What is the NEAR Protocol blockchain and cryptocurrency?

12.09.2022

Beginner

#NEAR Cryptocurrency

Key points

NEAR Protocol is an open-source, high-throughput smart-contract platform designed for building decentralised applications.
A defining feature of the NEAR network is sharding—the ability to split the blockchain into discrete segments. The corresponding upgrade was rolled out in autumn 2021.
The project’s native cryptocurrency trades under the ticker NEAR. Its primary functions are network transactions and staking. NEAR holders can delegate their coins to validators.
Hundreds of protocols and decentralised applications run in the NEAR ecosystem. The largest include Aurora, Ref Finance and Burrow.

Who created NEAR Protocol

NEAR Protocol was created by programmers Alexander Skidanov and Illia Polosukhin. Work on the project began in late 2018. Developers from leading tech companies, including Facebook, Google and Niantic, later joined the NEAR team. Two team members twice won the world programming championship.

During NEAR’s ICO in August 2020 on the CoinList platform, 120m NEAR (12% of the initial 1bn-token supply) were sold at $0.30.

The rest of the initial supply was earmarked as follows:

17% for grants and community programmes;
14% to the NEAR team;
17.6% were sold across seven private funding rounds for $35m;
11.7% to fund the deployment of ecosystem-development initiatives;
10% for the NEAR Foundation, which delegates its share to validators on the NEAR network.

Tokens in all of the above categories were locked for periods ranging from three months to five years.

The NEAR Protocol mainnet launched on 13 October 2020.

The evolution of the NEAR ecosystem

In spring 2021 developers launched one of NEAR’s most important components—the cross-chain Rainbow Bridge, which provides interoperability with Ethereum and allows transfers of cryptoassets of the ERC-20 standard to NEAR Protocol and back.

Soon after, a layer-two solution called Aurora was unveiled, enabling Ethereum Virtual Machine (EVM) smart contracts to run on NEAR Protocol.

Since 2021 the NEARCON conference, dedicated to the ecosystem, has taken place each autumn in Portugal. In October 2021 it announced an $800m fund to finance developers and projects on the NEAR Protocol blockchain.

In spring 2022 the NEAR team raised $350m from several venture funds, including Tiger Global, FTX Ventures, Dragonfly Capital and others. Soon after, ConsenSys announced a partnership between NEAR and infrastructure provider Infura.

In summer 2022 BitGo—one of the largest custodial-service providers for institutional investors—became a NEAR partner.

In mid-September 2022 the NEAR Foundation announced the launch of a $100m fund to develop Web3.

How the NEAR protocol works

NEAR runs on a Proof-of-Stake consensus algorithm and uses sharding technology—splitting the blockchain into smaller segments (shards) that can process in parallel—to optimise performance. Unlike other cryptocurrencies such as Polkadot, all shards in NEAR are treated as parts of a single blockchain.

Integrity is ensured by the Nightshade mechanism, under which only a snapshot of each shard’s current state is added to a block. Each shard maintains its own set of validator nodes, which submit their shard state whenever a block is produced. The Nightshade upgrade was activated on NEAR Protocol in November 2021.

Think of this mechanism as a road junction. The intersection is the NEAR blockchain; each road is a shard. Shards can work in parallel because transactions executed on them do not collide. This model significantly boosts system throughput.

Another key component of NEAR is Doomslug, which lets validator nodes take turns creating blocks during each 12-hour epoch. A new block is created roughly every second.

Block rewards come from the issuance of new NEAR coins. Validators and delegated-staking pools receive 90% of each reward; the NEAR treasury gets 10%.

The NEAR cryptocurrency and the USN stablecoin

NEAR is the native cryptocurrency of the NEAR Protocol blockchain. It is used for all network transactions, as well as for staking by validator nodes and delegating participants. Although rewards for validators and delegators are paid from the issuance of new coins, a portion is burned to pay network fees.

NEAR is required to pay network fees. Of each fee, 30% is automatically directed to the developer of the smart contract used, with the remaining 70% going to validators. NEAR also supports “free” transfers: when this option is enabled, the contract operator pays for the transaction.

The maximum supply of NEAR is 1bn coins. According to CoinMarketCap, by early September 2022 more than 781m NEAR were already in circulation. By total market capitalisation NEAR is among the top 30 cryptocurrencies.

In late April 2022 the USN stablecoin was launched on NEAR. Initially its price was supported by arbitrage operations and a reserve fund of NEAR and USDT. The USN launch coincided with adverse market conditions, notably the collapse of the Terra (LUNA) project.

In summer 2022 Decentral Bank, the DAO responsible for managing the project, presented USN version 2.0. Under the new system, the stablecoin’s price is fully backed by USDT reserves. On the Decentral Bank website users can buy or sell any amount of USN for USDT. The swap fee is 0.01%.

Staking the NEAR cryptocurrency

To run a validator node on NEAR, NEAR coins must be sent to the staking smart contract. You will also need hardware that meets the protocol’s requirements.

The precise stake size depends on how many coins other validators have in a given shard. This also determines the share of block rewards, which are paid every epoch (12 hours).

Each shard in NEAR contains 100 seats. To perform the validator function, you must hold at least one seat. The cost of each seat is determined by the total NEAR tokens locked in the shard’s staking contract. Validators that break the rules risk losing part of their stake.

This model is intended to incentivise validating nodes to support new or smaller shards with lower entry thresholds. If a user lacks sufficient funds to buy enough NEAR for a seat, they may try to persuade delegators to entrust funds via staking pools. By delegating tokens, users receive a share of validators’ block rewards.

According to Staking Rewards, in September 2022 the yield on NEAR staking was 5–6% per year.

Who governs NEAR Protocol

The project’s lead developer and development institute is the NEAR Foundation, a Swiss non-profit organisation. Its leadership includes prominent industry figures, including NEAR co-founder Illia Polosukhin.

The NEAR Foundation also manages the project’s treasury. The NEAR Protocol community can put forward initiatives, which may be financed from the treasury. Community members also join various groups dedicated to specific areas of development. Proposals are published and discussed on NEAR’s official forum.

Projects on the NEAR Protocol blockchain

According to AwesomeNear, there are roughly 800 crypto projects across various niches in the NEAR ecosystem.

Aurora

A layer-two protocol using the NEAR blockchain and the Ethereum Virtual Machine. Aurora is designed to ease the migration of Ethereum decentralised applications into the NEAR ecosystem. The native token is AURORA. Governance is handled by a DAO called AuroraDAO.

The protocol has already integrated several large decentralised applications, such as 1inch and Curve. Aurora’s total value locked (TVL) was about $175m in September 2022, according to DeFi Llama, with a significant share locked in the DeFi protocols Bastion (BSTN) and Trisolaris (TRI). Around 200 applications run on Aurora. In May 2022 the Aurora Plus staking platform went live.

Ref Finance

The largest decentralised exchange on the NEAR blockchain. It uses an automated market-making mechanism. Ref Finance features liquidity pools as well as stable pools (Sauce) for stable cryptoassets. The protocol offers boosted rewards for staking the native token REF. The project’s TVL as of September 2022 was about $234m.

Burrow

Burrow Cash is a decentralised lending platform where users can issue synthetic assets against staked NEAR and other collateral (for example LINEAR and USN). In return for activity the protocol awards BRRR, its native token. According to Burrow’s official website, total deposits are roughly $75m and loans $12.9m.

Other projects

In 2021–2022 NEAR partnered with:

the Brave browser;
Calimero, a provider of infrastructure for private shards;
the multichain network Octopus.
Pagoda, a platform for Web3 start-ups, and others.
In September 2022 Tether issued the USDT stablecoin on NEAR.

DAOs are a major use-case for decentralised applications based on NEAR Protocol. Creating decentralised organisations is made much easier by the AstroDAO platform, which does not require programming skills.

Several GameFi projects run on NEAR, such as Armored Kingdom, Niche, Endless and SWEAT. The ecosystem also hosts NFT start-ups: Seatlab, Mintbase, Stack Sports and others.