NEAR - 10. The Path to Decentralization
The Path to Decentralization
Introduction
NEAR is a decentralized application platform which is designed to enable the open web of the future and power its economy. It uses the same core underlying technology that made Bitcoin an unkillable currency and combines it with cutting edge advances in community consensus, database sharding and usability. On this web, everything from new currencies to new applications to new industries can be created, opening the door to a brand new future.
\n
Why decentralization matters
On the surface, many of the design goals of a decentralized blockchain-based platform can be accomplished both faster and cheaper by using existing platforms.
For example, the cost to store data or perform computation on the Ethereum blockchain are between thousands and millions of times higher than the cost of performing the same functions on Amazon’s Web Services. A developer can always build a “centralized” application or even a centralized currency at a fraction of the cost of doing the same on a decentralized platform because the decentralized platform will, by definition, have many redundancies in its processes and storage.
Why is it important to pay the added cost to support decentralization?
Because not all data is created equal.
Certain elements of value, for example the bits representing ownership of digital currency, personal identity or titles to assets, are highly sensitive. In a centralized system, the following players can all directly change the value of any balances they come into contact with:
- The developer who controls the release or update of the application’s code
- The platform where the data is stored
- The servers which run the application’s code
Even if none of these players intend to operate with bad faith, the actions of governments, police forces and hackers can easily turn their hands against their users and censor, modify or steal the balances they are supposed to protect.
A typical user will trust a typical centralized application, despite its potential vulnerabilities, with everyday data and computation. Typically, only banks and governments are trusted sufficiently to maintain custody of the most sensitive information — balances of wealth and identity. But these entities are also subject to the very human forces of hubris, corruption and theft.
For example, the Global Financial Crisis in 2008 showed the fundamental problems of trusting an over-leveraged banking system. It also provided a timely example of how governments around the world implement substantial capital controls on citizens during times of crisis. Beyond this example, it has become a truism that hackers now likely own most or all of your sensitive data.
By contrast, a fully decentralized system doesn’t have an “off” switch and it doesn’t have a way for nefarious forces to impose their will on the applications built on top of it. To accomplish this, the system requires substantial redundancy in both computation and storage of data because any points of failure in these areas can be exploited. The more sensitive the information being stored, the more redundancy and security is required… and the more decentralization matters.
Blockchain-based systems are the substrate for this decentralization because their immutability provides the primitives — tokens, for example — necessary to incentivize cooperation and coordination among the numerous actors who make up these systems and power their redundancy. Once these systems are launched, they become essentially “unkillable”.
The benefits of building applications on top of such a system are substantial. Not only is highly sensitive information secured and available globally, but currency is now a native primitive of the medium. These decentralized applications operate on a more complex infrastructure than today’s web but they have access to an instantaneous and global pool of currency, value and information that today’s web, where data is stored in the silos of individual corporations, cannot provide. As importantly, the data these apps secure is fully owned and controlled by their end users rather than the apps themselves. This opens up a wealth of new use cases which could not exist without a decentralized infrastructure.
While decentralization is crucially important, not all blockchain-based systems are decentralized. Decentralization is a scale which can be measured along a number of dimensions but, fundamentally, it comes down to how many players in the system must be corrupted in order to break the system itself and how likely that is to occur. The more important the assets the system must protect, the more important it is that true decentralization is achieved rather than a system which merely pays it lip service. Later sections will describe the technical architecture which achieves decentralization for NEAR.
A brief summary of NEAR
NEAR is a decentralized application platform which runs atop the NEAR Protocol blockchain. This blockchain, which runs across hundreds of machines around the world, is organized to be permissionless, performant and secure enough to create a strong and decentralized data layer for the new web.
Essentially, NEAR is a platform for running applications which have access to a shared — and secure — pool of money, identity and data which is owned by their users. More technically, it combines the features of partition-resistant networking, serverless compute and distributed storage into a new kind of platform.
For comparison, Amazon’s Web Services and Microsoft’s Azure operate much of the infrastructure of the web today and are two of the most common “clouds” where applications are deployed. Each of the individual servers which make up these computing and storage clouds are controlled by a single entity. This means that anything run on or stored within them is completely at the mercy of those companies or the government agencies which require them to do things against their will. Data can easily be lost, censored, altered, sold or hacked. This is because there is only a single point of failure.
Applications which are deployed to these cloud servers can also be continuously modified by their original developers or whoever holds their credentials. This makes software updates easy for developers but it also means that any data accessible by an application can be censored, modified or stolen by these same developers, whether at their own direction or because they were hacked or forced by a governmental authority to do so. Because user data is generally stored in large pooled databases, these developers become juicy targets for exactly those activities.
Together, the vulnerability of the developers and the platforms themselves makes any sensitive data stored on these platforms vulnerable.
When the cloud which hosts these applications is instead run by a global community which anyone can be a part of, the programs and assets stored by it become transparent and essentially “unkillable”, allowing users to store meaningful things like money, identity and digital assets and securely transact them with anyone without requiring someone else’s permission or platform. There is no single point of failure because there are multiple redundancies around the world and there is security because of the consensus which is programmatically achieved among community members who make up the cloud network.
To eliminate the vulnerability of the developer, applications deployed to this cloud can be programmatically locked so no further updates can modify the state they access. Essentially, once they achieve this state, they become autonomous and can be trusted to continue to perform their functions without fail or interference. This allows the secure storage of high value assets like money, identity and key pieces of data.
Bitcoin can be thought of as the first, very basic, version of this global community-run cloud, though it is primarily used only to store and move the Bitcoin digital currency.
Ethereum is the second and slightly more sophisticated version, which expanded the basic principles of Bitcoin to create a more general computing and storage platform, though it is a raw technology which hasn’t achieved meaningful mainstream adoption.
NEAR represents an evolution beyond what has come before it and is the first decentralized application platform to solve all of the three key challenges to gaining mainstream adoption: usability, scalability, and security.
Challenges of Creating a Community Cloud
A community-run system like this has very different challenges from centralized “cloud” infrastructure which is run by a single entity or group of known entities. For example:
- It must be both inclusive to anyone and secure from manipulation or capture.
- Participants must be fairly compensated for their work while avoiding creating incentives for negligent or malicious behavior.
- It must be both game theoretically secure so good actors find the right equilibrium and resistant to manipulation so bad actors are actively prevented from negatively affecting the system.
A free-market-based system is the only way to seamlessly align these incentives and so the NEAR Platform uses a token — also called “NEAR” — to glue it all together. This token allows the users of these cloud resources, regardless of where they are in the world, to fairly compensate the providers of the services and to ensure that these participants operate in good faith.
To remain decentralized, it’s important that a community-run system like this be permissionless, meaning anyone has the opportunity to participate. To ensure this, anonymity is crucial and so revealing a party’s identity is not required. While this provides for decentralization, it also opens up a wide range of misbehavior so all the mechanisms of the system must assume that one individual actor might be controlling a single account or a million accounts. Thus we operate with a principle of “one token equals one vote” to participate and govern the system.
These systems must also balance the need to be robustly decentralized with the reality that technologies and communities must be given the freedom to iterate or risk being rendered obsolete. Thus the long term health of the community requires maintaining a broad degree of decentralization and strong security guarantees in the platform itself while also creating efficient processes for evolving its technology over time.
Real Decentralization
Even though Bitcoin and Ethereum are often lauded for their level of decentralization, they actually suffer from many centralization issues. Bitcoin, for example, has 53% of its mining power controlled by just three pools. On top of that, running mining nodes currently requires expensive hardware, which increases barriers to entry and reduces the incentives for nodes to join over time.
Newer networks often trade the hope of decentralization for the operational efficiencies provided by more centralized implementations which use either limited validator sets or fully “permissioned networks”. This violates one of the fundamental tenets of a truly decentralized network — that its value is protected by its level of redundancy among independent nodes.
In order to maintain real decentralization, the network needs to allow permissionless participation from prospective node operators and not incentivize pooling. To address these concerns, NEAR uses a staking mechanism called “Thresholded Proof of Stake” which is specifically designed to be both deterministic and broadly fair so it doesn’t incentivize pooling of large validators and it encourages broad participation from nodes.
Lowering the barriers to entry for nodes accomplishes more than simply decentralizing the network. In a horizontally scaling system like NEAR’s, the more nodes which can participate, the more it can scale as well.
Elements of the NEAR Platform
The NEAR platform is made up of many separate elements. Some of these are native to the platform itself while others are used in conjunction with or on top of it.
The NEAR Token
NEAR token is the fundamental native asset of the NEAR ecosystem and its functionality is enabled for all accounts. Each token is a unique digital asset similar to Ether which can be used to:
- Pay the system for processing transactions and storing data.
- Run a validating node as part of the network by participating in the staking process.
- Help determine how network resources are allocated and where its future technical direction will go by participating in governance processes.
The NEAR token enables the economic coordination of all participants who operate the network plus it enables new behaviors among the applications which are built on top of that network.
Other Digital Assets
The platform is designed to easily store unique digital assets which may include, but aren’t limited to:
- Other Tokens: Tokens bridged from other chains (“wrapped”) or created atop the NEAR Platform can be easily stored and moved using the underlying platform. This allows many kinds of tokens to be used atop the platform to pay for goods and services. “Stablecoins,” specific kinds of token which are designed to match the price of another asset (like the US Dollar), are particularly useful for transacting on the network in this way.
- Unique Digital Assets: Similar to tokens, digital assets (sometimes called “Non Fungible Tokens” (NFTs) ranging from in-game collectibles to representations of real-world asset ownership can be stored and moved using the platform.
Governance Design Principles
Here is how NEAR’s core design principles apply to governance:
- Usability: Governance processes should be clear and understandable. Mechanisms for active participation and for voting (where available) should be simple and straightforward. Governance should be effective and efficient so it arrives at decisions quickly and implements them efficiently. The community of stakeholders should have sufficient voice that they support the legitimacy of decisions and do not exit or fork the platform.
- Scalability: Governance should scale as the scope and complexity of the platform itself grows, as the diversity of its stakeholders increases and as the breadth of participation expands.
- Simplicity: The most robust processes tend to be the simplest so good governance should avoid overengineering processes and acknowledge that often human-to-human communication is the simplest approach.
- Sustainable Decentralization: Governance should allow participation from the full breadth of stakeholders in the platform but be resilient against capture by any one of these over time.
It is important that governance design balances between efficiency and resiliency. Decisions must be made and implemented efficiently if a technical platform is to continue to evolve sufficiently to provide the best value for its stakeholders but that platform must ensure that it can not be captured over time by a particular group of stakeholders.
Summary
NEAR’s governance is designed to provide for efficient improvement of the protocol while allowing the community sufficient voice and oversight in order to ensure the protocol maintains its independence. The long term goals are to combine community led innovation with effective decision making and execution and to receive proper representation from each of the key stakeholder roles in the network.
For example, the NEAR community initially includes token holders, validators, application developers, protocol developers, community leaders and more. Each of these stakeholders has a different set of views, opinions and inputs to various key issues.
Having proper representation means that decisions will require deliberation and discussion, which can slow down the necessary evolution of the protocol if left unchecked. To maintain a bias for efficient execution, a highly qualified entity is needed to maintain the Reference Implementation of core protocol code. This maintainer, who is called the Reference Maintainer, should be selected and overseen by the community.
Initially, governance activities are coordinated by the NEAR Foundation, an independent nonprofit entity whose mission is well-aligned with improving the long term usefulness of the ecosystem. These activities include maintaining oversight over the Reference Maintainer, supporting the build up of the governance coordination tools, certain token distributions and laying the groundwork for community operated governance.
Technical Governance & Resource Governance
As a decentralized network, no single entity can ever force changes to the full NEAR network. Any changes made to the reference code base by its core contributors must be individually accepted by the nodes who are running the network.
It is still important to understand the core process which is used to push changes to the reference code base because these are most likely to represent the will of the community and thus receive acceptance by the network nodes which form part of that community.
NEAR’s governance defines a Reference Maintainer, which is an entity responsible for technical upgrades to the NEAR network. This entity has been selected to maintain the Reference Implementation and continue to suggest improvements on the specification. All major releases will be protected with community discussion and a veto process (a 2 week challenge period), while smaller bug fixes can be rolled out fast and delivered to node operators.
Initially, the Maintainer is selected by the Foundation Board and serves until the board votes to replace them. Over time, oversight of the Maintainer will be performed through a community-representing election process.
Resource Governance
Resources provided by the network itself to the Protocol Treasury are governed and distributed by the NEAR Foundation. This foundation operates independently and will provide structured and transparent funding for projects and activities that are deemed to be most helpful to the ongoing health of the protocol’s ecosystem. This may include technical projects (like the Reference Maintainer) and nontechnical projects or initiatives that support the commons and the community at large.
Methodology
- Introduction
- Why decentralization matters
- A brief summary of NEAR
- Challenges of Creating a Community Cloud
- Real Decentralization
- Elements of the NEAR Platform
- Governance Design Principles
- Technical Governance & Resource Governance
- Daily price
- Number of swappers and swaps
- Number of swappers by platform
- Number of swaps by platform
- Number of transactions in cex
- Number of unique users in cex
- Percentage of transactions in CEX
- Percentage of unique users in CEX
- Amount of stake and unstake (USD)
- Minimum, average and maximum amount of weekly stake and unstake $
- Total amount of stake and unstake $
- Staking pools
- Number of stakers/unstakers
- Conclusion
Daily price
The chart below shows the average daily price of near in USD
NEAR set its all-time high of $20.42 in January 2022, after the token skyrocketed in 2021. The price of the coin sank shortly thereafter to around half that, but as of May 2022 remains far higher than the range of $1-$2 it traded at toward the end of 2020.
At launch, Near created a billion coins and then allocated them to contributors and early investors, such as those who contributed to the $21.6 million March 2020 token sale, as well as community grants and programs.
NEAR’s issuance schedule is inflationary, meaning that the number of NEAR tokens in circulation rises over time. Its supply increases for two reasons:
- When vesting periods from early token sales expire, more tokens are introduced into public circulation.
- Proof-of-stake rewards. Near is a proof-of-stake blockchain, meaning that transactions are verified by validators who stake NEAR coins.
NEAR’s supply is not capped, but generally increases over time; new coins are issued at a rate of about 5% a year. Ninety percent of those new tokens goes to validators, and 10% goes to the protocol’s treasury. Data from Messari predicts that the supply of NEAR coins could reach over 1.3 billion by early 2027.
That inflation, however, depends on the popularity of the network – the protocol increases its supply at about 5% a rate less transaction fees. Near burns 70% of transaction fees, and NEAR could become a deflationary token if the number of daily transactions surpasses about 1.5 billion.
Conclusion
In summary, the Near protocol leverages the power of decentralization to provide a platform that is both scalable and efficient, making it easier for developers to build and deploy decentralized applications.
While decentralization is crucially important, not all blockchain-based systems are decentralized. Decentralization is a scale which can be measured along a number of dimensions but, fundamentally, it comes down to how many players in the system must be corrupted in order to break the system itself and how likely that is to occur. The more important the assets the system must protect, the more important it is that true decentralization is achieved rather than a system which merely pays it lip service. Later sections will describe the technical architecture which achieves decentralization for NEAR.
In order to maintain real decentralization, the network needs to allow permissionless participation from prospective node operators and not incentivize pooling. To address these concerns, NEAR uses a staking mechanism called “Thresholded Proof of Stake” which is specifically designed to be both deterministic and broadly fair so it doesn’t incentivize pooling of large validators and it encourages broad participation from nodes.
Lowering the barriers to entry for nodes accomplishes more than simply decentralizing the network. In a horizontally scaling system like NEAR’s, the more nodes which can participate, the more it can scale as well.
The number of swappers and swaps has increased almost since the beginning of the new year, which shows the improvement of decentralization In the long run, the average number is almost constant
In the last few months, the number of transactions and unique users of cex has decreased a lot This indicates a decrease in people's interest in using centralized exchanges
In the new year, the amount they have unstaked has increased much more than in 2022, so that from 14.4 million stakes, almost 13.1 million have been unstaked. This is a bad component for decentralization
In general, the number of stakers compared to unstakers is more than 2/3, and this shows the trust of users and will help to decentralize the network.
Number of swappers and swaps - weekly
You can see the number of swappers and weekly swaps in the chart below
- Second week of February, 2022 had the highest number of swappers
- Second week of May, 2022 had the highest number of swaps
> What is swap in decentralized exchange? > Decentralized Exchanges (Swaps) > Peer-to-peer in nature, these exchanges execute trades between users' wallets instantly — a process some refer to as a swap. The DEXs in this category are ranked in total value locked (TVL), or the value of assets held in the protocol's smart contracts.
Number of swappers by platform - weekly
The chart below shows the number of weekly swappers by platform
The table below shows the top 10 days in terms of the number of swappers
DATE | PLATFORM | NUM_SWAP | SWAPPER | |
---|---|---|---|---|
1 | 2022-02-14 00:00:00.000 | wrap.near | 54012 | 15954 |
2 | 2021-04-26 00:00:00.000 | ref-finance.near | 62415 | 15634 |
3 | 2022-02-14 00:00:00.000 | token.jumbo_exchange.near | 42420 | 12345 |
4 | 2021-04-12 00:00:00.000 | ref-finance.near | 52356 | 10882 |
5 | 2021-10-25 00:00:00.000 | v2.ref-finance.near | 68749 | 7360 |
6 | 2021-10-04 00:00:00.000 | v2.ref-finance.near | 111725 | 6723 |
7 | 2021-04-19 00:00:00.000 | ref-finance.near | 29593 | 6180 |
8 | 2021-10-18 00:00:00.000 | v2.ref-finance.near | 50178 | 5728 |
9 | 2021-11-15 00:00:00.000 | v2.ref-finance.near | 38439 | 5024 |
10 | 2021-05-03 00:00:00.000 | ref-finance.near | 15242 | 4780 |
> What is warp Crypto? > > Warp Exchange is a payment method / solution based on blockchain security that allows any commercial establishment to easily accept payment in cryptocurrencies just as any credit card. No portable payment device needed. No monthly or annual fee.
Number of swaps by platform - weekly
The chart below shows the number of weekly swaps by platform
The table below shows the top 10 days in terms of the number of swaps
DATE | PLATFORM | NUM_SWAP | SWAPPER | |
---|---|---|---|---|
1 | 2021-10-04 00:00:00.000 | v2.ref-finance.near | 111725 | 6723 |
2 | 2021-10-25 00:00:00.000 | v2.ref-finance.near | 68749 | 7360 |
3 | 2021-04-26 00:00:00.000 | ref-finance.near | 62415 | 15634 |
4 | 2022-05-09 00:00:00.000 | v2.ref-finance.near | 58050 | 25 |
5 | 2021-10-11 00:00:00.000 | v2.ref-finance.near | 57394 | 4591 |
6 | 2022-02-14 00:00:00.000 | wrap.near | 54012 | 15954 |
7 | 2022-06-13 00:00:00.000 | v2.ref-finance.near | 52742 | 34 |
8 | 2021-04-12 00:00:00.000 | ref-finance.near | 52356 | 10882 |
9 | 2021-10-18 00:00:00.000 | v2.ref-finance.near | 50178 | 5728 |
10 | 2021-09-20 00:00:00.000 | v2.ref-finance.near | 42549 | 3852 |
> What is REF Finance? > > > > Ref Finance is a community-led, multi-purpose DeFi platform built on the NEAR Protocol. Ref takes full advantage of NEAR's low fees, one-to-two second finality, and WebAssembly-based runtime (hello, Rust smart contracts!).
CEX
> What is a CEX in crypto? > > A centralized exchange (CEX) is a type of cryptocurrency exchange platform. CEX platforms maintain an order book for buy and sell orders between traders. All orders are trade requests for a certain amount of a cryptocurrency set at a specified price.
Number of transactions in cex - weekly
The chart shows the number of weekly transactions in CEX
As you can see, the number of transactions of these exchanges has decreased a lot in the last few months
The table below shows the top 10 days in terms of the number of transactions
DATE | PROJECT_NAME | NUM_TX | SIGNER | |
---|---|---|---|---|
1 | 2021-08-30 00:00:00.000 | Binance | 78204 | 74297 |
2 | 2021-09-06 00:00:00.000 | Binance | 75951 | 69819 |
3 | 2021-08-23 00:00:00.000 | Binance | 36918 | 33167 |
4 | 2021-09-13 00:00:00.000 | Binance | 36685 | 33000 |
5 | 2021-08-09 00:00:00.000 | Binance | 12776 | 9849 |
6 | 2021-12-27 00:00:00.000 | Binance | 9582 | 6977 |
7 | 2022-04-18 00:00:00.000 | Binance | 9151 | 7896 |
8 | 2021-08-16 00:00:00.000 | Binance | 8716 | 4068 |
9 | 2022-05-09 00:00:00.000 | Binance | 8189 | 6276 |
10 | 2021-09-20 00:00:00.000 | Huobi | 7045 | 247 |
Number of unique users in cex - weekly
The chart shows the number of weekly unique users in CEX
As you can see, the number of unique usersof these exchanges has decreased a lot in the last few months
The table below shows the top 10 days in terms of the number of unique users
DATE | PROJECT_NAME | NUM_TX | SIGNER | |
---|---|---|---|---|
1 | 2021-08-30 00:00:00.000 | Binance | 78204 | 74297 |
2 | 2021-09-06 00:00:00.000 | Binance | 75951 | 69819 |
3 | 2021-08-23 00:00:00.000 | Binance | 36918 | 33167 |
4 | 2021-09-13 00:00:00.000 | Binance | 36685 | 33000 |
5 | 2021-08-09 00:00:00.000 | Binance | 12776 | 9849 |
6 | 2022-04-18 00:00:00.000 | Binance | 9151 | 7896 |
7 | 2021-12-27 00:00:00.000 | Binance | 9582 | 6977 |
8 | 2022-05-09 00:00:00.000 | Binance | 8189 | 6276 |
9 | 2021-11-08 00:00:00.000 | Binance | 7001 | 4242 |
10 | 2021-08-16 00:00:00.000 | Binance | 8716 | 4068 |
Percentage of transactions in CEX
With more than 507 thousand transactions, Binance accounted for more than 63% of transactions.
Percentage of unique users in CEX
With more than 361 thousand unique users, Binance accounted for more than 81% of unique users.
Amount of stake and unstake (USD)
The following charts show the volume of NEAR transactions in different time frames in terms of USD
Also, the following table is arranged based on Amount of staking
DATE | ACTION | Number of staking | Amount of staking | Min Amount of staking | Average amount of staking | Max Amount of staking | RATO | |
---|---|---|---|---|---|---|---|---|
1 | 2022-01-01 00:00:00.000 | Stake | 152080 | 244727525.05827 | 0 | 1609.202558247436 | 20681978.519401 | 1609.202558247436 |
2 | 2022-01-01 00:00:00.000 | Unstake | 60332 | 124892418.348166 | 0 | 2070.085830871942 | 8696810.030562 | 2070.085830871942 |
3 | 2021-01-01 00:00:00.000 | Stake | 91345 | 48107917.373305 | 0 | 526.661748024577 | 5000000 | 526.661748024577 |
4 | 2021-01-01 00:00:00.000 | Unstake | 41401 | 37166751.29996 | 0 | 897.725931739813 | 8002695.688181 | 897.725931739813 |
5 | 2023-01-01 00:00:00.000 | Stake | 7241 | 14471456.79551 | 0.00001 | 1998.543957396768 | 2043124.14869 | 1998.543957396768 |
6 | 2023-01-01 00:00:00.000 | Unstake | 3386 | 13180160.107077 | 0.000013 | 3892.545808351152 | 4229344.11 | 3892.545808351152 |
Minimum, average and maximum amount of weekly stake and unstake $
The chart below shows the minimum, average and maximum amount of weekly stake and unstake in USD
First week of November, 2022 has the highest amount of staking.
Total amount of stake and unstake $
The donut chart below shows the total and percentage amount of stake and unstake
Stakes are about 2/3 of unstakes
Staking pools
The chart below shows the stake/unstake pools in the weekly time frame The number of stake pools is slightly more than unstake
Number of stakers/unstakers
The chart below shows the number of stakers/unstakers in the weekly time frame
The number of stakers is more than 2/3 of unstakers