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State of NEAR Q1 2023

Apr 9, 2023 ⋅  20 min read

Key Insights

  • In March, NEAR introduced the Blockchain Operating System (BOS). The BOS is a layer for discovering and browsing open web experiences that is compatible with any blockchain.
  • The NEAR Foundation announced that it is actively working towards a more decentralized model of capital allocation. This involves the creation of community DAOs including: Marketing DAO, Developer Governance DAO, Creatives DAO, and the NEAR Digital Collective.
  • Electric Capital’s annual developer report ranks NEAR as having one of the fastest growing developer communities. The report noted a 40% increase in developers in 2022 and a 20x increase in total developers since 2018.
  • NEAR set an all-time high in daily active accounts. This marks the third consecutive quarter NEAR has set an all-time high in active accounts.
  • NEAR surpassed 200 active validators. The increase follows the mainnet launch of Phase-1 of the Nightshade sharding architecture.

Primer on NEAR

NEAR Protocol is a smart contract platform that utilizes a Thresholded Proof of Stake (PoS) consensus algorithm to execute transactions. NEAR incorporates a Nightshade Sharding mechanism, which facilitates increased transaction throughput and the scalability of the network. Additionally, NEAR has raised over $500 million for ecosystem development, takes a novel approach to basic network functionality (such as accounts, gas, and transactions), prioritizes developer friendliness, and supports EVM and Substrate via Aurora and Octopus Network.

Key Metrics

Introduction

The crypto industry faced significant challenges in 2022. Despite these setbacks, the NEAR Protocol demonstrated continued resilience and progress. Throughout the year, NEAR achieved several notable milestones, including the launch of Phase-1 of Nightshade Sharding, significant strides in decentralization and transparency, protocol development progress, and ecosystem growth. By the end of the year, NEAR's daily active accounts reached an all-time high, setting the foundation for growth and expansion into 2023.

Despite ongoing challenges in the crypto industry, including Operation Choke Point 2.0 and early signs of systemic banking issues, NEAR continued to show promise during Q1 2023. The team saw sustained daily active wallets, announced several notable NFT partnerships, and celebrated crossing over 1,000 projects building on the NEAR network. Additionally, the team remained focused on developer engagement and education, released further plans surrounding the decentralization of the network, and more.

Performance Analysis

Financial Overview

NEAR Protocol had a strong Q1 2023 in terms of financial performance. The circulating market cap for NEAR at the end of Q1 was $1.67 billion, representing a 55% increase compared to the previous quarter. This growth was consistent with the overall crypto market, which saw a 46% increase during the same period.

NEAR's natvie token (NEAR) is primarily used for securing the network through staking, transaction fees, and storage fees. Unlike Ethereum's auction-style mechanism for transaction fees, NEAR's transaction fees adjust according to network compute and bandwidth. Additionally, storage fees are charged to accounts and smart contracts for using storage space on the NEAR network, and they are considered long-term costs for resources.

NEAR uses both inflationary and deflationary mechanisms, and there is no fixed supply of NEAR tokens. The protocol has a yearly fixed inflation rate of 5%, with 90% of the inflationary rewards awarded to validators and the remaining 10% going to the protocol treasury. The treasury, which is controlled by the NEAR Foundation, had a balance of 316 million NEAR ($630 million) at the end of Q1.

NEAR employs a fee burning mechanism for transaction fees, with 70% of the total fees burned and the remaining 30% going to the contract that the transaction came from. During Q1, NEAR's revenue, measured by total gas fees spent, amounted to $120,000.

Network Overview

In Q1, NEAR's daily active accounts remained high, maintaining the momentum from a record high in Q4. The average number of daily active accounts during Q1 was 64,000, with Sweat Economy, Aurora, Spin.fi, and NEAR Crowd being the leading contributors to network activity. However, the number of new accounts created slowed for the third consecutive quarter. The spike in new accounts during Q2 and Q3 of 2023 coincided with the announcement and launch of Sweat Economy.

NEAR also saw an average of 393,000 daily transactions during Q1 2023, which was a 13% decrease compared to the previous quarter. Transaction fees remained low thanks to NEAR's fee adjustment mechanism.

Ecosystem and Development Overview

To understand the underlying drivers of NEAR’s activity, it is important to evaluate its ecosystem, developer engagement, and growth strategy.

DeFi TVL

NEAR's Q1 2023 total value locked (TVL) declined by 32% QoQ to $97 million, primarily due to a wallet associated with Alameda removing liquidity and closing DeFi positions. The decline occurred towards the end of the quarter, and Alameda no longer has any NEAR DeFi exposure.

The leading protocols from the previous quarter continued to maintain their positions. The top protocols in terms of TVL were:

  • Bastion Lending and stableswap protocol with $19 million TVL.
  • Ref Finance DEX with $36 million TVL.
  • Burrow Lending protocol with $15 million TVL.
  • Orderly Network DEX with $7 million TVL.

At the end of the quarter, the rest of the protocols on NEAR had a TVL of $21 million, accounting for 22% of the overall NEAR TVL.

NEAR DeFi is expected to rebound and expand. It has various initiatives in the pipeline such as accessible stablecoin on-ramps, user-friendly onboarding options, engagement campaigns for core trader products, one-stop-shop DeFi experiences, and joint initiatives for on-chain traders.

DEXs and Perps

Ref Finance and Orderly Network's DEX volumes were proportional to their respective TVL during Q1. Ref Finance had an average weekly volume of $12 million, while Orderly Network had an average weekly volume of $5 million, resulting in a split of approximately 75% to 25%.

Spin is a rapidly growing decentralized trading and investment platform built on NEAR. It offers a variety of products and services for traders of all levels, including spot trading, instant swaps, and perp futures. Spin is the first perp protocol on the NEAR blockchain and is developing Automated Investment Products that utilize its infrastructure to provide users with one-button risk/reward optimized strategies. Spin has accumulated over $34 million in lifetime volume and has attracted over 16,000 unique users.

Liquid Staking

NEAR has also developed a robust liquid staking ecosystem. At the end of Q1, NEAR's liquid staking protocols had $36 million in TVL, representing a 98% increase QoQ. The largest and oldest liquid staking protocol is Meta Pool, which had $17 million in TVL and uses the stNEAR liquid staking derivative. The second largest protocol is LiNEAR, which had $12 million in TVL and uses the LiNEAR liquid staking derivative. Rounding out the top three is Stader with $7 million in TVL.

Stablecoins

In October, USN, an independently operated NEAR-native stablecoin created by Decentral Bank, was announced to be winding down. This caused the USN market cap to fall by 70% from $115 million to $35 million over the next 48 hours, however, it never de-pegged. Despite Decentral Bank not receiving financial assistance from the NEAR Foundation, to safeguard users and facilitate the orderly wind down, the NEAR Foundation allocated $40 million for a grant for the USN Protection Programme. The NEAR Foundation aims to set up a funded initiative to develop community standards and guardrails in relation to stablecoins to ensure user protection.

At the end of Q1, the total stablecoin market cap on NEAR was $90 million, led by USN with $38 million market cap, followed by bridged-USDC with $30 million, and native-USDT with $22 million. Circle and the NEAR Foundation announced plans to bring native-USDC onto NEAR.

NFTs

During Q1, NEAR's NFT activity experienced a slowdown. The total NFT sales volume on NEAR was 96,000 NEAR, representing a 37% decrease from the previous quarter. Despite this, the leading marketplaces such as Paras Marketplace, Few and Far, and TradePort continued to dominate the NFT space on NEAR.

Few and Far, in particular, has been gaining traction and announced a $10.5 million funding raise led by Pantera Capital. This marketplace has seen a significant increase in adoption. Few and Far provides launchpad services, minting tools, and outbound marketing for NFTs, DeFi, and gaming.

NEAR announced partnerships with Dropt, Recur, Keypom, and Popp. Dropt will offer blockchain-based loyalty programs, Recur will develop on-chain branded experiences, Keypom will provide a non-custodial onboarding solution, and Popp will offer white-labeled tools for small-to-medium businesses to enhance customer engagement.

Moreover, Baron Davis, a two-time NBA All-Star and tech entrepreneur, announced a new blockchain-powered photography project called SLiC Images. The platform will be a rights management platform for photography and video that will allow creators to tag their works with unique digital signatures and license them for commercial use through a transparent bidding process. The project received a $250,000 grant from NFT platform Mintbase, which operates on the NEAR blockchain.

Gaming

NEAR made strides in developing its gaming ecosystem, with playEmber being one of its most successful games to date. PlayEmber is a Web3 monetization platform that connects brands, studios, and game studios. The playEmber gaming studio collectively has over 100 million downloads across different channels and is among the most popular applications by active wallets on NEAR.

In addition, NEAR is expanding its Web3 gaming ecosystem with several partnerships. NEAR and Ready Player DAO will collaborate on initiatives to advance gaming on the NEAR network. Additionally, NEAR has joined forces with WEMADE, a publicly listed gaming company in South Korea, and BORA, a Web3 gaming subsidiary of METABORA. Furthermore, NEAR is partnering with Starchain Grazer and Vizta Digital. Crystals of Naramunz, an upcoming RPG game, has already received over 10,000 waitlist signups

Aurora

Aurora is an Ethereum Virtual Machine (EVM) created by core developers from the NEAR protocol. It operates as a smart contract on NEAR, providing benefits such as bridging with the Rainbow Bridge, high throughput, and low transaction fees in ETH.

During Q1, Aurora made several noteworthy announcements. Firstly, it launched a new partner program aimed at supporting builders in the ecosystem. Secondly, Aurora V2 Validator was relaunched, which allows Aurora DAO delegators to receive staking rewards in both AURORA and NEAR. Additionally, Aurora terminated its partnership with Etherscan, leading to the decommissioning of Aurorascan.

The most significant announcement was the introduction of Aurora Cloud, a suite of products designed to provide Web2 companies with access to Web3 infrastructure. The platform includes three products:

  • Borealis Business, a transaction processing and accounting engine allowing companies to add blockchain capability to their applications.
  • Aurora Pass, a mobile digital wallet.
  • Aurora Silos, provides customer-specific, dedicated blockchains running on the Borealis Business infrastructure.

Octopus Network

Octopus Network is a network of Substrate-based, EVM-compatible, application-specific blockchains (app-chains) built as a set of smart contracts on NEAR. As with Polkadot, app-chains must register and pass a vote by holders of Octopus’s native token, OCT, before joining the network.

The Octopus Network currently operates five app-chains:

  • Fusotao - DEX infrastructure for building DEXs with trading privacy, minimal gas fees, and lower trading costs.
  • Myriad - A decentralized social network to turn Web2 content into sovereign Web3 data.
  • Atocha - Protocol for creating and solving puzzles with play-and-create to earn opportunities.
  • DeBio - A decentralized anonymous-first platform for medical and bioinformatics data specializing in genetics testing.
  • Discovol - A decentralized platform for distributing evidence-based, reliable content vetted by curators.

Additionally, there are eight candidate application chains: UniqueOne, PortalVerse, Attarius, Create Protocol, TrustRecruit, Yogain, Plats, and Horizon Land.

In 2023, the Octopus Network's core developers aim to expand the Inter-Blockchain Communication to non-Cosmos-SDK chains with Octopus 2.0. They also plan to implement a NEAR restaking plan (like EigenLayer) and allow DAO members to vote for new app chains, further decentralizing the network.

Rainbow Bridge

The Rainbow Bridge is a light client-based bridge that connects Ethereum, NEAR, and Aurora. It uses an optimistic design and third-party watchdogs to ensure secure and efficient transfers of assets and data between these blockchains. The Rainbow Bridge has over $3 billion in total assets bridged and over 16,000 unique users.

NEAR Protocol and Circle announced a partnership in September 2022 to bring native USDC onto the NEAR blockchain. In anticipation of the update, Aurora Labs (the company behind Aurora and the Rainbow Bridge) updated bridged USDC’s symbol to USDC.e. With the Rainbow Bridge's NEAR-native token connector, users can transfer NEAR-native tokens between Ethereum and NEAR.

Electron Labs and Zpoken are independently developing zero-knowledge technologies for the NEAR-Ethereum bridge.

Developer Activity

NEAR has a strong focus on being developer-friendly. To incentivize developers, NEAR tokens are automatically distributed to developers with 30% of total transaction fees given to the contract from which the transaction originates, while the remaining 70% is burned. In August 2022, NEAR launched a JavaScript software development kit (SDK) that allows developers to build smart contracts on the NEAR blockchain using JavaScript, in addition to Rust, AssemblyScript, and Solidity (through Aurora). In October 2022, NEAR announced a partnership with Google Cloud, which will provide technical support for all NEAR grant recipients.

The focus on developers has been paying off, as Electric Capital's annual developer report highlighted the growth in NEAR developers. The report noted a 40% increase in developers in 2022, a 20x increase in total developers since 2018, and ranked NEAR alongside Solana and Polygon as having the highest number of monthly active developers and the fastest pace of growth in 2022 outside of Ethereum.

In Q1 2023, NEAR continued to prioritize developer engagement and education:

  • Primerlabs launched the NEAR Protocol Primer, a gamified-interactive platform for learning blockchains, smart contract development, and dApp development.
  • The New York University School of Professional Studies (NYU SPS) partnered with the NEAR Foundation to introduce a new Web3 Learning Workshop.
  • The NEAR Foundation announced a partnership with Startup Wise Guys, Europe's biggest startup accelerator, for an 8-week program covering the project's mission, setting up team structure, finance, and communication programs.
  • NEAR had a major presence at ETH Denver, holding a 1-day NEAR Day on all things NEAR, making multiple notable announcements, and seeing multiple ecosystem teams participate in hackathons.

It's worth noting that the current metrics might not reflect how developers are possibly changing their attention towards constructing widgets and decentralized front ends on the BOS.

Decentralization and Staking Overview

NEAR's consensus algorithm, Thresholded Proof of Stake (PoS), utilizes three validator roles: block producers that validate transactions on all shards, chunk-only producers that validate transactions on one shard, and hidden validators that act as third-party monitors.


In September, Phase-1 of Nightshade sharding was launched, tripling the network's validator capacity. As of Q1 2023, NEAR surpassed 200 active validators, indicating continued decentralization of the network.

Qualitative Analysis

Blockchain Operating System

The NEAR Foundation introduced the Blockchain Operating System (BOS) in March. It's a common layer for browsing and discovering open web experiences that's compatible with any blockchain. The BOS empowers developers to code interfaces in a single environment and fork components to build apps more efficiently. Developers can deliver decentralized and composable front ends by forking pieces, components, and built-ins without hosting. End users can discover all of Web3's possibilities in one seamless experience, and the system works with any blockchain or Web2 backend.

“The iOS provides developers a place to show their app in front of billions of users, and it gives them all the services and the infrastructure underneath to build, so you kind of just plug in here. That’s what we’re trying to do, trying to kind of give the distribution here, give the platform underneath and let developers build.” - Illia Polosukhin on Cointelegraph

NEAR is building a new layer of the Web3 stack to streamline the discovery and onboarding experience for users and developers. The BOS will position NEAR as the entry point for the open web, making both Web3 and Web2 more accessible. It removes friction points and enables seamless onboarding by providing composable front ends and over 2,500 components for faster development. By doing so, NEAR is set to become a prominent player in the development of the open web.

NEAR Digital Collective

The NEAR Digital Collective (NDC) is a new governance body being developed for the NEAR ecosystem. First introduced in August 2022 by the NEAR Foundation, the NDC was further detailed in January 2023. The NDC aims to allow any member of the network to have a say in how NEAR is run. To achieve this, the NDC is developing a governance structure with five key components:

  • Voting Body: Every active NEAR account, as qualified by the governance framework.
  • House of Merit: A group of experienced community members appointed by other members of the ecosystem to represent them during votes and key decisions.
  • Council of Advisors: Advisors who help shape the direction of the House of Merit.
  • Transparency Commission: Community members appointed to ensure the presence of checks and balances.
  • Community Treasury: A decentralized treasury for the NEAR ecosystem that will allocate funds to support various grassroots initiatives. Its core purpose is to support and promote the operation and development of the NEAR blockchain, and there are various subsidiary purposes.

The development of the NEAR Digital Collective's governance structure is overseen by the Governance Working Group (GWG), a collection of community members working on refining the governance models. The NEAR Foundation is also a partner and contributor to the NDC, providing support and resources. To achieve its goals, the NDC has outlined a roadmap:

  1. NDC awareness and education.
  2. Community treasury launch.
  3. Finalize constitution and V1 framework based on community feedback.
  4. Voting mechanism launch.
  5. Adopt the constitution and V1 governance framework.
  6. Candidacy and election process.
  7. First congress held.

Overall, the NDC will be responsible for:

  1. Developing the NEAR Constitution.
  2. Implementing local and global on-chain decision-making.
  3. Establishing a repository of local and global on-chain journals, logs, and minutes.
  4. Setting up governing bodies, defining their operations, powers, and necessary checks and balances.
  5. Establishing and maintaining a community treasury with complete operating procedures and safeguards.
  6. Creating and maintaining Community Guidelines, Code of Conduct, and Dispute Resolution protocols.
  7. Implementing a communications strategy to increase accessibility to the work of the NDC and GWG.
  8. Developing a strategy to help the community access and use the NDC.
  9. Assisting in the development and implementation of a DAO Governance Model.
  10. Supporting the growth of the NEAR ecosystem.

Decentralized Funding

In early January, the NEAR Foundation announced that it is actively working towards a more decentralized model of capital allocation by handing over decision-making to community DAOs. This approach involves the creation of community DAOs that will have more control over the allocation of funds for NEAR-related projects. The first community DAOs have already been created, each with a specific focus and mandate:

  • Marketing DAO: Created to unify and improve the allocation of funds for marketing-focused projects. It is actively renewing proposals related to amplification and marketing, with a core focus on content and social media.
  • Developer Governance DAO: Created to help decentralize the NEAR developer ecosystem and encourage broad innovation from the developer community. It is currently ramping up and reviewing proposals supporting technical ecosystem projects.
  • Creatives DAO: Created for all creative contributors in the NEAR ecosystem, with a goal of empowering artists and creators by providing them with a platform for collaboration, as well as the tools and resources they need to monetize their work and connect with their audience. It is currently accepting proposals for funding.
  • NEAR Digital Collective (NDC) - A new governance body being developed to help govern the NEAR ecosystem.

Accelerator

The NEAR Foundation’s goal is to attract the most talented early-stage teams to NEAR. Based on its experience with the grants program, the Foundation recognizes that founders and teams need a variety of support to be successful. In response, NEAR is creating an early-stage accelerator program. The accelerator strategy includes the following elements:

  • Product on NEAR: The NEAR Foundation is building a support marketplace on the BOS. It will enable founders to connect with a range of contributors, such as investors and subject matter experts in areas like legal and finance, who can support them throughout their journey.
  • Partnerships with other accelerator programs: NEAR issued an open call to partner with accelerator programs that can help fast-track support needs for projects.
  • Learning content and tooling: NEAR is continuously developing and identifying learning content and tooling that can help early-stage founders. It makes those resources available in the marketplace product.

NEAR aims to bring the accelerator to market at the end of April, 2023.

Zero-Knowledge Ecosystem

NEAR ecosystem projects are implementing zero-knowledge (ZK) technology for increased scalability and security while adding an extra layer of privacy. NEAR aims to democratize ZK technology to make it easy to use by all types of developers. The following projects are using ZK tech in the NEAR ecosystem:

  • Hideyourcash – A mixer enabling private transactions natively on NEAR with AML mechanisms.
  • Positron ZK Bridge – A bridge between NEAR and Ethereum leveraging ZK compression.
  • ZeroPool – Offering private transactions on NEAR testnet.
  • Zpoken – Developing a ZK-NEAR light client for another ZK bridge between NEAR and Ethereum, with creating other interoperability solutions in development.

NEAR also partnered with O(1)Labs to run part of Berkeley ZK hackathon on SnarkyJS and is considering integrating SnarkyJS, which is a ZK SDK used by Mina Protocol.

Roadmap

Looking ahead to 2023, the overarching objective for the NEAR ecosystem is to reach 10 million monthly active accounts by the end of the year. To achieve this goal, NEAR will focus on several key areas, including product development for NEAR BOS, building a strong community from the ground up, forming strategic partnerships through the NEAR Foundation, and continuously improving the user experience and onboarding process for Web3.

Closing Summary

NEAR had a successful Q1 2023, despite negative news affecting the broader market. Its financial performance was strong, with a 55% QoQ increase in circulating market cap, outpacing the broader market. Network usage also continued to increase, with daily active users reaching an all-time high for the third consecutive quarter. NEAR has multiple new partnerships across each sector of the ecosystem, indicating future growth potential.

NEAR's emphasis on decentralization is evident. It has over 200 active validators and the creation of community DAOs, including Marketing DAO, Developer Governance DAO, Creatives DAO, and the NEAR Digital Collective. It also launched the NEAR Digital Collective, a decentralized and advanced governance model.

The biggest announcement of the quarter was the launch of the Blockchain Operating System (BOS), a layer that allows users to discover and browse open web experiences compatible with any blockchain. Through BOS, NEAR is building a new layer of the Web3 stack to streamline the discovery and onboarding experience for users and developers, positioning itself as the entry point for the open web.

Overall, NEAR had a strong Q1 2023, and its continued development and adoption of the BOS should lead to further growth and adoption in the coming quarters.

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This report was commissioned by NEAR Foundation. All content was produced independently by the author(s) and does not necessarily reflect the opinions of Messari, Inc. or the organization that requested the report. The commissioning organization does not influence editorial decision or content. Author(s) may hold cryptocurrencies named in this report. This report is meant for informational purposes only. It is not meant to serve as investment advice. You should conduct your own research, and consult an independent financial, tax, or legal advisor before making any investment decisions. Past performance of any asset is not indicative of future results. Please see our Terms of Service for more information.

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Nick is a research analyst at Messari on the Protocol Services team. Prior to joining Messari, Nick worked in Deloitte's Consulting practice.

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About the author

Nick is a research analyst at Messari on the Protocol Services team. Prior to joining Messari, Nick worked in Deloitte's Consulting practice.