Is NEAR the real Ethereum Competitor?
Introduction
NEAR Protocol ($NEAR) is an ultrafast, high performance blockchain with smart contract functionality that provides similar services to other layer 1 blockchains (L1s) like Ethereum, Solana, and Avalanche. With it’s innovative Nightshadesharding technology and Doomslug Proof-of-Stake consensus mechanism, NEAR is able to achieve low-cost, ultrafast transactions and has been designed with usability and scalability at the forefront.
Market Outlook
Currently, there are roughly 70 million wallets on the Ethereum platform. The number active on a regular basis is significantly smaller (I would estimate it to be roughly 1 million). Compare this to the nearly 1 billion smartphones in India alone and it puts into perspective just how incredibly early this market is and how much room for growth there is in the overall market size.
Also, many of the most intelligent and talented young entrepreneurs are focusing all of their efforts towards this space. Combine this with the huge amount of VC funds being deployed to Web3 projects and it’s extremely likely the overall market will continue to expand rapidly over the next few years.
Ethereum will continue to lose market share to alternative L1s who can provide superior, scalable technology. In order to be adopted into the mainstream, new technology needs to be easy for a user to access and engage with. The user experience on the blockchain currently is still absolutely terrible compared to what a typical smartphone user is accustomed to and needs to be improved and simplified significantly in order to onboard the next large wave of users.
Composability between apps across different verticals (DeFi, gaming, social media) will be critical. The next wave of users coming to Web3 will expect to be able to move money and assets between apps securely and with little to no friction. Viable L1s therefore need to build out a robust ecosystem of apps across multiple verticals rather than just specializing in one specific use case.
Thus, if we are trying to successfully predict the future winners, the most important aspect is to look at where the most developers are currently building and where they are likely to build going forward. Furthermore, we need to look at ease of use and aesthetics.
NEAR Advantages
Usability
From launch, NEAR has been built with an obsessive focus on usability for both developers and users. Code is written in developer friendly languages like Rust and AssemblyScript. Gas fees are reliably low-cost and developers are incentivized by receiving 30% of all gas fees that they generate. NEAR also places a priority on delivering a smooth UX and more familiar process for the mass market of users that have yet to enter the market.
Team
NEAR’s founders, Alexander Skidanov and Ilya Polosukhin, started working on the project in 2017. Both are experienced and talented engineers (Alex was the lead engineer at the startup MemSQL while Ilya was a key manager at Google) who are obsessed with realizing their vision of creating a scaleable, easy-to-use blockchain to onboard the next billion users.
In January 2022, Near Foundation hired Marieke Flement as CEO. Trained as an engineer and with a diverse range of experiences across Web2 and Web3, Flament most notably served as CMO for Circle where she led the successful branding and rollout of USDC.
Technology
NEAR’s Nightshade sharding technology and Doomslug Proof-of-Stake mechanism enables low transaction fees, ultrafast transaction times, and smooth horizontal scaling. With a 1s blocktime and 2–3s finality, NEAR is significantly faster than Ethereum (14s blocktime and 5min finality).
This fast processing will be increasingly important across many use cases, especially within finance. Currently, most DeFi activity has been concentrated towards uses that require less urgency like lending protocols and automated market makers where longer processing times can be tolerated. As DeFi continues to quickly grow, we will see the complexity, volume, and value of transactions grow as well. These will require technology like NEAR’s that is able to deliver high throughput and fast finality.
Developer Community
As of December 2021, there were over 400 total developers building within the NEAR ecosystem (6th most behind only Bitcoin, Ethereum, Solana, Polkadot, and Cosmos). This was a 4x+ increase from about 100 developers in December 2020. Amongst all ecosystems with 300+ active developers, Solana was the only other ecosystem with a 4x or greater increase (~200 to 900). If we narrow our focus further and look at only full-time devs, NEAR and Solana were the only platforms with 20+ full-time devs who saw a 4x+ increase (~35 to 140 for NEAR, ~55 to 220 for Solana).
Developer statistics taken from Electric Capital’s report available below:
Electric Capital Developer Report
Near-Term Catalyst
In Oct 2021, NEAR announced an $800 million grants fund with almost half set to go towards DeFi projects. NEAR Foundation also raised $150 million of funding in January 2022 to go towards raising public brand awareness and bringing users to the platform.
Here is the list of VC backing of NEAR Protocol:
In 2021, NEAR also launched Aurora which is an Ethereum Virtual Machine (EVM) that establishes decentralized interoperability between Ethereum and NEAR. Aurora delivers a turn-key solution for developers to operate apps on an Ethereum-compatible platform while benefitting from the high throughput, low-cost, and scalable benefits that NEAR’s technology provides. This launch is a critical step for NEAR to grow their user base, attract new developers, and raise overall brand awareness.
DeFi has continued to grow rapidly with TVL rising 320% from $49 billion to $206 billion year-over-year. Simultaneously, Ethereum continues to lose market share (55% of TVL currently vs. 84% 12mo ago) to protocols on other L1s. The overall DeFi market also is quite segmented with the opportunity for new protocols to gain traction quickly (i.e. DeFi Summer 2020, Trader Joe on AVAX). NEAR provides best-in-class technology that is particularly well-suited for both current and future finance use cases. They also have nearly $400 million of grants they will deploy towards DeFi projects to incentivize their large, quickly growing developer community. This combination of factors puts NEAR in a position to have a huge impact in the DeFi space over the next 1–2 years.
Long-Term Outlook
NEAR is also in a strong position when considering a more long-term time horizon. As of Jan 2022, there are about 18,000 active developers in Web3 which is a 75% increase from the prior year but still a minuscule fraction of the 27 million devs worldwide. As Web3 continues to push into the mainstream, developer count will increase rapidly. Inevitably, this will lead to high-value apps being built on the L1s that provide the most robust, developer-friendly ecosystems and can attract the top talent.
With a large developer community and obsessive focus on usability (for both developers and users), NEAR is a logical top option that new developers will consider.
Risks
NEAR currently does not have a very large user base or much activity taking place on the blockchain. This can be partially explained by NEAR’s go-to-market strategy of focusing on building best-in-class technology before allocating significant time and resources towards generating hype to draw users to the ecosystem.
Another factor is that you can’t yet buy their token on popular U.S. exchanges like Coinbase and Gemini, which limits awareness and interest among the general public.
I’m confident participation on the chain will increase due to the huge increase in developers building on NEAR, the launch of Aurora, and the $800m grant to incentivize development and new users. However, an inability to generate active participation on the chain still presents the biggest risk, especially if other rising L1s like Solana, Avalanche, and Fantom are able to grow activity significantly over the same time period.
Overall risk is also mitigated due to NEAR’s low market cap (~$5.6b) relative to other blockchains like Ethereum (~$330b), Solana (~$29b), and Avalanche (~$20b). With so much current developer activity and incentives to accelerate development further, I have strong conviction that even in the volatile crypto markets this is an investment opportunity that offers massive upside with limited downside risk at the current market valuation.