NEAR: Conforming to Hot Topics Narratives or Market Leader?

Authored by: Geng Kai, Eric, DFG

NEAR has quickly become a leader in the increasingly integrated fields of Web3 and AI, but its foundation in AI runs deeper than many realize. Interestingly, NEAR was not initially conceived as a blockchain project. One of its co-founders, Illia Polosukhin, embarked on this journey with a different goal: to create an AI-driven enterprise. Polosukhin, one of Google's eight researchers, introduced the revolutionary Transformer model (a key architecture that powers today's most popular AI tools, such as OpenAI's ChatGPT), and initially sought to advance AI in a different way.

NEAR founder Illia and Nvidia founder Jensen at NVIDIA GTC

However, during the team's initial AI projects, they encountered significant challenges, especially in incentivizing and coordinating the different contributors involved in building AI models. It was this obstacle that made them realize that blockchain technology could provide a perfect solution. By leveraging a high-performance blockchain with integrated encryption payments, they can facilitate seamless exchange of foundational data, computation, and AI models - a crucial feature in building an outstanding decentralized AI ecosystem. This insight prompted the pivotal transition from AI to blockchain, ultimately giving rise to the NEAR protocol as we know it today.

However, what truly sets NEAR apart is its remarkable alignment with some of the most compelling narratives in today's tech world. Whether the focus is on AI, chain abstraction, modularization through data availability, or scaling via Sharding, NEAR's name always comes up. This raises an intriguing question: Is NEAR simply following popular trends, or are they truly offering innovative products that enhance the blockchain experience?

To answer this question, we must delve deeper into NEAR's infrastructure.

Resolving the scalability problem of Block chain: NEAR's approach

Scalability is a challenge for blockchain networks, and people are exploring various solutions to meet the growing demand for fast and efficient transactions. While some blockchains have implemented Layer 2 scaling, sidechains, and state channels, these methods often involve trade-offs in terms of interoperability, composability, and usability.

Nightshade Sharding 2.0: NEAR's Scalable Backbone

One of the key features of NEAR is its Nightshade Sharding technology, which is a core component of the protocol's scalability strategy. Sharding technology divides the blockchain state into smaller, more manageable parts called "Sharding", each of which can process transactions independently. This design significantly increases the network's throughput without requiring any single Node to bear the responsibility of processing all transactions.

How NEAR Block is segmented into chunks from each Sharding

In the initial phase, NEAR implemented a design that divided each block into "blocks", each containing a specific sharding transaction. Block producers and validators are assigned to specific sharding, which means they only need to process transactions related to their sharding. This not only optimizes processing efficiency, but also enables NEAR to achieve a throughput of approximately 3,000 transactions per second (TPS) with an initial setup of four sharding.

In the process of continuous development, NEAR is enhancing the system through stateless validation, allowing validators to verify transactions without storing the entire blockchain state. This innovation drops hardware requirements, further enhances accessibility, and achieves network Decentralization. In addition, NEAR is exploring the integration of zk-proofs (Zero-Knowledge Proof) and dynamic reSharding into its Sharding design, which can further improve scalability by implementing faster and more secure transaction verification. NEAR will expand to 10 Sharding by the end of the year, increasing network capacity by 50% to meet the growing demand.

NEAR's Nightshade Sharding provides the scalability, speed, and interoperability needed to support AI projects that require processing large datasets and executing transactions quickly. The network's fast finality ensures that AI-driven applications can run in real time, making NEAR an ideal platform for developers looking to innovate in the field of Decentralization AI.

NEAR's Block Chain Interoperability Full Stack Modular Architecture

As the Block chain landscape becomes increasingly decentralized, the demand for interoperability and seamless Cross-Chain Interaction is more important than ever. The NEAR protocol recognizes this challenge and has positioned its platform as the dominant force in building a unified longer ecosystem. By implementing a series of innovative technologies - such as fast Data Availability (DA) layer, longer calculation (MPC) for secure Cross-Chain Interaction transactions, Super-Fast Finality Layer (SFFL), and chain abstraction - NEAR aims to provide a unified and user-friendly experience across multiple Block chains. Each of these components plays a crucial role in positioning NEAR as a top-tier interoperable Block chain.

Enhancing Cross-Chain Interaction Compatibility and Connectivity

NEAR's commitment to interoperability is further demonstrated through its integration with Ethereum and the wider blockchain ecosystem. Aurora is a smart contract on NEAR that is compatible with Ethereum and its ecosystem. Aurora's engine runtime supports seamless deployment of Solidity and Vyper smart contracts, allowing developers to leverage NEAR's powerful infrastructure while maintaining compatibility with Ethereum. NEAR is compatible with popular tools like NEAR Snap and Metamask, and the Rainbow Bridge facilitates the transfer of tokens and data between Ethereum, NEAR, and Aurora, highlighting the commitment to interoperability.

In addition to maintaining interoperability with other ecosystems, NEAR also provides assets for seamless use through cross-chain interaction by re-staking. Allstake allows for native re-staking of assets for cross-chain interaction, creating a trustless decentralized ecosystem that enhances AVS security. With Allstake re-staking built on the NEAR protocol, liquidity from multiple ecosystems can be leveraged to create a seamless cross-blockchain experience.

The fastest data availability layer in the market

NEAR's DA layer is managed by Nuffle Labs (the behind-the-scenes team for all modular products of NEAR), ensuring efficient access to and processing of large amounts of data on the blockchain. With Nightshade, NEAR DA provides powerful solutions for Ethereum rollup and other high-volume projects. Unlike other DA solutions, NEAR's Consensus Mechanism can maintain speed even when a large amount of data is flowing in, ensuring fast data publishing and querying.

Overview of popular DA solutions:

With more and more blockchains using Zero-Knowledge Proof to achieve unified security of Cross-Chain Interaction, NEAR's DA provides dApps from multiple networks with easier and cheaper data queries and Settlement. In addition, NEAR DA ensures that even if the operator is offline, the Node can remain synchronized, thereby adding an extra layer of reliability. This feature is beneficial not only for current high-demand applications, but also positions NEAR as a key participant in future Cross-Chain Interaction Settlement.

Provide support for other blockchain infrastructure with ultra-fast final layer

According to the theory of modular blockchain, NEAR has collaborated with Eigenlayer to develop the Super Fast Final Layer (SFFL). This innovative settlement layer significantly reduces transaction time and Rollup costs, while inheriting the security and finality of NEAR and Ethereum through Eigenlayer. SFFL relies on NEAR DA to obtain transaction data, enabling Nodes to efficiently access and verify transactions.

As SFFL supports cross-rollup transactions, it has boosted the volume of NEAR, leading to a deflationary effect on NEAR Token due to 70% of the transaction fees being burned. The collaboration with Swell further strengthens NEAR's position in the modular blockchain stack, with the latter having delegated a large amount of ETH to SFFL, bringing the abstract vision of the chain closer to reality.

The Unity of Blockchain: NEAR's Chain Abstraction Vision

The modular blockchain architecture achieves scalability, but also leads to fragmentation, resulting in Liquidity, user experience, and interoperability fragmentation. NEAR is addressing these challenges by advancing chain abstraction - a concept aimed at providing users with a unified experience across multiple blockchains.

The abstract goal of the chain

NEAR's FastAuth Secret Key management system allows users to manage their NEAR accounts with email addresses, simplifying account creation and recovery. The system also supports multiple Secret Keys for different functions, enhancing security and usability.

How do different Secret Keys control different functions on a NEAR account

In addition, NEAR integrates MPC technology through chain signature to ensure the security of Cross-Chain Interaction transactions, allowing users to interact with multiple blockchains without managing different wallets and seed phrases.

MPC signature process

The Allure of NEAR

Stablecoins and TVL rise

Since July 2023, the market capitalization of NEAR's Stable Coin has remained relatively stable, at around 75 million US dollars. However, the beginning of the second quarter of 2024 marked an important turning point, and the Market Cap of all Stable Coins on NEAR experienced a significant rise.

This rise is reflected in the Total Value Locked (TVL) of NEAR and its EVM-compatible sibling Aurora. From July 2023 to now, the total TVL of NEAR and Aurora has risen from about $55 million to $230 million, a threefold rise in USD terms. After adjusting for the value of the native Token, the TVL calculated in NEAR has doubled, while the TVL calculated in AURORA has decreased by 40%.

Decentralized Finance on NEAR

The landscape of Decentralized Finance on NEAR is currently dominated by two key platforms: Burrow and Ref Finance. The lending platform Burrow has seen a significant increase in activity due to its incentive lending program for Stable Coin. Similarly, the Decentralized Exchange (DEX) Ref Finance actively incentivizes its Stable Coin mining pools, with the total volume recently surpassing 70 billion US dollars. These incentive measures are primarily funded by NEAR Token rewards, which may have played a crucial role in the surge of Stable Coin Market Cap in 2024.

NEAR Emerging Categories and Trends

Restaking

Staking has become a new and rising category in the NEAR Decentralized Finance ecosystem, with platforms like Allstake contributing approximately $15 million to TVL. Although Liquidity staking is not typically included in the TVL metric, it is still the largest category with a TVL of over $280 million.

In the case of Aurora, although there are several popular EVM DApps, the most widely used application is still Aurora Plus, which is a platform aimed at achieving free transactions and promoting AURORA Token stake.

NEAR's Promise to Web3 AI Development

As part of its broader strategy to become a leading AI platform in the Web3 ecosystem, NEAR is making significant progress in developing and nurturing AI projects on its network. In addition to the efforts of the NEAR Research Lab, the protocol has also launched the NEAR AI x Horizon (HZN) Incubation Program, specifically designed to support groundbreaking projects at the intersection of AI and blockchain technology. In the initial batch of incubated projects, the program provides selected six projects with non-equity guidance, technical assistance, and guidance to expand innovation.

The equity-free model of NEAR HZN allows AI projects to fully focus on building and improving their products without the pressure of giving up ownership. This supportive environment is crucial for promoting innovation and has proven to be successful, as demonstrated by previous alumni who have collectively raised over $20 million in external capital. The program starts a new round of financing in May each year, three times a year, with the aim of incubating a continuous stream of groundbreaking AI projects.

The NEAR HZN program's six supported projects cover key areas of the AI x Web3 stack, including data, computational resources, model networks, and payment infrastructure. These programs complement NEAR's collaborations with other AI-focused projects that are building networks in areas such as AI consumer applications and agent infrastructure, and extending AI through NEAR's Data Availability (DA) layer.

By addressing all aspects of AI architecture in the Web3 domain, NEAR positions itself as the preferred blockchain for developing AI applications. Its comprehensive support system, from incubation programs to cutting-edge technical infrastructure, demonstrates NEAR's commitment to fostering AI development on its platform and ultimately bridging the gap between AI and Decentralization technologies.

Conclusion: NEAR's strategic positioning as a leader in the blockchain and AI fields

NEAR protocol not only conforms to the trend of popular narrative, but also lays the foundation for the future of blockchain and AI through its innovative and extensive infrastructure. By integrating powerful data availability layer, cutting-edge execution layer, and zero-knowledge technology, NEAR has become an important part of the infrastructure, benefiting its ecosystem and the broader blockchain field.

NEAR is rooted in AI and turns to blockchain, which indicates its deep understanding of both fields. The scalable and reliable infrastructure developed by NEAR enables it to refocus on AI and have the necessary foundation to drive significant progress previously unattainable. With features like chain abstraction, NEAR simplifies multi-chain interaction, making it an ideal platform for AI development requiring seamless access to various blockchains and fast transactions.

Even in a highly competitive environment, NEAR has always kept its promises. With the help of co-founders' leadership, strategic partnerships, and dedicated R&D labs, NEAR is positioning itself as a true leader at the intersection of blockchain and AI. This is not just about keeping up with the trend, but shaping the future of technology in a way that drives meaningful progress and adoption.

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About DFG

Digital Finance Group (DFG) is a leading global Web3 investment and venture capital firm, founded in 2015. DFG has Assets Under Management of over 1 billion US dollars, with investments covering various areas within the blockchain ecosystem. Our portfolio includes more than 100 cutting-edge projects such as Circle, Ledger, Coinlist, FV Bank, ChainSafe, Polkadot, Solana, Render, and more.

At DFG, we are committed to creating value for our portfolio companies through market research, strategic consulting, and extensive global resource sharing. We are actively partnering with the most transformative and promising blockchain and Web 3.0 projects that have the potential to fundamentally change the industry.