An introduction to the NEAR blockchain ecosystem
NEAR is a layer-1 blockchain that is built to empower creators and developers. This Proof-of-Stake protocol serves as the base layer and enables the creation of decentralized applications (dApps). It is a community-run computing platform, meaning that a distributed network of setups maintains it.
Overview of the Near ecosystem
Launched in 2020 by Alexander Skidanov and Illia Polosukhin, NEAR was originally formulated as a machine learning platform. The founders started NEAR.ai in early 2017 to automate programs from a human specification. For the idea to be materialized, there was a need for a smart contract platform. After thorough research in late 2017 and early 2018, disappointed by the lack of tools, Alexander and Illia decided to design their own blockchain. The process of building the NEAR protocol started in August 2018.
What is Nightshade?
NEAR uses a unique sharding architecture called “Nightshade”.
Sharding is a horizontal blockchain scaling technique that divides large volumes of data into smaller, more manageable subsets. This results in lower fees and a higher number of transactions per second.
The NEAR network is powered by Nightshade, a sharding technique that allows the blockchain to scale linearly to billions of users. Under Nightshade, the list of all the transactions is split into chunks and each validator is required to assemble them into a block.
Benefits of Nightshade:
- Security: As participating nodes are only responsible for maintaining smaller sections of data, the probability of security breaches and malicious practices decreases.
- Time-saving: The Nightshade technique decreases the network congestion, leading to increased throughput.
- Cost efficient: It is cheaper to reach a consensus on the NEAR blockchain as each block requires only a small percentage of all the staked coins in the ecosystem.
The NEAR token and tokenomics
$NEAR is the native utility token of the NEAR ecosystem.
1 billion NEAR tokens were created with the genesis block of the NEAR blockchain. From this initial supply, a large portion is subject to long-term lock-ups.
To support the network, every year 5% of additional supply is distributed, with 0.5% going to the NEAR treasury. The remaining 4.5% represents the annual inflation rate. The inflation rate refers to the rate at which new tokens are issued to pay the network operators (validators).
To calculate the real value of issued NEAR, we must take into account that the network burns any transaction fees that are collected. As a result, the inflation is 5% minus transaction fees. As network usage increases, the protocol could become deflationary.
The current circulating supply of NEAR tokens as of 23 Nov 2022 is around 829M NEAR, or around 75% of the maximum supply.
Near total supply (blue) vs circulating supply (green). Source: Near Explorer
The functions of the NEAR token are:
- Security: Through staking, the NEAR token helps to maintain the security of the network by facilitating consensus and preventing network abuse. Validator nodes must put assets at stake in order to create new blocks and are compensated for their work with native NEAR tokens. NEAR holders who cannot or do not wish to run a node can also receive NEAR rewards by delegating their stake to validators.
- Transaction Fees: NEAR blockchain users must pay transaction fees in the native token. NEAR distributes a part of the collected fees among smart contract developers while burning the rest to ensure scarcity.
- Storing Data: The NEAR protocol allows users to store data on the blockchain in order to deploy smart contracts. For this, data storage fees are paid in the native NEAR token.
Staking and liquid staking on NEAR
NEAR operates on a Proof of Stake consensus mechanism. This means that users can earn rewards for staking their tokens, in other words, locking them up and using their weight to verify network transactions. The impossibility of moving their tokens for a certain period of time might be an issue for users who want to stake their tokens but still engage in other DeFi activities. Liquid staking solves this type of problem, allowing holders to keep their staked investments liquid.
The leading liquid staking solution for the NEAR protocol is Meta Pool. Meta Pool offers users the possibility to stake $NEAR tokens in exchange for stNEAR tokens, which represent their share of NEAR tokens staked with Meta Pool. To engage in liquid staking on Meta Pool, investors have to pay stNEAR fees, which represent 4% of the staking rewards earned while the tokens are deposited on the platform.
Meta Pool also offers users the possibility of unstaking their tokens immediately by paying a small fee instead of waiting 48h for the tokens to unstake. The fee ranges from 0.3% to 3%. If users decide to wait, there’s no fee.
Thanks to a partnership between Finoa and Meta Pool, institutional investors can access in-custody liquid staking of NEAR via the secure, regulated Finoa platform.
The Near Foundation
Alex, Illia, and the rest of the team created NEAR to enable community-driven innovation to benefit people around the world. During the process, they soon realized that NEAR is more than just a blockchain. It is an amalgamation of tools, protocols, and developers, all working towards the same goal. The realization that there was no single project that included all the aspects led to the formation of The Near Foundation.
The Near Foundation (NF) is a nonprofit organization based in Switzerland. It’s the umbrella firm responsible for maintaining the protocol functionality, funding the ecosystem development, and overseeing the governance.
NEAR protocol governance
NEAR prides itself on being a community-led platform and is open to contributions from the participants. To ensure the protocol’s independence, anyone can submit an improvement proposal within the NEAR forum. Proposals are then put through a draft stage where they are open to feedback and comments from the community. If the majority of the community supports the draft, it goes into motion and the development teams start the process of merging the change.
What makes NEAR unique?
NEAR to Ethereum
NEAR protocol includes an application called Rainbow Bridge that allows the investors to transfer ETH tokens between Ethereum and NEAR. When a user deposits tokens in an Ethereum smart contract, they are locked in the NEAR wallet and created originally on the platform. This process can also be reversed.
Unlike most blockchains, NEAR addresses are human-readable and customizable, using a format such as alice.near. This helps to remove typing mistakes and makes it easy for a user to remember their address. What's more, because the account address and the public-private key pair are not derived from one another, the user can keep the original address even in the event that a new key pair needs to be created.
NEAR is a certified carbon-neutral blockchain. In collaboration with South Pole, the leading low-carbon project developer, it aims to offset its carbon footprint by supporting green projects.
Learn more about institutional support for the NEAR network and how a qualified custodian can meet your needs.
Disclaimer: This article is not intended to be, nor does it constitute financial advice. Finoa does not endorse or recommend any particular securities, currencies, or other financial products. This content is solely for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any spot currency transactions, financial instruments, or other securities.