Near Protocol Analysis

by: lucky swaminathan

Near Protocol is an L1 that implements a sharding consensus mechanism and proof-of-stake to create an efficient, eco-friendly L1. It currently has the 24th highest market cap, with a price of $7.11. NEAR Protocol emphasizes both usability and scalability to cater to developers and end-users, promoting wider blockchain adoption.

Usability Enhancements:

Developer Ecosystem: NEAR offers robust support, including a startup accelerator, R&D grants, and fee rewards, making it an attractive platform for developers. It supports multiple programming languages, like Rust and JavaScript, facilitating a seamless development experience.

Simplified User Experience: For end-users, NEAR simplifies web3 interactions. Features like human-readable usernames (e.g., user1.near) and a relayer system enable transactions without directly handling $NEAR tokens or complex wallet setups, blending web2 ease with web3 capabilities.

Scalability Solutions:

Nightshade Sharding: Utilizes a sharded consensus mechanism that increases throughput by parallelizing consensus across multiple subchains. This dynamic sharding adjusts to network needs, ensuring efficient consensus without requiring every node's participation.

Thresholded Proof-of-Stake (TPoS): Encourages broad validator participation by capping the influence of large stakes on block creation chances. This promotes more validators and, consequently, more shards, further enhancing throughput. In summary, NEAR's focus on both usability for developers and users, alongside scalable infrastructure through Nightshade and TPoS, positions it as a formidable platform for fostering blockchain's mainstream adoption.

Doomslug Consensus: Doomslug, NEAR Protocol's consensus mechanism, is distinguished by its turn-based block production strategy, where consensus on a block is rapidly achieved once it secures endorsements from over half of the participants. The key feature of Doomslug is its capacity to maintain network integrity and security; a consensus on a block can only be invalidated if a subsequent block is identified as malicious and consequently slashed. This mechanism ensures that while Doomslug prioritizes speed and efficiency in achieving consensus, it does not compromise on the safety and reliability of the network, providing a balanced approach to blockchain consensus.

Token:

The $NEAR token derives its value from transaction fees and storage fees. Around 70% of transaction fees are burned for deflationary purposes. It has a flat inflation rate of 5% in order to incentivize validators. $NEAR has a market capitalization of roughly $7.21 Billion, with an FDV of $8.21 Billion.

While Near has commissioned 1 Billion tokens overall, the flat inflation rate also adds to the total tokens within the ecosystems, as shown with the chart below:

Currently, there are 1 Billion tokens in circulation already, meaning that the token value will be more and more dependent on the actual developments within the Near developer ecosystem.
Value Proposition:
Near’s value proposition is that it facilitates seamless user interaction through abstraction of the web3 component, and it also is very fast and scalable. NearDA, which is a data availability layer for L2s on Ethereum, also vyes to take a segment of the DA market from Celestia, as it is much faster and relatively cheaper than Celestia.

Market Overview:

Within the L1 market, there are many key players in the race for scalability and efficiency. In terms of competing sharded protocols, Ethereum has been aiming to adopt a sharded consensus mechanism for a few years, but that has yet to come to fruition. The most relevant competitor to Near right now is Polkadot, which has a market cap of around 12.8 Billion right now. For NearDA(their data availability product), the most relevant competitors are Celestia and EigenDA. NearDA more closely competes with Celestia.

Market Positioning:

Near is positioned very well for scalability and data throughput. With the introduction of NearDA, another dimension of value has been added to the chain, as the token also gains value from fees from NearDA’s usage. They also have invested a lot in their developer ecosystem through over $800 million in grants and support initiatives. For L1s, in the long-term they either become stable and grow, or they fail. Because of this, Near’s investment into its ecosystem poises it well to continue to grow and expand.

Future Developments:

Near has potential to grow much larger, especially with the growth of its capabilities and ecosystem. Through NearDA and BigQuery(its database hosted on GCP), as well as its initiatives to grow in the Middle East and Asia through partnerships such as Alibaba, many are very optimistic about its growth. Many price predictions are very bullish on Near’s potential value, with some generous estimates up to over $20 within the next few months. From a web2-web3 user adoption perspective, Near can possibly serve as the focal point of web3 abstraction for dApps.