Interpreting NEAR: Following the hot narrative or becoming a market leader?

Written by Geng Kai and Eric, DFG

NEAR has quickly become a frontrunner in the growing convergence of Web3 and AI, but its roots in AI go deeper than many realize. Interestingly, NEAR was not conceived as a blockchain project from the beginning. One of its co-founders, Illia Polosukhin, started this journey with a different goal in mind: to create an AI-driven business. As one of eight Google researchers who introduced the revolutionary Transformer model (a key architecture that powers some of today’s most popular AI tools, such as OpenAI’s ChatGPT), Polosukhin initially sought to advance AI in a different way.

NEAR founder Illia and Nvidia founder Jensen at NVIDIA GTC

However, as the team worked on their initial AI projects, they encountered significant challenges, particularly in incentivizing and coordinating the different contributors who built AI models. It was this obstacle that made them realize that blockchain technology could provide the perfect solution. By leveraging a high-performance blockchain with integrated crypto payments, they could facilitate the seamless exchange of essential data, computation, and AI models — a critical feature for building a superior decentralized AI ecosystem. This insight prompted a critical shift from AI to blockchain, ultimately giving rise to what we now know as the NEAR Protocol.

However, what really makes NEAR special is its striking fit with some of the most compelling narratives in tech today. Whether the discussion is focused on AI, chain abstraction, modularity through data availability, or scaling through sharding, NEAR’s name always comes up. This raises an interesting question: Is NEAR just riding a popular trend, or are they truly delivering innovative products that enhance the blockchain experience?

To answer this question, we have to look a little deeper into NEAR’s infrastructure.

Solving the blockchain scalability problem: NEAR’s approach

Scalability is a challenge facing blockchain networks, and various solutions are being explored to meet the growing demand for fast and efficient transactions. While some blockchains have implemented technologies such as Layer 2 expansion, sidechains, and state channels, these approaches usually come with trade-offs in terms of interoperability, composability, and ease of use.

Nightshade Sharding 2.0: NEAR’s Scalable Backbone

One of the key features of NEAR is its Nightshade sharding technology, which is a core component of the protocol's scalability strategy. Sharding technology divides the blockchain state into smaller, more manageable parts, called "shards", each of which can process transactions independently. This design greatly increases the throughput of the network without placing the responsibility of processing all transactions on any single node.

How NEAR blocks are split into chunks from each shard

In the initial stage, NEAR implemented a design that divides each block into "blocks", each of which contains transactions for a specific shard. Block producers and validators are assigned to specific shards, which means they only need to process transactions related to their shards. This not only optimizes processing efficiency, but also enables NEAR to achieve a throughput of about 3,000 transactions per second (TPS) with an initial setup of four shards .

As it continues to evolve, NEAR is enhancing this system with stateless verification , allowing validators to verify transactions without storing the entire blockchain state . This innovation reduces hardware requirements, further enhancing accessibility and decentralizing the network. In addition, NEAR is exploring the integration of zk-proofs (zero-knowledge proofs) and dynamic resharding into its sharding design, which can further improve scalability by enabling faster and more secure transaction verification. NEAR will expand to 10 shards by the end of the year , increasing network capacity by 50% to meet growing demand.

NEAR’s Nightshade Sharding provides the scalability, speed, and interoperability needed to support AI projects that need to process large data sets and execute transactions quickly. The network’s fast finality ensures that AI-driven applications can run 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 important than ever. NEAR Protocol recognizes this challenge and has built its platform to be the leading force in unifying the multi-chain 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, a super-fast finality layer (SFFL), and chain abstraction — NEAR aims to provide a unified and user-friendly experience across multiple blockchains. Each of these components plays a vital role in positioning NEAR as the top interoperable blockchain.

Enhance cross-chain compatibility and connectivity

NEAR’s commitment to interoperability is further demonstrated through its integration with Ethereum and the broader blockchain ecosystem. Aurora is a smart contract on NEAR , an Ethereum-compatible blockchain and ecosystem. Aurora’s engine runtime supports seamless deployment of Solidity and Vyper smart contracts, allowing developers to leverage NEAR’s powerful infrastructure while maintaining compatibility with Ethereum. NEAR’s commitment to interoperability is highlighted by its compatibility with popular tools such as Metamask through NEAR Snap, while Rainbow Bridge facilitates the transfer of tokens and data between Ethereum, NEAR, and Aurora.

In addition to maintaining interoperability with other ecosystems, NEAR also provides assets for seamless cross-chain use through re-staking. Allstake allows cross-chain native re-staking of assets , creating a trustless decentralized ecosystem that contributes to the security of AVS. Re-staking through Allstake is built on the NEAR protocol, leveraging liquidity from multiple ecosystems to create a seamless experience across blockchains.

The fastest data availability tier on the market

NEAR's DA layer is managed by Nuffle Labs (the team behind all NEAR modular products) and ensures that the blockchain can efficiently access and process large amounts of data. With Nightshade, NEAR DA provides a powerful solution for Ethereum rollups and other high-volume projects. Unlike other DA solutions, NEAR's consensus mechanism maintains speed even with a large influx of data, ensuring that data is published and queried quickly.

Overview of popular DA solutions:

As more and more blockchains use zero-knowledge proofs to achieve unified security across chains, NEAR's DA provides easier and cheaper data query and settlement for dApps from multiple networks. In addition, NEAR DA ensures that nodes remain synchronized even if operators are offline, adding a layer of reliability. This feature is not only beneficial for current high-demand applications, but also makes NEAR a key player in future cross-chain settlements.

Powering other blockchain infrastructure with ultra-fast finality layers

Based on the modular blockchain theory, NEAR has collaborated with Eigenlayer to develop the Super Fast Finality Layer (SFFL). This innovative settlement layer significantly reduces transaction time and Rollup costs , while inheriting the security and finality of NEAR and Ethereum through Eigenlayer. SFFL relies on NEAR DA to obtain transaction data, enabling nodes to efficiently access and verify transactions.

Since SFFL supports cross-rollup transactions, it drives up NEAR’s transaction volume, creating a deflationary effect on NEAR tokens as 70% of transaction fees are burned. The partnership with Swell further strengthens NEAR’s position in the modular blockchain stack, and the latter has delegated a large amount of ETH to SFFL , bringing the vision of chain abstraction closer to reality.

The unification of blockchains: NEAR’s vision for chain abstraction

Modular blockchain architectures enable scalability, but also lead to fragmentation, resulting in fragmented liquidity , user experience, and interoperability. NEAR addresses these challenges by advancing chain abstraction — a concept that aims to provide users with a unified experience across multiple blockchains.

 Chain abstract goal

NEAR's FastAuth key management system allows users to manage their NEAR accounts using an email address, simplifying account creation and recovery. The system also supports multiple keys for different functions, enhancing security and usability.

 How different keys control different functions on a NEAR account

In addition, NEAR integrates MPC technology through chain signatures to ensure the security of cross-chain transactions, allowing users to interact with multiple blockchains without having to manage different wallets and mnemonics.

 MPC Signature Process

NEAR’s appeal

Stablecoins and TVL Growth

The market cap of NEAR’s stablecoins has remained relatively stable at around $75 million since July 2023. However, the start of Q2 2024 marked an important turning point, with the market cap of all stablecoins on NEAR experiencing significant growth.

This growth is reflected in the total locked value (TVL) of NEAR and its EVM-compatible sibling Aurora. From July 2023 to now, the total TVL of NEAR and Aurora has soared from about $55 million to $230 million, a 3x year-over-year increase in US dollars. After adjusting for the value of the native token, the TVL calculated in NEAR has doubled, while the TVL calculated in AURORA has fallen by 40%.

DeFi on NEAR

The DeFi landscape on NEAR is currently dominated by two key platforms: Burrow and Ref Finance. Lending platform Burrow has seen a surge in activity due to its incentivized lending program for stablecoins. Similarly, decentralized exchange (DEX) Ref Finance has actively incentivized its stablecoin mining pool, with total trading volume recently exceeding $7 billion . These incentives, which are primarily funded by NEAR token rewards, may play a key role in the surge in stablecoin market capitalization in 2024.

NEAR Ecosystem Emerging Categories and Trends

Restaking

Restaking has become an emerging and growing category in the NEAR DeFi ecosystem, with platforms such as Allstake contributing approximately $15 million to TVL. Although liquidity staking is not typically included in the TVL metric, it is still the largest category with a TVL of over $280 million.

On the Aurora side, while there are several popular EVM DApps, the most widely used application remains Aurora Plus, a platform designed to enable fee-free transactions and facilitate staking of AURORA tokens.

NEAR’s Commitment to Web3 AI Development

As part of its broader strategy to become the leading AI platform in the Web3 ecosystem, NEAR is making significant progress in developing and nurturing AI projects on its network. In addition to the efforts of the NEAR R&D Lab, the protocol has launched the NEAR AI x Horizon (HZN) Incubation Program , which is dedicated to supporting groundbreaking projects at the intersection of AI and blockchain technology. In its first incubation program, the program provides equity-free mentorship, technical assistance, and guidance to scale innovation to six selected projects.

NEAR HZN's equity-free model enables AI projects to focus entirely on building and improving their products without the pressure of giving up ownership. This supportive environment is critical to fostering innovation and has proven successful, as demonstrated by previous alumni who have collectively raised over $20 million in external capital. The program begins a new round of funding in May and continues three times per year, aiming to incubate a steady stream of breakthrough AI projects.

The six projects currently supported by the NEAR HZN program cover key areas of the AI ​​x Web3 stack, including data, compute resources, model networks, and payment infrastructure. These programs complement NEAR's collaboration with other AI-focused projects that are building networks in areas such as AI consumer applications, proxy infrastructure, and extending AI through NEAR's Data Availability (DA) layer.

By addressing all aspects of AI architecture within the Web3 space, NEAR positions itself as the blockchain of choice for developing AI applications. Its comprehensive support system, from incubation programs to cutting-edge technical infrastructure, demonstrates NEAR's commitment to promoting the development of AI on its platform and ultimately bridging the gap between AI and decentralized technologies.

Conclusion: NEAR’s strategic positioning as a leader in blockchain and AI

NEAR Protocol not only follows the popular narrative, but also lays the foundation for the future of blockchain and AI through its innovative and extensive infrastructure. By integrating a strong data availability layer, cutting-edge finality layer, and zero-knowledge technology, NEAR has become a vital infrastructure component that benefits its ecosystem and the broader blockchain field.

NEAR’s roots in AI and move to blockchain demonstrate a deep understanding of both fields. The scalable and reliable infrastructure it has developed allows NEAR to refocus on AI and have the necessary foundation to drive significant advances that were previously unattainable. With features such as chain abstraction, NEAR simplifies multi-chain interactions, making it an ideal platform for AI development that requires seamless access to a variety of blockchains and fast transactions.

Even in a competitive environment, NEAR has always kept its promise. With the help of co-founders’ leadership, strategic partnerships, and a dedicated R&D lab, NEAR is positioning itself as a true leader at the intersection of blockchain and AI. It’s not just about keeping up with the trends, but about shaping the future of technology in a way that drives meaningful advancement and adoption.