*Forward the Original Title：MIIX Capital: MIIX Capital：NEAR调研分析报告

1. Research Report Highlights

1.1 Investment Overview

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

From on-chain data observations, NEAR’s TVL has entered positive growth, with developers, transaction volume, and active user numbers reaching new highs (except for the current market situation). Although the data is primarily driven by applications with large transaction volumes, it reflects the diversity and compatibility of its ecosystem. Combined with what it is doing, NEAR has the opportunity to seize narrative points such as Layer1, ZK virtual machine, DA, chain abstraction, etc., and gain higher attention and expectations in the market.

1.2 Valuation Explanation

NEAR reached a peak of $20.15 in the last bull market, with a market cap of about $6 billion; the current price is around $5.6, peaking at about $6.2, nearly doubling compared to the previous two cycles. Considering a circulating token supply of 1 billion, it currently has the same market cap as the previous bull market. This performance is only under the current ETF main trend, and it is expected that NEAR will perform better in terms of price appreciation when the next bull market cycle arrives, possibly surpassing ETH. Given the potential for an overall market correction, investors are advised to consider multiple factors for judgment and decision-making.

1.3 Major Risks

1. Legal risks: Like other projects in the industry, NEAR may face pressure if it is considered a security issue;
2. Narrative inadequacy: In the overall trend, if the market does not recognize NEAR’s narrative or fails to demonstrate its ecological vision, it may lead to weak upward momentum in token prices;
3. Progress falling behind expectations: NEAR’s second phase was delayed from 2023 to 2024, and it is currently uncertain whether subsequent development will be realized, which could lead to delays, thereby significantly affecting market recognition and perception of it.

2. Project Overview

NEAR is a Layer1 based on sharding technology, aiming to make transaction processing more efficient, scalable, and affordable, distinguishing itself from other blockchains like Ethereum.

2.1 Business Scope

NEAR is positioned as Layer1, striving to make blockchain more accessible by providing developers and users with a simple and friendly user experience, from underlying scalability and middle-layer optimization to mature tools in the application layer. It hopes to provide high TPS and a user experience no different from Web2. The current ecosystem is diverse, and overall data shows good upward development.

2.2 Founding Team

In January 2024, NEAR underwent a 40% team reduction, with approximately 40 team members currently. The company’s organizational structure consists of Near Protocol, NEAR Foundation, and the development team Pagoda. Polosukhin stated that despite the layoffs, the financials of the Near Foundation are “still 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 Bachelor’s and Master’s degrees in Computer Science from Kharkiv Polytechnic Institute. He served as an engineering manager at Google’s research department in 2014, focusing on deep learning. He founded NEAR in June 2017.

Alexander Skidanov: Co-founder. He 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, focusing on distributed databases. This laid the foundation for his blockchain technology expertise. He co-founded NEAR with Illia in June 2017.

David Norris: CFO of NEAR Foundation; he holds a Bachelor’s degree in Mathematics, Accounting, and Financial Management from Loughborough University, UK, with approximately 20 years of experience in finance and accounting. He previously worked as a financial analyst at KPMG, European Arab Bank, Unilever, and the Royal Bank of Scotland. Joined NEAR as CFO in June 2022 and was promoted to CFO in January 2024.

2.3 Investment Background

NEAR’s most recent financing was in April 2022, with a total of $350 million raised. Its investor base is broad, including many top VCs in the industry, with major lead investors such as Three Arrows Capital, Tigar Global, and A16Z.

Three Arrows Capital’s NEAR assets totalling 13.9 million tokens have been liquidated by Genesis due to losses from the Luna incident.

2.4 Project Development Roadmap and History:

The team originally planned to release the second phase of sharding in 2023 but delayed it until January 2024 when the testnet for the second phase was launched. The roadmap has experienced some delays. In 2024, the team aims to primarily improve NEAR’s usability, scalability, and decentralization:

1. Stateless validation: Adjusted the original Nightshade sharding design to avoid implementing fraud proofs, significantly improving the performance of each shard by storing the state in memory. The team expects the introduction of stateless validation to significantly increase the throughput of each shard and prepare for the continued growth of NEAR’s usage (expected delivery in the second quarter).
2. Congestion control and transaction priority: Providing a good user experience during short-term network congestion is essential, including localized congestion to prevent gas price spikes from affecting the entire network and allowing users to prioritize their transactions during congestion (if they are willing to pay higher transaction fees).
3. Support for account aggregation: Allows users to control accounts on different chains with a single NEAR account, which is an important pillar of NEAR’s chain abstraction vision. It requires signing payloads through MPC and a new API to facilitate the asynchronous nature of chain signatures.
4. zkWASM: Aimed at building a prover for WebAssembly smart contracts. This can be used as part of a ZK proof to prove NEAR state transitions. zkWASM also provides wasm as an alternative execution environment for L2 EVM.
5. Data availability improvements: NEAR launched NEAR DA in early November 2023, and the team plans to further improve the efficiency of NEAR DA. These improvements include introducing KZG commitments to prevent data availability fraud proofs and real-time bridging to allow verification of data availability on Ethereum.
6. Ethereum wallet support: Native support for wallets like MetaMask on NEAR can attract more users to use NEAR and make it more consistent with Ethereum. This requires protocol changes to natively support Ethereum addresses and support RLP sequence of Ethereum transactions.
7. Research on the future of sharding: Exploring directions include synchronous sharding and ZK-centric sharding. Synchronous sharding can achieve synchronous execution of smart contracts, solving the sticking problem of asynchronous execution, while ZK-centric sharding uses zero-knowledge proofs to verify state transitions in different shards, improving protocol scalability and decentralization.

3. Business Overview

3.1 Official Website Data

Comparing AVAX and NEAR, we find that NEAR’s website traffic has been 34% higher than AVAX’s over the past three months, with a daily traffic of around 31,000 visitors. The top three sources of traffic are Indonesia, the United States, and India.

3.2 Social Media Data

3.3 Community Data

3.4 Partnership Situation

1. Collaboration with EigenLayer: Collaborating to develop a rapid settlement sequencer network based on Ethereum Layer2. The NEAR-Ethereum Rainbow Bridge built by NEAR will also use EigenLayer’s avs service, with the testnet expected to launch in the first quarter of 2024.
2. Collaboration with Polygon: Collaborating on zkWASM research, expected to launch in 2025. Developers using Polygon’s open-source codebase, Chain Development Kit (CDK), can use zkWASM as a prover. NEAR can generate state transition proofs through zkWASM, reducing the burden of ZK execution on shard nodes and improving proof generation efficiency to increase shard throughput.

4. Product and Competitive Analysis

4.1 Project’s Potential

In the new round of market cycles, public chain narratives are inevitable, and chain abstraction narratives may become an important branch of implementation evolution. Given the overall upward trend of the market and the rotation performance of various sectors, NEAR, with a good fundamental situation, is expected to have better expectations and performance 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 is a public chain project that appeared in the last cycle, and its benchmark public chain project is Avalanche. NEAR is currently relatively far behind in the ranking, but there are also more opportunities.

Comparing the number of active addresses, NEAR’s ecology is significantly better than AVAX. NEAR has gradually formed its own unique ecological environment characterized by diversified projects.

4.3 Product Features

Sharding with Nightshade: NEAR’s main technological feature is sharding, which is also the key differentiating factor of the NEAR protocol. Nightshade, launched in November 2021, allows validators to process transactions only within specific shards, paving the way for theoretically unlimited scalability. The second phase of sharding testing, announced by the NEAR team on January 30, 2024, will implement statelessness, eliminating the need for NEAR validators to maintain shard states locally and allowing them to retrieve all information required for validation state changes or “state witnesses” from the network, which is expected to go live on the mainnet in May.

The team is also studying the integration of ZK technology into the sharding improvement roadmap, enabling cooperation between nodes that generate ZK proofs and light nodes that verify proofs.

Chain Abstraction:

Chain abstraction is a further abstraction of account abstraction, aiming to hide the specific chains used by users, reduce users’ perception of using blockchain infrastructure, and provide users with a Web2-like experience without worrying about which application belongs to which chain, as well as a series of complex operations such as signing and private keys. Specific features include:

1. BOS supports running in multiple languages on multiple blockchains. In the future, with the implementation of chain abstraction functionality, NEAR as an entry chain can use accounts bound to other chains for signature transactions. In NEAR, users can use Uniswap with Ethereum accounts to sign transactions.
2. Super Wallet supports browsing all DApps with a single wallet without switching chains.
3. Account aggregation technology is used to initiate intentions on any chain through NEAR, and then sign transactions of any chain through MPC technology.

zkWASM:

NEAR’s planned development is influenced by ZK technology and plans to introduce ZK technology to compress states in future sharding technology. zkWASM is its virtual machine technology, supporting mainstream development languages and enabling smart contracts developed in mainstream languages to run in the virtual machine and generate zero-knowledge proofs.

In the future, zkWASM will become one of the three optional virtual machines for Polygon’s zk Layer2 development group with the construction of CDK, and zkWASM will also run on NEAR to help nodes generate zero-knowledge proofs and alleviate the burden of proof generation on shard nodes.

The progress of product planning shows that the NEAR team has not been significantly affected by market cycles and has been exploring the industry, following the latest technologies, and improving NEAR’s future research and development direction. Sharding technology is currently in the second phase and is expected to go live in Q2-Q3, greatly improving validator efficiency; chain abstraction is a concept belonging to the “End Game” type, providing users with a Web2-like experience; zkWASM is a future development of NEAR to improve the efficiency of ZK proofs for shard nodes and can also serve as the zk virtual machine runtime environment for Layer2.

4.4 Developer Situation

From the perspective of code commits and active data, NEAR’s development progress remains steady, showing no signs of being affected by the layoffs.

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

In a longer cycle analysis by Electric Capital, it was found that developers across all chains in the industry have experienced a significant decline, with active developers decreasing by half compared to the peak of the previous cycle. However, NEAR’s developers have only decreased to one-third of the peak during the previous cycle, indicating that it is still in a downward trend that requires continued observation.

4.5 Ecosystem Development

As of March 7, 2024, the Total Value Locked (TVL) of NEAR’s DeFi ecosystem is approximately $190 million, showing strong growth trends recently.

NEAR’s ecosystem diversity is also evident, with major projects including Burrow (lending), LiNEEAR (LSD), Ref Finance (DEX), among others.

According to Dapp Radar statistics:

1. The project with the highest weekly active addresses is Hot Games, a wallet built on NEAR via Telegram.
2. Next is KAI-CHING (KAIKAI), a shopping app that offers products at lower prices.
3. The third-ranked project is Sweat Economy, a Walk-To-Earn app.

Additionally, KAIKAINOW, based on the KAI-CHING token, primarily provides users with lock screen wallpapers and rewards them with tokens through advertisements. According to NEAR’s official statistics, this project contributes a significant proportion of DAU (Daily Active Users) to the NEAR chain.

Most of NEAR’s main users come from the KAIKAI project, which has shown a consistent growth trend in daily active addresses. While the value of these transactions is not necessarily high, it indicates that the chain is gradually moving towards consumer applications rather than purely DeFi applications, which is a significant change compared to most industry projects.

5. Token Circulation and Distribution

5.1 Total Supply and Circulating Supply

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, with the remaining 30% directly allocated to the original contract (developer rewards), which is a key difference compared to other smart contract blockchain protocols.

Currently, NEAR’s market capitalization is approximately $5.863 billion, with a Fully Diluted Valuation (FDV) of $6.658 billion. The circulating token supply is 1,039,156,880 out of a total of 1,180,233,734 tokens. The current token inflation rate is maintained at around 5%. Staking rewards are around 9.1%, with a net staking reward of about 4.1%. The staking ratio to total supply is at 49.43% (582 million tokens).

5.2 Market Performance and Window Period Forecast

During the last bull market cycle, NEAR reached a peak of $20.15, with a market capitalization of around $6 billion. The current price is around $5.6, reaching a recent high of approximately $6.2, nearly doubling compared to two weeks ago. Considering the circulating token supply of 1 billion tokens, NEAR’s market capitalization is currently equivalent to that of the previous bull market. This performance is under the current ETF bull market trend, and it is expected that NEAR will perform even better during the next bull market cycle, potentially surpassing ETH. Given the possibility of an overall market correction, investors are advised to consider multiple factors when making decisions.

6. Summary

Recently, NEAR has shown significant upward performance in the market, but its overall market value as a public chain project is still relatively small. However, combined with narratives such as Layer1, ZK virtual machine, DA, and chain abstraction, NEAR is expected to have more prominent performance with the overall market trend. However, its risks are also related to these factors, especially narrative performance and the alignment of product progress with expectations, which require continued attention and comprehensive analysis.

As a Layer1 public chain project, NEAR has entered a mature stage, with its main advantage being the sharding technology developed by its founder (one of the authors of the paper “Transformer”). It has withstood the test during the Mingwen market, with an average TPS reaching around 300. Additionally, there are signs of a significant rebound in the number of developers in the past three months, indicating that NEAR’s ecosystem is gradually recovering and becoming active. In the future, with the gradual advancement of sharding technology, zkWASM, and the ultimate chain abstraction vision, NEAR will inevitably have broader prospects and growth potential.

Disclaimer：

1. This article is reprinted from [Marsbit]. Forward the Original Title‘MIIX Capital：NEAR调研分析报告’.All copyrights belong to the original author [MiKe Community*]. If there are objections to this reprint, please contact the Gate Learn team, and they will handle it promptly.
2. Liability Disclaimer: The views and opinions expressed in this article are solely those of the author and do not constitute any investment advice.
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