1. Key Points of the Research Report

1.1 Investment Overview

The NEAR protocol is committed to providing a Web 2-like user experience through its complex sharding architecture, with its team’s development capabilities and vision at the forefront of the industry. Its collaboration with Polygon on zkWASM, the fast settlement sequencer in partnership with EigenLayer, the independently built NEAR DA, the ultimate goal of chain abstraction, and the continuous iteration and improvement of its sharding architecture, along with a focus on consumer applications, all demonstrate and prove its pragmatic attitude in the thinking and exploration process, as well as its focused pursuit of technology.

On-chain data shows that NEAR's TVL has entered a phase of positive growth, with developers, transaction volume, and active user numbers all hitting new highs (excluding inscription markets). Although this data is primarily driven by volume-based applications, it reflects the diversity and compatibility of its ecosystem. Considering what it is currently doing, NEAR has the opportunity to capture narratives around Layer 1, ZK virtual machines, DA, and chain abstraction, gaining higher attention and expectations in the market.

1.2 Valuation Explanation

NEAR reached a peak of $20.15 during the last bull market, with a market cap of approximately $6 billion; the current price is around $5.6, peaking at about $6.2, which represents nearly a twofold increase compared to the previous two cycles. With a circulating supply of 1 billion tokens, it has now matched the market cap of the last bull market. This is only the performance under the current main ETF market, and it is expected that when the next bull market cycle's main wave arrives, NEAR will show better performance, likely far exceeding ETH. Given the possibility of an overall market correction, investors are advised to consider multiple factors for judgment and decision-making.

1.3 Main Risks

• Legal risks: Similar to other projects in the industry, if NEAR faces issues such as being classified as a security, it may put pressure on the token itself;
• Narrative not in place: In the overall trend, if the market does not recognize NEAR's narrative or fails to showcase its ecological vision, it may lead to weak upward momentum in token prices;
• Progress not meeting expectations: NEAR's second phase has been postponed from 2023 to 2024, and the timeline for subsequent development remains uncertain, with potential delays that could negatively impact market recognition and perception.

2. Project Basic Information

NEAR is a Layer 1 blockchain based on sharding technology, aiming to make transaction processing more efficient, scalable, and affordable. This architecture distinguishes the Near blockchain from Ethereum and other blockchains.

2.1 Business Scope

NEAR is positioned as a Layer 1 blockchain, striving to make complex and difficult-to-understand blockchain technology accessible. Through underlying extensibility, middle-layer optimization, and mature tools at the application layer, it provides a simple and user-friendly experience for developers and users, aiming to deliver high TPS and a user experience comparable to Web 2. Currently, the ecosystem is diverse, and overall data shows a positive upward trend.

2.2 Founding Team

In January 2024, NEAR's team underwent a 40% layoff, with approximately 40 members remaining. The company's organizational structure includes Near Protocol, NEAR Foundation, and the development team Pagoda. Polosukhin stated that despite the layoffs, the Near Foundation's finances "remain strong and well-managed," including $285 million in cash, 305 million NEAR tokens, and $70 million in investments and loans.

Illia Polosukhin: Co-Founder, holds a Bachelor's and Master's degree in Computer Science from Kharkiv Polytechnic Institute. He served as an engineering manager in Google's research department in 2014, responsible for deep learning. He co-founded NEAR in June 2017.

Alexander Skidanov: Co-Founder, holds a Master's degree in Computer Science from Izhevsk State Technical University. He previously worked as a software development engineer at Microsoft and spent five years researching MemSQL at a database company, primarily focusing on distributed databases, laying the foundation for his blockchain technology. He co-founded NEAR with Illia in June 2017.

David Norris: CFO of NEAR Foundation, holds a Bachelor's degree in Mathematics, Accounting, and Financial Management from Loughborough University in the UK, with about 20 years of experience in finance and accounting. He has served as a financial analyst at KPMG, European Arab Bank, Unilever, and Royal Bank of Scotland, joining NEAR as the finance director in June 2022 and promoted to CFO in January 2024.

2.3 Investment Background

NEAR's most recent funding round was in April 2022, raising $350 million, with a wide range of investment institutions covering most of the top VC firms in the industry, primarily led by Three Arrows Capital, Tigar Global, and A16Z.

Three Arrows Capital faced liquidation due to the Luna incident, and its NEAR assets totaling 13.9 million tokens have been liquidated by Genesis.

2.4 Project Development Roadmap and History

The team initially planned to launch the second phase of sharding in 2023, but it has been postponed to January 2024 for the release of the second phase testnet. Its roadmap has experienced some delays. In 2024, the team aims to primarily enhance NEAR's usability, scalability, and decentralization:

• Stateless validation: It adjusts the original Nightshade sharding design to avoid implementing fraud proofs while significantly improving the performance of each shard by placing state in memory. The team expects the launch of stateless validation to also significantly increase the throughput of each shard and prepare for the continuous growth of NEAR's usage (expected delivery in Q2);
• Congestion control and transaction prioritization: Providing a good user experience during short-term network congestion is crucial, including localized congestion, so that rising gas prices do not affect the entire network and allow users to prioritize their transactions during congestion (if they are willing to pay higher transaction fees);
• Support for account aggregation: Allowing users to control accounts on different chains using a single NEAR account is an important pillar of NEAR's chain abstraction vision. It requires signing the payload through MPC and necessitates a new API to facilitate the asynchronous characteristics of chain signatures;
• zkWASM: The goal is to build a prover for WebAssembly smart contracts. This can serve as part of the initiative to prove NEAR state transitions in ZK proofs, and zkWASM also provides wasm as an alternative execution environment for L2's EVM;
• Data availability improvements: NEAR launched NEAR DA in early November 2023, and the team plans to undertake some work to further enhance the efficiency of NEAR DA, including introducing KZG commitments to avoid data availability fraud proofs and real-time bridging to allow verification of data availability on Ethereum;
• Ethereum wallet support: Natively supporting wallets like MetaMask on NEAR will attract more users to use NEAR and align it more closely with Ethereum. This requires changes to the protocol to natively support Ethereum addresses and to handle RLP serialization of Ethereum transactions;
• Research on the future of sharding: Exploration directions include synchronous sharding and ZK-centric sharding. Synchronous sharding can achieve synchronized execution of smart contracts, addressing the pain points of asynchronous execution, while ZK-centric sharding utilizes zero-knowledge proofs to verify state transitions across different shards, enhancing the protocol's scalability and decentralization.

3. Business Situation

3.1 Official Website Data

Comparing AVAX and NEAR, we found that NEAR's website traffic has surpassed AVAX by 34% over the past three months, with daily visits around 31,000. The top three traffic sources are Indonesia, the United States, and India.

3.2 Social Media Data

3.3 Community Data

3.4 Cooperation Situation

• Collaboration with EigenLayer: Jointly developing a fast settlement sequencer network based on Ethereum Layer 2. The NEAR-Ethereum Rainbow Bridge built by NEAR will also use EigenLayer's avs service, with the testnet expected to launch in Q1 2024;
• Collaboration with Polygon: Jointly researching zkWASM, expected to launch in 2025. Developers building using Polygon's open-source Chain Development Kit (CDK) will be able to use zkWASM as a prover. NEAR can generate state transition proofs through zkWASM, alleviating the ZK operational burden on sharding nodes and improving proof generation efficiency, thereby enhancing sharding throughput.

4. Product and Competitive Analysis

4.1 Track Potential

In the new round of market cycles, the public chain narrative is an unavoidable theme, and the chain abstraction narrative may become an important branch of practical evolution. Given the current upward trend in the overall market and the rotation performance of various sectors, NEAR, with a solid fundamental background, is expected to perform better in the new round of market cycles and become an important component of the public chain track.

4.2 Competitive Landscape

coingecko Layer1 rankings by MC

NEAR emerged as a public chain project in the last cycle, with Avalanche being its comparable public chain project. Currently, NEAR ranks significantly lower, but there are also more opportunities.

Comparing the number of active addresses, NEAR's ecosystem is clearly better than AVAX, as NEAR gradually forms its unique ecosystem characterized by diverse projects.

4.3 Product Features

Sharding Nightshade

NEAR's main technical feature is its sharding technology, which is a key differentiating factor of the NEAR protocol.

Launched in November 2021, Nightshade allows validators to not have to handle every incoming transaction but only process transactions within specific shards, paving the way for theoretically unlimited scalability.

On January 30, 2024, the NEAR team confirmed the launch of the second phase of the sharding testnet, with the main feature being the implementation of statelessness. NEAR validators will no longer need to maintain the state of shards locally and can retrieve all information required for validating state changes or "state witnesses" from the network, with this part set to officially go live on the mainnet in May.

The team is also researching the incorporation of ZK technology into the sharding improvement roadmap, enabling cooperation between nodes generating ZK proofs and light nodes verifying proofs.

Initially, Ethereum's original roadmap was to implement sharding technology, which essentially involves distributed storage of database information. However, due to the complexity of the technology, it was abandoned in favor of a Layer 2 technology route.

Chain Abstraction:

Chain abstraction is a further abstraction of account abstraction, aiming to hide the specific chains used by users, reducing the perception of blockchain infrastructure usage, and providing users with a Web 2-like experience without needing to care about which application belongs to which chain, as well as a series of complex operations like signing and private keys. Specifically:

• BOS supports multiple languages running on multiple blockchains. In the future, when chain abstraction functionality is implemented, NEAR can call accounts bound to other chains for signing, meaning that users can use Uniswap on NEAR and sign transactions using Ethereum accounts;
• Super Wallet supports a single wallet to browse all DApps without switching chains;
• Account aggregation technology is used to initiate intentions for any chain through NEAR, and then sign transactions on any chain using MPC technology;

zkWASM:

NEAR's planned development is influenced by ZK technology, with plans to introduce ZK technology to compress states in future sharding technology. zkWASM is its virtual machine technology, capable of supporting mainstream development languages and running smart contracts developed in mainstream languages within the virtual machine, then generating zero-knowledge proofs.

In the future, zkWASM will become one of the three optional virtual machines for Polygon's zk Layer 2 development component CDK and will also run on NEAR, assisting nodes in generating zero-knowledge proofs and alleviating the generation burden on sharding nodes.

From the progress of product planning, it can be seen that the NEAR team has not been significantly affected by market cycles and has been continuously exploring the industry, keeping up with the latest technologies to improve NEAR's future development direction. The sharding technology is currently in its second phase, expected to go live in Q2-Q3, which will greatly improve the efficiency of validators; chain abstraction is an "End Game" type concept, providing users with a Web 2-like experience; zkWASM is intended to improve the ZK proof efficiency of sharding nodes and can also serve as a zk virtual machine runtime environment for Layer 2.

4.4 Developer Situation

From code submissions and active data, NEAR's development progress remains steady, clearly unaffected by the layoffs.

Additionally, according to Messari statistics, the number of developers working on NEAR has been steadily increasing since January 2023.

In a longer-term view from Electric Capital, it is found that the number of developers across all chains in the industry has significantly declined, with active developers dropping by half compared to the peak of the last cycle, while NEAR's developers are only one-third of the peak from the last cycle, indicating a downward trend that needs continued observation.

4.5 Ecosystem Development

As of March 7, 2024, NEAR's DeFi ecosystem has a TVL of approximately $190 million, maintaining a strong growth trend recently.

The diversity of NEAR's ecosystem is also performing well, with major projects including Burrow (lending), LiNEEAR (LSD), and Ref Finance (DEX).

According to Dapp Radar statistics:

• The project with the highest weekly active addresses is Hot Games, a wallet built on NEAR for Telegram;
• The second is KAI-CHING (KAIKAI), a shopping app that allows users to purchase products at lower prices;
• The third is Sweat Economy, a Walk-To-Earn app;

Additionally, KAIKAINOW is also a project based on the KAI-CHING token, primarily providing users with lock screen wallpapers and rewarding them with tokens through advertisements. According to NEAR's official statistics, this project contributes a significant proportion of data to NEAR's DAU.

The main users of NEAR are driven by the KAIKAI project, with its daily active address count showing a positive growth trend. Although the value of these transactions is not high in essence, being more volume-driven, it indicates that the chain is gradually moving towards consumer applications rather than purely DeFi applications, which is a significant change compared to most projects in the industry.

5. Token Circulation and Distribution

5.1 Total Supply and Circulation

The native token NEAR supports smart contracts executed on the network, similar to ETH on the Ethereum network. However, it employs a unique fee-burning mechanism, where 70% of transaction fees are burned, and the remaining 30% is directly used for the original contracts (developer rewards). This is a key distinction compared to other smart contract blockchains, which do not have direct developer incentives "built into" the protocol.

Currently, NEAR's market cap is approximately $5.863 billion, with an FDV of $6.658 billion. The circulating supply of tokens is 1,039,156,88, with a total supply of 1,180,233,734. The annualized inflation rate of the token is maintained at around 5%. Currently, staking rewards are around 9.1%, with net staking rewards at about 4.1%, and the staking ratio is 49.43% of the total supply (582 million tokens).

5.2 Market Performance and Window Period Forecast

NEAR reached a peak of $20.15 during the last bull market, with a market cap of approximately $6 billion; the current price is around $5.6, peaking at about $6.2, which represents nearly a twofold increase compared to two weeks ago. With a circulating supply of 1 billion tokens, it has now matched the market cap of the last bull market. This is only the performance under the current main ETF market, and it is expected that when the next bull market cycle's main wave arrives, NEAR will show better performance, likely far exceeding ETH. Given the possibility of an overall market correction, investors are advised to consider multiple factors for judgment and decision-making.

6. Conclusion

Recently, NEAR has shown significant upward performance in the market, but its overall market cap as a public chain project is still relatively small, and there are few market actions related to narratives such as Layer 1, ZK virtual machines, DA, and chain abstraction. It is expected to perform even better as the overall market rises. However, its risk points are also related to these aspects, especially regarding the alignment of narrative performance and product progress with expectations, which requires continuous attention and comprehensive analysis.

As a Layer 1 public chain project, NEAR has entered a mature phase, with its founder (one of the authors of the Transformer paper) leading the development of sharding technology, which is the project's most significant advantage and has withstood the test during the inscription market, achieving an average TPS of around 300. Additionally, there has been a noticeable rebound in the number of developers over the past three months, indicating that NEAR's ecosystem is gradually reviving and becoming active. In the future, with the gradual advancement of sharding technology, zkWASM, and the ultimate vision of chain abstraction, NEAR is bound to have broader prospects and growth potential.

Note: All opinions above are for reference only and do not constitute investment advice. If there are any objections, please feel free to contact for corrections.

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