Author: Nicholas Garcia. Translated by: Cointime.com QDD

Key Insights

NEAR was one of the 13 assets listed in the SEC’s complaint against Coinbase. However, NEAR’s financials and network fundamentals were not affected by the news.

The introduction of the Blockchain Operating System (BOS) in March was a major milestone for NEAR. Within four months, NEAR Social attracted over 15,000 user accounts and saw the creation of nearly 6,000 widgets.

Sweat Economy remains a leading application. In one year, it has amassed a total of 19,000,000 Sweat wallets and recently conducted one of the largest DAO governance votes ever, attracting over 350,000 participants.

l NEAR has made significant progress towards its 2023 goal of driving adoption and attracting more users to the NEAR protocol and BOS. This progress has been driven by strategic partnerships and grassroots initiatives with established players in the industry.

The NEAR Foundation continues to actively advance the decentralized capital allocation model. This includes the continued launch of various community DAOs such as the Marketing DAO, Development Hub, Creative DAO, and the NEAR Digital Collective.

About NEAR

NEAR is a blockchain operating system (BOS), a fully Web3-based stack that unifies the Web3 space into a single interface and a common layer for building, browsing, and discovering experiences on any blockchain. The NEAR protocol is a smart contract platform that uses a phased proof-of-stake (PoS) consensus algorithm to execute transactions. NEAR uses the Nightshade sharding mechanism to increase transaction throughput and scalability, handles basic network functions in a novel way, and supports EVM and Substrate through Aurora and Octopus Network.

Key indicators

introduce

The second quarter saw some important developments, including a high-profile lawsuit filed by the U.S. Securities and Exchange Commission (SEC) against major players such as Binance and Coinbase. In the complaint, the SEC claimed that NEAR was among other tokens accused of being securities. After the complaint was filed, the NEAR team responded to the allegations, stating that they disagreed and were committed to continued development.

Despite regulatory uncertainty in the U.S., NEAR Networks remained stable throughout the quarter, with solid financial and network metrics. Additionally, NEAR has made significant progress toward its 2023 goal of driving adoption and attracting more users to the NEAR protocol and Blockchain Operating System (BOS). This progress has been driven by strategic partnerships and grassroots initiatives with established players in the industry.

Financial Overview

Market Cap and Revenue

NEAR saw a decline in both market capitalization and revenue in the second quarter of 2023. At the end of the quarter, the market capitalization was $1.25 billion, a 25% decrease from the previous quarter. In contrast, the total cryptocurrency market capitalization increased by 2% month-on-month, mainly driven by the growth of Bitcoin and Ethereum, which increased by 7% and 6%, respectively. It is worth noting that NEAR's market capitalization fell after the SEC's news was released, but it quickly recovered. At the end of the quarter, NEAR ranked 40th in the market capitalization rankings.

NEAR uses a mechanism to consume transaction fees, where 70% of the total fees are destroyed and the remaining 30% is distributed to the contract that initiated the transaction. In the second quarter, NEAR's revenue (measured in total gas fees) reached $98,000.

When evaluating a base layer protocol like NEAR, it is important to consider multiple factors. In addition to traditional revenue metrics, alternative valuation models such as Messari’s Expected Security Requirement Model and Multicoin’s partial framework should also be taken into account.

NEAR Token

NEAR's native token (NEAR) is used for staking, transaction fees, and storage fees. NEAR's transaction fees are determined based on the network's computation and bandwidth, unlike Ethereum's auction-style mechanism. Storage fees are paid by accounts and smart contracts for utilizing storage space on the NEAR network, representing long-term resource costs.

NEAR uses a combination of inflation and deflation measures, and the NEAR token has no fixed supply. The network follows a 5% annual inflation rate, with 90% of inflation rewards allocated to validators and the remaining 10% allocated to protocol funds. As of the second quarter, about 81% of the total NEAR supply is in circulation. NEAR tokens are gradually unlocked to protocol funds at a rate of 4.3 million per month, and all are expected to be unlocked by October 2025. However, these tokens will not enter the market until they are allocated from protocol funds.

Stakers on the NEAR network receive an annual staking yield of 9.4% and an actual yield of 4.4%.

Money Management

As of the end of the second quarter of 2023, the NEAR Foundation had a total fund of $900 million, including $349 million in legal reserves, 315 million NEAR tokens ($435 million at a closing price of $1.38), and $90 million in loans and investments. During the quarter, total funds decreased by $200 million, mainly due to the price of NEAR falling from $1.99 to $1.38. The Foundation manages funds using a risk-minimizing approach, utilizing highly rated bank accounts in Switzerland and limiting exposure to non-NEAR assets to a low level. The NEAR Foundation emphasizes transparency and accountability, with regular updates through transparency reports.

Decentralized Funds

Earlier this year, the NEAR Foundation announced that it was actively moving forward with a more decentralized capital allocation model, handing over decision-making power to community DAOs. This approach involves creating community DAOs that will have more control over the allocation of funds to NEAR-related projects. The first community DAO has been established, and each DAO has a specific focus and mission:

Marketing DAO: aims to unify and improve the allocation of funds for marketing projects. It is actively reviewing proposals related to promotion and marketing, with a core focus on content and social media.

Development Center: Aims to help decentralize the NEAR developer ecosystem and encourage broad innovation in the developer community. It is currently accelerating development and reviewing proposals to support technical ecosystem projects.

l   Creative DAO: Created for all creative contributors in the NEAR ecosystem, it aims to empower artists and creators by providing them with a platform for collaboration and the tools and resources they need to monetize their work and engage with their audience. It is currently accepting funding proposals.

NEAR Digital Collective (NDC) - A new governance body being developed to help govern the NEAR ecosystem. NDC aims to allow any member of the network to have a say in NEAR’s operations. In Q2, NDC surpassed 1,000 verified users after conducting the I-AM-HUMAN campaign.

In addition to the funds controlled by the NEAR Foundation, the NEAR ecosystem also benefits from the Community Treasury. With a balance of $5.7 million, the Community Treasury is an important part of the NEAR Digital Collective, serving as a decentralized treasury that allocates funds to support a range of grassroots initiatives. Its main goal is to promote the operation and development of the NEAR network.

Network Overview

Blockchain Operating System (BOS)

In March, NEAR launched the Blockchain Operating System (BOS). BOS is an open source platform that enables developers to develop on any blockchain using familiar languages ​​and a wide range of community-built components. At the same time, it provides users with the opportunity to connect to various communities and applications while protecting the privacy of their data without having to own cryptocurrency at the beginning, greatly improving the onboarding process. By providing a unified, interoperable platform, BOS solves the complexity often associated with Web3 and the limitations of centralization in Web2.

BOS is a comprehensive Web3 stack that provides developers and users with a single interface and a common layer for building, browsing, and discovering Web3 experiences on any blockchain. Key features of BOS include FastAuth, developer support, universal search, gateways, trust and security content auditing, and NEAR tasks. BOS will support and enhance every component of the NEAR ecosystem. The NEAR Foundation, Pagoda, and other core development teams will also continue to invest significant attention and development resources in BOS. For a detailed assessment of BOS, please refer to Messari's report.

NEAR Social is the social layer of BOS, providing a peer-to-peer social interaction, content creation, and distribution network. Users own their own data, developers can access public data to create applications, and customizable widgets promote innovation. Today, NEAR Social is the central hub of activity on BOS.

NEAR Social was officially launched on ETHDenver on March 2, 2023. Since its launch four months ago, NEAR Social has grown significantly, attracting over 15,000 user accounts. Notably, NEAR saw increased participation during the NEAR - CoinGecko NFT mint in late May.

A key aspect of the NEAR Social framework is the use of widgets as reusable and open source components. These widgets serve as building blocks for developing applications on top of the SocialDB contract and cover a wide range of functionality, from smaller components like buttons to larger elements of full applications like social networks. The creation of widgets is showing healthy growth and will be an important metric to measure in the future.

Account

During the second quarter, daily active accounts on the NEAR network remained stable, with an average of 58,000 active accounts per day. In Q3 and Q4 2022, there was significant growth in daily active accounts due to the launch of Sweat Economy, increasing 4x compared to Q2 2022 and setting a consecutive record high .

The number of new accounts declined during the quarter, down 19% sequentially. There was a significant increase in new accounts in April following the announcement of Sweat Economy. Subsequently, daily new account creation appears to have stabilized, remaining in the tens of thousands range.

trade

Consistent with account metrics, transaction activity on the NEAR network remained flat quarter-over-quarter in Q2. The network processed an average of 358,000 transactions per day, down 9% from the previous quarter. Transaction fees remained below $0.01.

NEAR's transaction fee mechanism is different from Ethereum's auction-style system, which adjusts fees based on the network's computational and bandwidth utilization. From the total fees generated by transactions, 70% are destroyed, while the remaining 30% are allocated to the contract that initiated the transaction. This unique allocation strategy effectively incentivizes and rewards developers.

Active Contracts - Developer Activities

The NEAR network focuses on developer convenience. In addition to the contract reward mechanism mentioned above, NEAR also supports smart contract development in multiple programming languages, including JavaScript, Rust, AssemblyScript, and Solidity. To enhance its infrastructure, NEAR has partnered with multiple cloud service providers, including Google, Seracle, and Alibaba Cloud.

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

Over the past three quarters, NEAR has averaged 700 active contracts per day. A total of 66,000 contracts have been created, a number that is expected to increase as the NEAR ecosystem continues to expand and BOS adoption grows.

Leading Contracts

Contract activity within the NEAR network can be measured through receipts, which are stateful messages used for cross-contract communication. In Q2, the Sweat Economy contract topped the list in terms of receipts, exceeding 14.3 million receipts. This number is almost three times that of the second-place contract. The success of Sweat Economy is also reflected in the total of 19 million Sweat wallets.

In the second quarter, Sweat Economy conducted a learn and earn campaign. From May 23 to May 31, Sweat wallet users who successfully completed the course "What is a stablecoin?" and the corresponding interactive quiz will receive a reward of 1 USDT. During the nine-day event, more than 245,000 users started the course, about 219,000 users completed the course, and 130,000 users completed the course and quiz.

NEAR Crowd and Aurora were the second and third most active contracts during the quarter, based on receipt counts. NEAR Crowd is a task-oriented platform that rewards users with NEAR tokens and has submitted over 5 million task solutions to date. Aurora, as the EVM on the NEAR network, has also made an important contribution to the overall activity of the ecosystem. A more comprehensive analysis of the Aurora ecosystem can be found in a previous report. Other contracts that showed sustained engagement during this period include Spin, Ref Finance, and Play Ember.

NEAR Horizon

NEAR Horizon is an accelerator program launched by the NEAR Foundation to support and empower Web3 founders. It provides a marketplace that connects founders with service providers, mentors, and supporters, providing resources and credit for key areas such as marketing, legal, and infrastructure. Strategic partnerships with organizations such as Dragonfly, Pantera, and Fabric Ventures enhance the capabilities of the program. NEAR Horizon is aligned with NEAR's vision of becoming the blockchain operating system for the open web, promoting the growth of Web3 startups and the development of a decentralized ecosystem.

Ecosystem Overview

DeFi TVL

Q2 2023 marked the fifth consecutive quarter of decline in NEAR’s TVL. At the end of the quarter, NEAR’s TVL was $60 million, a 39% decrease from the previous quarter. NEAR’s TVL decline was primarily attributed to the withdrawal of liquidity from Alameda and the liquidation of DeFi positions in early April. Notably, the SEC’s claim that NEAR is a security had little impact on the TVL.

NEAR maintained its position as the top protocol in terms of TVL during the quarter. TVL is evenly distributed among the leading protocols, including:

l   Burrow: Loan agreement with TVL of $17 million (up 15% month-over-month).

l   Ref Finance: decentralized exchange with a TVL of US$14 million (down 62% month-on-month).

l   Orderly Network: decentralized exchange with a TVL of US$9 million (up 31% month-on-month).

l   Aurora Plus: membership program, with a TVL of US$6 million (down 6% month-over-month).

l   Bastion: lending and stablecoin exchange protocol with a TVL of $4 million (down 81% month-on-month).

Among them, Ref Finance and Bastion were most affected by Alameda's divestment, with TVL falling by US$22 million and US$15 million respectively. On the contrary, Burrow and Orderly Network became the projects with the most significant growth this quarter, with TVL increasing by US$2 million and US$2 million respectively.

Looking ahead, NEAR's core development team and DeFi teams within the ecosystem have planned several initiatives. These include the introduction of easy-to-use stablecoin onboarding, user-friendly onboarding options, engagement activities for core trader products, a one-stop DeFi experience, and joint initiatives for on-chain traders. In addition, BOS plans to provide acceleration and innovation for the development of DeFi applications on the network.

Decentralized Exchanges and Perpetual Contracts

In the second quarter, decentralized exchanges Ref Finance and Orderly Network had average weekly trading volumes of $5.4 million and $2.4 million, respectively. These volumes accounted for approximately 70% to 30% of the overall DEX volume on the NEAR network. In addition, another decentralized exchange, Veax, went live on the mainnet at the end of April.

Spin, the first perpetual contract protocol on NEAR, continues to grow. In Q2, Spin's cumulative trading volume increased by 62% to $55 million. Spin has several catalysts for the future, including its launch on Polygon's zkEVM and the introduction of the SPIN token. Additionally, Derivio, a derivatives platform built on zkSync and NEAR, launched its testnet. Derivio aims to differentiate itself through market neutral liquidity and a unique risk management strategy that ensures liquidity pools continuously adjust in volatile market conditions and generates organic returns.

Liquid pledge

After a sharp increase in the first quarter of 2021, the TVL of the NEAR liquid staking protocol was relatively stable in the second quarter, reaching US$33 million by the end of the second quarter. LiNEAR's TVL was US$16 million. It is worth noting that during this quarter, LiNEAR introduced an automatic validator selection optimization algorithm. The algorithm aims to automatically allocate users' NEAR to validators to optimize returns and network security. Meta Pool's TVL was US$13 million. Meta Pool expanded its business to Aurora and plans to launch on Ethereum later. As one of the three components of the liquid staking protocol, Stader has a TVL of US$4 million.

Stablecoins

As of the second quarter of 2021, the market value of stablecoins on the NEAR network is $112 million, of which NEAR contributes $93 million and Aurora contributes $19 million. The bridged USDC stablecoin has a market value of $46 million on the market, while Decentral Bank's USN stablecoin has a market value of $38 million. It is followed by the Native-USDT stablecoin with a market value of $23 million, and other stablecoins totaling $5 million.

NFTs and Gaming

NEAR's NFT activity continued to decline in Q2 2021, continuing the trend of previous quarters. Marketplaces Paras Marketplace, Few and Far, and TradePort maintained their leading positions. NEAR has also established partnerships with several companies to support its NFT experience, including Tekuno of NEAR Balkans, Rove World V2, Shemaroo, Taco Labs, Knaq, and Skoda Ventures.

In the gaming space, playEmber and Land to Empire maintained their leadership. In addition, several gaming partnerships were announced, including PipeFlare, ARterra, MARBLEX, and Vortex Gaming. All of these partners will leverage NEAR’s scalability and BOS for the development of specific projects.

Aurora, Octopus Network, and Rainbow Bridge

Aurora, Octopus Network, and Rainbow Bridge play important roles in the NEAR ecosystem, facilitating interoperability and expanding the capabilities of the network.

Aurora is the Ethereum Virtual Machine (EVM) created by NEAR core developers and runs as a smart contract on NEAR. Notably, in the first quarter of 2021, Aurora launched Aurora Cloud, a suite of products designed to provide Web3 infrastructure for Web2 companies. The platform includes Borealis Business, which enables companies to add blockchain capabilities to their applications; Aurora Pass, a mobile digital wallet; and Aurora Silos, which facilitates the creation of dedicated customer-facing blockchains running on the Borealis Business infrastructure.

Octopus Network is a set of Substrate-based, EVM-compatible application chain networks on NEAR. It includes various application chains, including Fusotao, Myriad, Atocha, DeBio, and Discovol. Octopus plans to expand Inter-Blockchain Communication to non-Cosmos-SDK chains and launch Octopus 2.0. In addition, it plans to implement a NEAR re-staking program similar to EigenLayer and enable DAO members to vote on new application chains to further decentralize the network.

The Rainbow Bridge, including the newly launched Fast Rainbow Bridge, is a light client-based bridge that connects Ethereum, NEAR, and Aurora. Fast Rainbow Bridge provides faster token transfers than traditional Rainbow Bridge. It uses LP-Relayer, NearFastBridge contract on NEAR, EthereumFastBridge contract on Ethereum, and multiple relays to provide liquidity for fast transfers. In addition, independent developers Electron Labs and Zpoken are developing zero-knowledge technology for it. The cumulative bridge transaction volume of Rainbow Bridge exceeds US$3 billion.

In Q2 2021, NEAR announced two new bridge partnerships with Wormhole and Composable Finance.

Decentralization and Staking Overview

Validator

NEAR's consensus algorithm, Thresholded Proof of Stake (PoS), utilizes block producers, chunk-only producers, and hidden validators to validate transactions. Block producers validate transactions across all shards, while chunk-only producers focus on a single shard. Hidden validators act as third-party monitors. In September 2022, the first phase of Nightshade sharding was implemented, tripling the network's validator capacity. Currently, NEAR has 100 block producers. The number of chunk-only producers has been increased to 119 due to their lower requirements and reduced costs of running validators.

NEAR validators are rewarded through a fixed reward rate and storage staking. Notably, validators do not receive rewards from transaction fees; instead, these rewards are distributed to smart contract developers. Validators aim to earn a specific number of NEAR tokens per epoch, with a minimum of 4.5% of the total supply per year. Storage staking involves account owners using tokens to pay for smart contract storage, locking up tokens and taking them out of circulation based on the amount of data stored. This process indirectly benefits validators by reducing available tokens in both regular staking and circulating supply.

Staking

As of the end of Q2 2021, the staked percentage of NEAR supply continued to gradually increase, reaching 534 million NEAR (47% of total supply)

Summarize

Despite NEAR being mentioned in the SEC’s complaint against Coinbase, NEAR has made important progress in driving adoption and attracting more users to the NEAR Protocol and Blockchain Operating System (BOS) in 2023. The launch of BOS continues, with NEAR Social gaining over 15,000 accounts and 6,000 widgets created. The Sweat Economy continues to be a leading application with 19 million cumulative Sweat wallets and record participation in DAO governance. The NEAR Foundation remains committed to a decentralized capital allocation model and is actively implementing various community DAOs such as the Marketing DAO, Developer Center, Creative DAO, and NEAR Digital Collective (NDC), which surpassed 1,000 verified users in the second quarter.

Despite the challenging regulatory environment, NEAR's financial and network fundamentals remain stable. NEAR will continue to maintain its growth momentum through strategic partnerships with industry leaders and grassroots initiatives.