NEAR Blockchain: Riding Trending Narratives or Market Leader?
NEAR has quickly emerged as a frontrunner in the growing intersection of Web3 and AI, but its roots in artificial intelligence run deeper than many realize. Interestingly, NEAR wasn’t always envisioned as a blockchain project. One of its co-founders, Illia Polosukhin, began this journey with a different goal in mind: creating an AI-driven business. Polosukhin, who was among the eight Google researchers who introduced the revolutionary Transformer model — a key architecture powering today’s most popular AI tools like OpenAI’s ChatGPT — initially sought to advance AI in a different way.
However, as the team worked on their initial AI venture, they encountered significant challenges, particularly in incentivizing and coordinating the different contributors in building an AI model. It was this very obstacle that led them to a realization: blockchain technology could offer the perfect solution. By leveraging a high-performance blockchain with integrated crypto payments, they could facilitate the seamless exchange of essential data, compute, and AI models — a critical feature in building superior decentralized AI ecosystems. This insight prompted a pivotal shift from AI to blockchain, ultimately giving rise to what we now know as NEAR Protocol.
What truly sets NEAR apart, however, is its remarkable alignment with some of the most compelling narratives in the tech world today. Whether the conversation centers on AI, chain abstraction, modularity through data availability, or scaling via sharding, NEAR’s name consistently surfaces. This raises an intriguing question: Is NEAR merely riding the wave of popular trends, or are they genuinely delivering innovative products that enhance the blockchain experience?
To answer this, we must delve deeper into NEAR’s infrastructure.
Tackling Blockchain Scalability: The NEAR Approach
Scalability is a challenge for blockchain networks, with various solutions being explored to meet the growing demand for fast and efficient transactions. While some blockchains have implemented techniques like Layer 2 scaling, sidechains, and state channels, these approaches often come with trade-offs in terms of interoperability, composability, and ease of use.
Nightshade Sharding 2.0: NEAR’s Scalable Backbone
One of the defining features of NEAR is its Nightshade Sharding, a core component of the protocol’s scalability strategy. Sharding involves splitting the blockchain’s state into smaller, manageable pieces called “shards,” each capable of processing transactions independently. This design significantly increases the network’s throughput without burdening any single node with the responsibility of processing all transactions.
In its initial phase, NEAR implemented a design where each block is divided into “chunks,” with each chunk containing the transactions for a specific shard. Block producers and validators are assigned to specific shards, meaning they only need to process transactions relevant to their shard. This not only optimizes processing efficiency but also allows NEAR to achieve a throughput of approximately 3,000 transactions per second (TPS) with its initial setup of four shards.
In its ongoing evolution, NEAR is enhancing this system with stateless validation, allowing validators to verify transactions without storing the entire blockchain state. This innovation reduces hardware requirements, further enhancing accessibility and decentralizing the network. Additionally, NEAR is exploring the integration of zk-proofs (zero-knowledge proofs) and dynamic resharding into its sharding design, which could further improve scalability by enabling even faster and more secure transaction validation. NEAR will expand to 10 shards by year end, boosting network capacity by 50% to accommodate 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 operate in real-time, making NEAR an ideal platform for developers looking to innovate in the decentralized AI space.
NEAR’s Full Stack Modular Architecture for Blockchain Interoperability
As the blockchain landscape becomes increasingly fragmented, the need for interoperability and seamless cross-chain interactions is more critical than ever. NEAR Protocol recognizes this challenge and has architected its platform to become a leading force in unifying the multichain ecosystem. By implementing a range of innovative technologies — such as a fast Data Availability (DA) layer, Multi-Party Computation (MPC) for secure cross-chain transactions, Super Fast Finality Layer (SFFL), and chain abstraction — NEAR aims to provide a cohesive and user-friendly experience across multiple blockchains. Each of these components plays a vital role in positioning NEAR as the top interoperable blockchain.
Enhancing Cross-Chain Compatibility and Connectivity
NEAR’s commitment to interoperability is further demonstrated by its integration with Ethereum and the broader blockchain ecosystem. Aurora, a smart contract on NEAR, serves as an Ethereum-compatible blockchain and ecosystem. Aurora’s Engine runtime supports the seamless deployment of Solidity and Vyper smart contracts, allowing developers to leverage NEAR’s robust infrastructure while maintaining compatibility with Ethereum. NEAR’s compatibility with popular tools like Metamask, via NEAR Snap, and the Rainbow Bridge, which facilitates the transfer of tokens and data between Ethereum, NEAR, and Aurora, underscores this commitment to interoperability.
Apart from maintaining interoperability to other ecosystems, NEAR offers assets to be utilized seamlessly across chains through restaking. Allstake allows assets to be restaked natively across chains, creating a trustless and decentralized ecosystem contributing to an AVS’s security. Built on NEAR protocol, restaking through Allstake leverages liquidity from multiple ecosystems to create a seamless experience across blockchains.
The Fastest Data Availability Layer in the Market
Managed by Nuffle Labs, the team behind all NEAR’s modular offerings, NEAR’s DA layer ensures blockchains can efficiently access and process large volumes of data. Leveraging Nightshade, NEAR DA provides a robust solution for Ethereum rollups and other high transaction volume projects. Unlike other DA solutions, NEAR’s consensus mechanism maintains speed even with a large influx of data, ensuring quick data posting and querying.
An Overview of Popular DA Solutions:
As more chains use zk-proofs for unified security across chains using state proofs, NEAR’s DA provides easier and cheaper querying and settling of data for dApps from multiple networks. Additionally, NEAR DA ensures that nodes can stay synced even if operators are offline, adding an extra layer of reliability. This capability is not only beneficial for current high-demand applications but also positions NEAR as a key player in the future of cross-chain settlements.
Powering Other Blockchain Infrastructures with the Super Fast Finality Layer
In line with the modular blockchain thesis, NEAR has partnered with Eigenlayer to develop the Super Fast Finality Layer (SFFL). This innovative settlement layer drastically reduces transaction time and costs for rollups while inheriting security and finality from both NEAR and Ethereum through Eigenlayer. SFFL relies on NEAR DA for transaction data, enabling nodes to access and verify transactions efficiently.
As SFFL supports cross-rollup transactions, it drives up NEAR’s transaction volume, creating a deflationary effect on NEAR tokens due to the burning of 70% of transaction fees. The partnership with Swell, which has delegated significant ETH to SFFL, further strengthens NEAR’s position within the modular blockchain stack, bringing the vision of chain abstraction closer to reality.
The Unification of Blockchains: NEAR’s Vision of Chain Abstraction
Modular blockchain architectures have enabled scalability but have also led to increased fragmentation, creating fragmentation in liquidity, user experience, and interoperability. NEAR addresses these challenges by advancing chain abstraction — a concept aimed at providing users with a unified experience across multiple blockchains.
NEAR’s FastAuth key management system simplifies account creation and recovery by allowing users to manage their NEAR accounts using email addresses. This system also supports multiple keys for different functions, enhancing security and usability.
Furthermore, NEAR’s integration of MPC technology via Chain Signatures ensures secure cross-chain transactions, allowing users to interact with multiple blockchains without the complexities of managing different wallets and seed phrases.
Traction on NEAR
Stablecoins and TVL Growth
Since July 2023, NEAR’s stablecoin market capitalization has remained relatively steady at around $75 million. However, the start of Q2 2024 marked a significant turning point, with the market cap for all stablecoins on NEAR experiencing substantial growth.
This growth is mirrored in the Total Value Locked (TVL) across both NEAR and its EVM-compatible sibling, Aurora. From July 2023 to the present, NEAR and Aurora’s combined TVL surged from approximately $55 million to $230 million, reflecting a 3x increase year-over-year in USD terms. When adjusted for native token values, the TVL in NEAR terms doubled, whereas the TVL in AURORA terms saw a 40% decline. This suggests that the overall increase in TVL is largely driven by the price appreciation of NEAR, highlighting the positive market sentiment towards the network.
DeFi on NEAR
The DeFi landscape on NEAR is currently dominated by two key platforms: Burrow and Ref Finance. Burrow, a lending platform, has seen significant activity thanks to incentivized lending programs for stablecoins. Similarly, Ref Finance, a decentralized exchange (DEX), has also actively incentivized its stablecoin farming pools to recently cross over $7 Billion in total trade volume. These incentives, primarily funded by NEAR token rewards, have likely played a crucial role in the surge of the stablecoin market cap in 2024.
NEAR Ecosystem Emerging Categories and Trends
Restaking
Restaking has emerged as a new and growing category within NEAR’s DeFi ecosystem, with platforms like Allstake contributing approximately $15 million in TVL. Although not typically included in TVL metrics, liquid staking remains the largest category, boasting over $280 million in locked value.
On the Aurora side, while there are several popular EVM DApps, the most widely used application continues to be Aurora Plus, a platform designed to enable free transactions and facilitate the staking of AURORA tokens.
NEAR’s Commitment to AI Development in Web3
As part of its broader strategy to become a leading platform for AI within the Web3 ecosystem, NEAR is making significant strides in developing and nurturing AI projects on its network. Beyond the efforts of the NEAR R&D Lab, the protocol has launched the NEAR AI x Horizon (HZN) Incubation Program, which is specifically designed to support pioneering projects that intersect AI and blockchain technology. In its first cohort, this program provides six selected projects with equity-free mentorship, technical assistance, and guidance on scaling their innovations.
The equity-free model of NEAR HZN allows AI projects to focus entirely on building and refining their products without the pressure of relinquishing ownership. This supportive environment is crucial for fostering innovation and has proven successful, as evidenced by previous cohorts whose alumni have collectively raised over $20 million in external capital. With new cohorts beginning every May and continuing three times a year, the program is set to incubate a steady stream of groundbreaking AI projects.
The six projects currently supported by the NEAR HZN program span key areas of the AI x Web3 stack, including data, compute resources, model networks, and payment infrastructures. These initiatives are complemented by NEAR’s partnerships with other AI-focused projects, which are building on the network in areas like AI consumer applications, agentic infrastructure, and scaling AI through NEAR’s Data Availability (DA) layer.
By addressing the full spectrum of AI architecture within the Web3 space, NEAR is positioning itself as the go-to blockchain for developing AI applications. Its comprehensive support system — from incubation programs to cutting-edge technology infrastructure — demonstrates NEAR’s commitment to fostering the growth of AI on its platform, ultimately bridging the gap between AI and decentralized technologies.
Conclusion: NEAR’s Strategic Positioning as a Leader in Blockchain and AI
NEAR Protocol is not merely riding the wave of popular narratives — it’s setting the stage for the future of blockchain and AI through its innovative and expansive infrastructure. By integrating a robust data availability layer, a cutting-edge finality layer, and zk-tech, NEAR has established itself as a crucial piece of infrastructure, benefiting both its ecosystem and the broader blockchain space.
NEAR’s roots in AI, combined with its pivot to blockchain, demonstrate a deep understanding of both fields. The scalable and reliable infrastructure it has developed now enables NEAR to re-focus on AI with the necessary foundation to drive significant advancements that were previously unattainable. With features like chain abstraction, NEAR simplifies multi-chain interactions, making it an ideal platform for AI development that requires seamless access to various blockchains and quick transactions.
Even in a competitive landscape, NEAR has consistently delivered on its promises. With the leadership of its co-founders, strategic partnerships, and a dedicated R&D lab, NEAR is positioning itself as a true leader at the intersection of blockchain and AI. This is more than just keeping up with trends; it’s about shaping the future of technology in a way that drives meaningful progress and adoption.
About DFG
Digital Finance Group (DFG) is a leading global Web3 investment and venture firm, established in 2015. With assets under management exceeding $1 billion, DFG’s investments span across diverse sectors within the blockchain ecosystem. Our portfolio boasts investments in pioneering projects such as Circle, Ledger, Coinlist, FV Bank, ChainSafe, Polkadot, Solana, Render, and over 100 others.
At DFG, we are committed to generating value for our portfolio companies through market research, strategic consult, and sharing of our vast resources globally. We are actively working with the most transformative and promising blockchain and Web 3.0 projects poised to revolutionize the industry.
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