total value locked, directly boosted the NEAR public chain during its peak.

Although NEAR provides project teams with a cost-effective development environment and transfer channels at the technical level, the competition among public chains in the crypto industry has shifted to being all-encompassing and multi-dimensional. Following Solana, Avalanche, Terra, and Fantom, NEAR has also joined the ranks of massive incentive subsidies. At the end of October last year, NEAR announced the launch of an $800 million ecosystem development fund, of which $250 million in ecosystem funds will be distributed over 4 years, focusing primarily on the DeFi sector.

With heavy incentives, responders are many. According to statistics, NEAR currently has 63 infrastructure protocols, 110 DApps, and 22 development programs. The most are in the DeFi and NFT sectors, with 54 and 43 respectively. The more well-known and representative native projects on NEAR include: the multi-functional DEX Ref Finance, Octopus Network (章鱼网络) which provides security lease services for application chains, the liquid staking solution Meta Pool, Mintbase which supports ordinary users in creating NFT toolkits, the pixel-style NFT game PixelParty, and the social NFT trading platform Paras.

At the start of 2022, Web3 has become the default biggest opportunity in the minds of most users. NEAR, which has laid out extensively in the Layer2 application ecosystem, also doesn't want to miss this hotspot—even if it's just riding the trend. On January 3, the NEAR Foundation CEO publicly stated their commitment to defining NEAR Protocol as the preferred choice for building Web3. On January 10, Three Arrows Capital CEO, which is anchored in the Web3 track, added NEAR to their Twitter bio, with only SOL , AVAX, and LUNA also listed. It can be foreseen that as NEAR's Phase 3 approaches and sharding technology matures in 2022, NEAR may become a popular choice for Web3 developers.

Part 3, Building Up Strength for a Long Time, but the Best Situation Has Passed

Since its establishment in 2017, NEAR has focused on sharding technology to solve the scaling problem of public chains. As NEAR officially states, when NEAR released the protocol design in 2019, its original idea was to build a fully sharded blockchain . Additionally, NEAR's technical team comes from internet giants like Google, and its developer talent pool continues to be supplemented, making its R&D strength considerable. Combined with the many factors listed earlier, they together shaped NEAR's stunning potential that has only recently emerged. However, for NEAR, the golden period of development may have already passed.

First is the macro environment—strengthening expectations for Fed rate hikes and a growing pessimistic sentiment in the market. On January 10, Goldman Sachs predicted the Fed will raise interest rates four times in 2022, up from its previous forecast of three times, which will cause a massive shock to the crypto market. Data shows that as of January 9 (last Sunday), the total market cap of crypto assets was $1.9571 trillion, down $287 billion from the previous week, a decline of more than 12.7%—this may be a precursor to a market downturn. When the multiple Fed interest rate hikes are finally settled, the outflow of funds may lead to the loss of both B-end and C-end users—meaning investors and developers. No public chain, including Ethereum, can remain unaffected, and the NEAR public chain is no exception.

Second, the细分track is full of uncertainties—Ethereum 2.0's launch may pose a fatal blow to all "Ethereum Killers," including NEAR. David Duong, head of Coinbase's institutional research department, recently published a research report titled "The Real 'Ethereum Killer' May Be Ethereum Itself." The report poses the question: If Ethereum 2.0 can replace the current Ethereum network faster and cheaper, what value will those L1 alternatives—the so-called "Ethereum Killers"—ultimately have?

Ethereum officials have moved the ETH 2.0 implementation schedule forward to 2023, meaning NEAR's window period is also only a little over a year. We can thus infer that before then, if NEAR hasn't formed a solid and prosperous ecosystem, it will be difficult to resist Ethereum's siphoning effect. Currently, the total value locked across 214 Ethereum on-chain projects has reached $156 billion, which is almost twice the combined TVL of public chains ranked 2-11—the disparity is evident. Let alone the situation these public chains will face when Ethereum 2.0 launches and they lose their competitive advantages.

Additionally, given Ethereum 2.0's repeated delays, NEAR more often plays the role of a transitional alternative solution, possibly lacking in ecosystem longevity. Recently, although the NEAR ecosystem has performed strongly, according to Dapp Radar data, the daily active user count of NEAR on-chain projects ranked 5th to 10th ranges between 129 and 6, which cannot be compared with the vast majority of Ethereum applications—this intuitively reflects NEAR's lag in ecosystem development.

Worth vigilance is that the $800 million incentive plan aimed at prospering the DeFi ecosystem seems to have not been significantly effective. Dapp Radar data shows that the top three applications on NEAR are not from the DeFi sector. The top two—Paras 2.0 and NEAR Names—are both NFT trading markets; the third-ranked NEAR Crowd is an on-chain crowdsourcing employment platform. Moreover, the daily active user count for these three applications is around 2,000 each, which is not outstanding in the industry.

As for NEAR's technical capabilities that it is most proficient in, there is no shortage of skepticism. Crypto influencer Coin Bureau recently analyzed in a public video that NEAR's sharding technology development progress may not be as smooth as the team anticipates.

Coin Bureau points out: First, NEAR founder Illia Polosukhin proposed an off-chain computing framework proposal for improving scalability in April last year, but it has not yet been implemented as of now; second, the NEAR Foundation previously issued a call for quarterly transparency report content submissions, but the proposal and many other proposals received only a few hundred views and few replies; finally, similar to Solana, NEAR's smart contracts are also coded in Rust, indicating both are competing for this niche developer group. However, their ultimate choice requires no further judgment.

However, NEAR also seems to be intentionally replicating Solana's rise path, which is evident from the consecutive hackathon competitions it has been hosting since late 2021. So, can NEAR ultimately seize this window period of just over a year, polish its sharding technology to perfection, and build a solid on-chain application ecosystem and digital value system through bull and bear cycles? This still needs time to verify.

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