From Messari by Nicholas Garcia

Key Insights

Primer

NEAR Protocol (NEAR) is the Blockchain Operating System (BOS), a fully crypto-native stack that unifies the Web3 space into a single interface and a common layer for building, browsing, and discovering experiences on any blockchain. It provides users the opportunity to connect with various communities and applications while maintaining their data's privacy, all without the requirement of owning crypto. The BOS provides a cohesive platform addressing Web3 complexities and Web2 centralization limitations.

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 scalability, takes a novel approach to basic network functionality, and supports EVM and Substrate via Aurora and Octopus Network.

In Q4 2023, NEAR introduced significant technical developments, including the NEAR Data Availability (NEAR DA) layer, a fast finality layer for Layer 2s with Eigen Labs, and zkWasm with Polygon labs. These advancements showcase NEAR's technology and strength in advancing blockchain capabilities and interoperability.

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Key Metrics

Financial Overview

Market Capitalization

In Q4 2023, the entire crypto market cap experienced an increase, largely driven by anticipation surrounding the spot BTC ETFs. NEAR participated in the overall market rally and saw additional gains attributed to its increased network activity and plethora of notable announcements. As a result, NEAR's circulating market cap for the end of 2023 stood at $3.7 billion (+245% QoQ; +246% YoY), while its fully diluted market cap reached $4.3 billion. NEAR's market cap ranking increased 10 places, going from approximately 40th to 30th by the end of 2023.

Revenue

In Q4 2023, NEAR's revenue, measuring network transaction fees but not storage staking, saw significant growth, rising to $750,000. This increase in revenue was attributed to the heightened activity generated by KAIKAINOW and NEAR Inscriptions. During the Inscriptions craze, revenue surged due to a spike in transactions, which drove up transaction fees, though the average fee remained below $0.01 for the quarter. Of note, NEAR employs a fee-burning mechanism for transaction fees, where 70% of all fees are burned, while the remaining 30% is directed to the contract from which the transaction originated.

Supply

NEAR's native token (NEAR) is used for staking, transaction fees, and storage fees. NEAR employs a combination of inflationary and deflationary measures, with no fixed supply of NEAR tokens. The network follows a fixed annual inflation rate of 5%, with 90% of the inflationary rewards directed towards validators and the remaining 10% allocated to the protocol treasury. As of Q4, 84% of the total NEAR supply is in circulation. NEAR tokens are gradually unlocked at a rate of 4.3 million NEAR per month into the treasury, with full unlocking expected by October 2025. However, these tokens will only enter the market when distributed from the treasury.

Network Overview

Usage

In Q4 2023, NEAR experienced significant growth in its user base. The average daily active addresses increased 1,250% YoY, reaching 870,000 in Q4 2023. Similarly, daily new addresses showed substantial YoY growth of 550%, totaling 170,000 in Q4 2023. This expansion can be attributed to the successful launch and adoption of KAIKAINOW. Additionally, contributions from the Sweat Economy, Aurora, and Playember further bolstered this positive trend.

In comparison to other leading chains during the same period, NEAR's daily active addresses were notably higher. Specifically, Optimism averaged 72,000 daily active addresses, Arbitrum 150,000, Polygon PoS 375,000, and Aptos 60,000 in Q4 2023.

NEAR Inscriptions led an activity surge in December, reaching a yearly high of 14 million transactions. Along with this substantial increase, transaction fees rose off the typical fee but remained below $0.01 for the quarter. This stability in transaction fees can be attributed to NEAR's distinct fee mechanism, which adjusts fees based on the network's compute and bandwidth utilization.

In November, NEAR surpassed Ethereum in active addresses, establishing its presence as a top crypto network. This surge could be attributed to KAIKAINOW, an innovative social platform by Cosmose AI that launched in September. KAIKAINOW leverages blockchain and AI to deliver curated content to users' lock screens while also rewarding them with KAI-CHING tokens on the NEAR blockchain. Since its launch, KAIKAINOW has averaged nearly 1 million daily active addresses.

Gaming is the next largest sector on NEAR by active addresses. Gaming had held the top position on NEAR for an entire year until the launch of KAIKAINOW. Within the gaming sector, Sweat and Playember stand out. Sweat, which was introduced during the summer of 2022, quickly became the leading application on NEAR for the subsequent year. With a cumulative user base exceeding 140 million across both Web2 and Web3 versions, Sweat expanded to the United States in October 2023, further increasing its reach.

Following closely, Playember, a Web3 monetization platform that facilitates connections between brands, studios, and game developers, has been another major player in the NEAR gaming landscape. Play Ember boasts an impressive 120 million downloads and has consistently maintained its position as a leading crypto game within the ecosystem.

Other notable network events on NEAR in Q4 2023 included:

Development

NEAR places an emphasis on supporting developers, with 30% of transaction fees distributed to the creators of the smart contract called by the transaction. In addition to this fee structure, NEAR offers an extensive suite of tools tailored for developers working within its ecosystem. This suite encompasses SDKs dedicated to popular coding languages, sandbox environments, a NEAR CLI, and NEAR Developer Governance.

NEAR has established the NEAR Dev Hub as part of its decentralization efforts. The Dev Hub serves as a resource repository for developers, facilitating collaboration and innovation within the NEAR ecosystem. Early successes include sponsored hackathons, the formation of community groups, and collaboration on NEAR Enhancement Proposals. The implementation of Dev Hub and the BOS, which are designed to support developers, is expected to catalyze development activity.

Additional development activities in Q4 2023 include:

Data Availability

The NEAR Foundation has introduced the NEAR Data Availability (NEAR DA) layer as a part of the NEAR Open Web Stack, designed to enhance data availability for Ethereum rollups in a cost-efficient manner. The launch included partnerships with projects such as Madara by StarkNet, Caldera, Fluent, and others. NEAR DA aims to substantially reduce developer costs by offering a cheaper alternative for call data compared to the Ethereum mainnet.

Additionally, NEAR announced the integration of NEAR DA with Arbitrum Orbit. This collaboration enables developers to create more efficient, secure, and customizable rollups, leveraging the strengths of both NEAR and Arbitrum technologies.

Source: NEAR Foundation

Comparative data highlights the cost efficiency of NEAR DA against other solutions. As of December 2023, 231 kB of calldata costs $0.0016 on NEAR, significantly lower than $140.54 on Ethereum L1 and $0.046 on Celestia for the same amount.

Fast Finality Layer

The NEAR Foundation has partnered with Eigen Labs to create the first-ever fast finality layer for Ethereum Layer 2s. This development is aimed at drastically reducing transaction times from the current minutes or hours to just three-to-four seconds, while also decreasing transaction costs by a factor of 4,000. This innovation maintains Ethereum's security standards while integrating NEAR and EigenLayer's robust features. It enhances transaction efficiency and flexibility for Layer 2s.

Pagoda, the NEAR ecosystem development team, leads the collaboration to transition the NEAR-Ethereum Rainbow Bridge to an actively validated service (AVS). This effort aims to improve composability with Ethereum Layer 2s and reduce liquidity fragmentation within the rollup ecosystem. The partnership does not only aim to benefit projects on Ethereum but also to enhance the bridging experience between NEAR and Ethereum, hoping to enable faster transaction finality with increased security and decentralization. A testnet is anticipated to launch in Q1 2024.

zkWasm

The NEAR Foundation and Polygon Labs have partnered to develop zkWasm, a zero-knowledge prover designed for Wasm blockchains. The collaboration focuses on providing a customizable development environment for Wasm chains to integrate more effectively with Ethereum's liquidity and network capabilities. As part of this collaboration, the NEAR Foundation has become a core contributor to Polygon's Chain Development Kit (CDK).

Chain Abstraction

NEAR is actively pursuing chain abstraction to simplify the user experience and expand the user base for decentralized applications. This approach abstracts blockchains away from users, enabling seamless transactions and interactions across different chains within a single interface.

To achieve chain abstraction, NEAR is focusing on several key layers:

Decentralization and Security

NEAR employs a Thresholded Proof of Stake (TPoS) consensus mechanism, consisting of three distinct validator roles:

In September 2022, the introduction of Phase-1 of Nightshade sharding enhanced the network's capacity, enabling support for Chunk-Only Producers. Since this implementation, the amount of Chunk-Only Producers on the network has been on a consistent upward trend. By the conclusion of 2023, NEAR recorded a total of 122 Chunk-Only Producers. Conversely, the quantity of Block Producers has been steady at 100.

Nightshade sharding’s Phase-2 started in Q3 2023 and according to the Pagoda roadmap is set to extend until mid-2024. Phase-3 is slated to kick off in mid-2024 and proceed through the remainder of the year into 2025. In Phase-2, the network will expand to 100 shards, with no validators overseeing all shards. Conversely, Phase-3 plans to introduce a mechanism to dynamically modify the shard count based on demand.

NEAR Protocol enables staking through running a validator node or delegation, rewarding participants with inflationary NEAR tokens and storage staking benefits.

In Q3, NEAR introduced a Validator Delegation Proposal based on community feedback, rewarding participants with inflationary NEAR tokens and storage staking benefits.By quarter's end, 564 million NEAR (48% of total supply) was staked.

Governance

The NEAR Foundation announced that Illia Polosukhin, the co-founder of NEAR Protocol, has been appointed as the NEAR Foundation CEO. Additionally, previous CEO Chris Donovan will be stepping into the position of the NEAR Foundation COO to manage the daily operations of the Foundation, and will continue to remain as a member of the NEAR Foundation Council.

In early January 2023, 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. The first community DAOs have already been created, each with a specific focus and mandate:

In addition to the NEAR Foundation's treasury, the NEAR ecosystem has a community treasury. In the third quarter, the NEAR Foundation launched a Grassroots Support Initiative to support projects. The initiative allocated 15 million NEAR to the NDC Community Treasury, with subsequent allocation of up to 100M NEAR contingent on reaching specific milestones.

Network Overview (BOS)

In March, NEAR launched the Blockchain Operating System (BOS), an open-source platform enabling developers to develop on any blockchain using popular languages and community-developed components. It provides users the opportunity to connect with various communities and applications while maintaining their data's privacy, all without the requirement of owning crypto. The BOS provides a cohesive platform addressing Web3 complexities and Web2 centralization limitations. The BOS is powered by and settles on the NEAR Layer-1 blockchain. As such, it inherits all of the benefits from the NEAR chain.

Key BOS releases from Q4 include:

Additional BOS features include Developer Enablement, Universal Search, Gateways, Trust and Safety Content Moderation, and NEAR tasks. For an in-depth review of the BOS, check out this Messari report.

NEAR Social serves as the social layer of the BOS. It offers a peer-to-peer network for social interactions, content creation, and distribution. Users own their data, developers can access public data to create apps, and customizable widgets foster innovation. Today, NEAR Social is the central hub of activity on the BOS.

Since its inception, NEAR Social has shown consistent growth, with Q4 2023 emerging as a notable period in its development. On November 29th, the platform achieved an all-time high in active addresses with 11,000. The momentum continued in December, featuring several days with daily active addresses surpassing 1,000. For Q4 2023, NEAR Social averaged 687 daily active addresses, representing a 118% increase from the previous quarter.

In the fourth quarter, NEAR averaged 250 average total developers on NEAR Social. Overall, NEAR Social developers have been trending up throughout 2023. NEAR Social developers are expected to benefit from the plethora of NEAR developer-related announcements in the fourth quarter. The growth in developer activity is a positive indicator of the platform's expansion and its ability to attract and engage developers in its ecosystem.

Ecosystem Overview

DeFi

NEAR's Total Value Locked (TVL) ended the quarter at $128 million, a 147% increase from the previous quarter, positioning NEAR approximately 25th among blockchains by TVL. Within the NEAR Network's TVL, NEAR contributed 79% or $101 million, and Aurora contributed 21% or $27 million.

In Q4 2023, the leading protocols by TVL on the NEAR Network remained consistent with the previous quarter. Key contributions include:

Together, Burrow, Ref Finance, Orderly Network, and Aurora Plus account for 91% of the NEAR Network's Total Value Locked. This concentration of TVL across these protocols results in a NEAR DeFi Diversity score of four.

On the NEAR network, there are two primary liquid staking protocols: Meta Pool and LiNEAR. Both have achieved nearly identical TVLs, each standing at $67.5 million.

NEAR's total DEX trading volume in Q4 2023 reached $400 million, marking a 237% increase from the previous quarter. The bulk of trading volume comes from the two leading DEXs: Orderly Network, which averaged $1.9 million in daily volume (+301% QoQ), and Ref Finance, with an average daily volume of $2.2 million (+198% QoQ).

In contrast to the broader growth trends in NEAR's ecosystem, the stablecoin market witnessed a decline in Q4 2023. The stablecoin market capitalization began the year at $150 million and ended at $79 million, with USDC and USDT leading the decline, closing the quarter at market caps of $30 million and $7 million, respectively. Despite the launch of native USDC on NEAR, it did not reverse the downward trend. USN, the winding-down stablecoin from Decentral Bank, remained unchanged in its market capitalization.

NFTs and Gaming

NFT activity on NEAR fell for the first 11 months of 2023. In December, however, there was a notable uptick driven by the inscriptions mint, leading to a yearly high of $30,000 in trading volume on December 21st. Paras Marketplace maintained its lead in the ecosystem, accounting for 80% of daily active NFT addresses. The quarter was relatively quiet in terms of NFT-sector announcements, with two notable exceptions. The first was the Berklee College of Music partnering with the NEAR Foundation to create a music licensing platform on the NEAR Network, addressing challenges in music licensing and enabling fairer royalty payments to creators. Additionally, the NEAR Foundation, in collaboration with the International Cricket Council (ICC), launched the "Captain's Call" gaming app on the NEAR blockchain during the Men's Cricket World Cup 2023 to enhance fan engagement.

Closing Summary

NEAR concluded 2023 with its strongest quarter. Daily active addresses increased by 1,250% YoY, reaching nearly one million. This increase was primarily driven by protocols like KAIKAINOW, Sweat, and Play Ember. Consequently, NEAR now stands among the top blockchain networks in terms of daily active addresses.

The NEAR Foundation announced multiple technical advancements, including the NEAR Data Availability layer, a collaboration for a fast finality layer for L2s, zkWasm development with Polygon Labs, and plans for Chain Abstraction. Additionally, NEAR Co-Founder Illia Polosukhin was appointed as the CEO of the NEAR Foundation. Reflecting these positive developments, NEAR’s circulating market cap increased by 245% QoQ to $3.7 billion.

Looking into 2024, the NEAR Network has lofty expectations. The focus will be on iterating on its technical roadmap, attracting more developers, and attracting more leading protocols. NEAR is strategically positioned to compete across various sectors, setting the stage for a year of growth and innovation.