Web3 Ecosystem Growth & Near Protocol: The Next Frontier
~ Lang Cui
Web3 Ecosystem Growth & Near Protocol: The Next Frontier
Web3 Evolution To Date
Much has been anticipated of the Ethereum 2.0 merge from the Proof of Work to Proof of Stake consensus mechanism, allowing for ~100x more scalability on the Layer 1 chain, enabling all possible use cases we have ever dreamed of, without compromising security and decentralization of the Ethereum ecosystem. This foreseen merge had been the holy grail of blockchain development since ~2015/2016.
However, this vision and mission is a highly complex and time-intensive operation, much like open heart surgery would have been, when it was first undertaken in 1893. This type of blockchain operation is unprecedented and has taken far longer than originally anticipated when originally proposed in 2015. Seven years later, we find ourselves tantalizingly close to the vision of the merge. In the meantime, the market’s impatience since 2017 saw it churning out several ‘Ethereum killers’ or Layer 1 protocols that claimed to be better than Ethereum in every way possible, while boasting a faster time to market.
The blockchain Trilemma has yet to be perfected, although many Layer 1 blockchains have adopted their respective market positioning to best service end users who may prioritize certain aspects of that Trilemma.
Without going into details of early Layer 1s that have largely failed to achieve meaningful market adoption, 2021 was when we clearly saw the market coalesce around a multi-chain future, where numerous high-quality Layer 1s, backed by deep wallet VCs, strode into the spotlight. Solana was one such example, prioritizing hyper scalability and a great user experience over world class security and decentralization practices. Solana’s ability to scale at the high end of 65,000 transactions per second (TPS), with close to instant settlement finality, put it in contention with the Visa and Mastercard rails of the Web2 world, presenting a tantalizing future of global commerce run on blockchain technology.
Coupling that capability with top-tier Venture Capital funding, seemingly infinite connections, and technical expertise provided by Multicoin, FTX Ventures and Jump Capital, the Solana ecosystem skyrocketed to an astounding ~$90 billion market capitalization in Q4 2021, less than 2 years after its inception. Not to be outdone by Solana, similar Layer 1 blockchains with robust technology, heavy-weight talent, and flourishing ecosystems such as Avalanche, Polkadot and BNB Chain also took similar trajectories with high quality, promising ecosystems of their own.
Web3 has seen exponential growth over the last 3 years.
What Makes A Strong Layer 1 Ecosystem?
To answer this question, one simply needs to look to use countries with vibrant economies and consistently strong GDP as a comparison point. Each of these high quality blockchain platforms are trying to create organic, sticky ecosystems where users find their “landing spots” and ideally find that they have everything they need to stay inside the ecosystem: a “self-sustaining nation”, if you will. It’s important to call out that users can “travel” outside of their home “country” to explore other ecosystems’ products and services, but their home would have everything they require on a day-to-day basis. User needs inside of a blockchain ecosystem can include banking and broader financial services, e-commerce, supply chain traction, voting, health care, identity, investing, digital ownership, decentralized ways of working, along with the other nearly infinite use cases of a robust metaverse.
While all of these capabilities strive to be orders of magnitude superior to their current Web 2.0 or even analog counterparts, for them to take off, investment needs to be made in the plumbing & infrastructure of these new “nation states.” Let’s take a bottom-up approach to ecosystem development.
Picks & Shovels Of The “Gold Rush”
As unexciting as this may sound to a general audience, we are still in the early stages of infrastructure development and building the ‘picks and shovels’ of this evolutionary gold rush. This is an essential stage in any creation of a robust physical or technological ecosystem. At a high level, this includes the security, scalability, and decentralized nature of blockchains, and technology stacks built on top of them. Emerging themes on top of strong core layer infrastructure are scalability solutions such as Zero Knowledge Rollups, Optimistic Rollups, Sharding, Plasma and several other methods to improve scalability without compromising security and decentralization. This is necessary to bring the next billion users into blockchain ecosystems and ensuring the safety and robustness of handling trillions of financial assets at the same time.
Developer activity on various Layer 1 Blockchain protocols is displayed below.
The next layer of technology stack to build atop a sound Layer 1 would be the middleware and additional plumbing to ensure that blockchain ecosystems are not just siloed infrastructure that cannot integrate with the rest of the existing world including Web 2.0 applications and data. Projects like Chainlink, the Graph, Radicle, Fireblocks and Glassnode bring necessary tooling to enable a connective tissue layer of applications, enabling users and rich data flow.
Much like that of our Web 2.0 counterparts such as Plaid and Stripe, enabling development of better middleware applications can fuel significantly more robust user experiences for end user applications. Additional ways to grow our ecosystem pie include interoperability solutions like LayerZero and Cosmos, bridging solutions like Wormhole and Layer 2s such as Polygon, Optimism, StarkWare and ZkSync to expand the capabilities of quality Layer 1 blockchains. The role of open-source code and cross ecosystem collaboration between project teams will further accelerate the hypergrowth of this all-encompassing Web 3.0, digital ownership movement.
Killer Applications Turning Use Cases Into Better Life Experiences
To further fuel ecosystem adoption, there must be ‘killer’ applications that users can fall in love with and embed into their everyday lives. Furthermore, the token economy and digital property rights have created internet-native communities where user incentives align directly with that of their creators. This is a first of its kind business model where a decentralized, bottoms-up approach to branding and community building has created insurmountable moats in an open-source world. Whether through highly functional decentralized finance protocols such as MakerDAO or Uniswap, where users enjoy the benefits of Automated Market Makers with deep liquidity, or cultural shaping, iconic community brands such as the Bored Ape Yacht Club and CryptoPunks, the Internet-native tribes of tomorrow are forming right before our eyes, borderless, colorless and without prejudice. This is a profound paradigm shift in how our society operates.
The market is also seeing growth in the number of applications with use cases leveraging NFTs as digital property rights and a means of instant proof of authenticity.
Additional user cases of ecosystem collaboration on top of Layer 1 blockchains include Decentralized Autonomous Organizations or DAOs. These self-governed, highly distributed organizations are proving to be highly effective at deploying value add capital at speed as well as improving organization decision making in transparent and non-political ways, again borderless, colorless and with little discrimination towards members. These are the building blocks towards a thriving digital ecosystem and key indicators for strong fundamental value being created inside Layer 1 ecosystems. However, just having strong technology and killer use cases aren’t enough. That’s a ‘build it and they will come’ approach, which has proven to be a dangerous road to go down.
Insert The Near Protocol
Near Protocol was created in 2017 by two brilliant computer scientists, Alexander Skidanov and Illia Polosukhin. It was initially created to rival the Ethereum blockchain in the battle of Layer 1 networks and ecosystems. After many years of heads-down building the fundamental blockchain infrastructure, Near is getting ever closer to the tipping point of mainstream adoption and Layer 1 dominance. Let’s break down why Near is emerging to be a top-quality Layer 1 ecosystem.
In terms of blockchain security and scalability, Near Protocol uses a Sharded Proof of Stake consensus mechanism, which is a more flexible version of Ethereum 2.0’s POS merge and added scalability solutions from sharding to maximize block space. Near’s sharded POS currently operates with four shards that run at 1000 transactions per second, which is among the faster Layer 1 blockchains on the market today. There are plans on the roadmap to introduce so more sophisticated off-chain scalability solution called Dynamic Sharding, which will allow the creation and destruction of shards in near real time to allow for maximum flexibility and speed of throughput on the Near blockchain, adapting to usage demand.
This in theory will make Near infinitely scalable no matter how much demand for block space there is in the future, which is essentially the holy grail of blockchains. Their goal is no less than to onboard the next billion users into Web 3. This type of advanced blockchain technology breakthrough is once of the main reasons why top tier investors and builders are excited about the Near ecosystem. Their founders and technology talent are pound for pound one of the highest caliber teams in Web 3.
Layer 1 blockchain protocols are compared below in regards to block time and finality (speed and settlement time).
In terms of decentralization however, Near has a long way to go in terms of distributing validators and delegates. They currently have around 800 validators with a high cost of entry, which amounts to nearly $1.8M equivalent of Near tokens to become a validator. For Near to reduce core blockchain risk and counter party risk, they will have to improve their decentralization metrics for increased adoption, while reducing the risk of ‘whale’ manipulation both on token price and on-chain governance. Additionally, a 51% attack is more likely with fewer validators securing the ecosystem.
Near Ecosystem Growth Trajectory
Now let’s investigate the vibrancy of Near’s ecosystem, core infrastructure and ‘killer applications’ potential. Like the Solana ecosystem, Near is backed by some of the highest tier investors in Web 3. The likes of A16z Crypto, Dragonfly Capital, Multicoin, Electric Capital, Pantera to name a few, have all become seed investors of this highly promising ecosystem.
Following their initial 2017 ICO, Near has had no problems raising subsequent capital, which is a great sign that institutional backers have strong long-term confidence in the project. They also recently launched a $800M ecosystem fund to support builders and contributors to the Near ecosystem and back some of its most promising applications and infrastructure projects. Not only does this attract some of the most talented blockchain engineers to Near, their 30% smart contract incentive program further increases migration of developer talent compared to other similar Layer 1 ecosystems.
So far, their approach has proven to be successful as more than 1000 developers have decided to build on the Near blockchain, and more than $1 Billion total value has been locked inside the ecosystem to date. Total unique wallet addresses on Near have exceeded 6M users. They are one of the fastest growing and most exciting ecosystems in the Web 3 space.
The Near Ecosystem is displayed below, categorized by use case.
Interoperability, Bridging, & Layer Zeros
Furthermore, Near has plans to become as interoperable as possible with other Layer 1 ecosystems through the many partnerships they have formed to date, as well as EVM (Ethereum Virtual Machine) compatibility through the Aurora Layer 2 ecosystem. This means that many of the Web3 innovations that were first created in the Ethereum ecosystem can easily also migrate over to Near and grow holistically while becoming chain agnostic. With the Octopus network for example, which is built with substrate and a similar architecture to the Polkadot core design with parachains, Near is able to further improve on its flexibility as a Layer 1 ecosystem while allowing native projects to expand to other ecosystems at the same time. Additional ecosystem partnerships and utility projects include important infrastructure plays like ConsenSys with Metamask wallet integration, decentralized finance projects like Rev Finance, NFT and move to earn projects like Sweatcoin, decentralized storage solutions like Machina, analytics and tooling projects like Elliptic and many more highly promising applications and use cases.
Zero Knowledge Proofs, Dao Tooling, & DeFi On Near
Near’s added focus on Zero Knowledge Proof technology, decentralized autonomous organizations (DAO) projects, infrastructure and middleware tooling projects, NFTs and metaverse projects further proves that this ecosystem is here to stay and rapidly evolving into a heavy weight juggernaut in the space. Controversial partnerships do exist, such as Cardano and Terra Luna, which recently saw a catastrophic collapse from north of $50 billion in market cap. Near’s introduction of the USN algorithmic stablecoin will continue to bring controversy towards the project since UST on Terra has proven to be a disastrous experiment with real widespread pain for users. However, the USN stablecoin is backed by both Near tokens, as well as more battle tested, collateralized stablecoins like USDT Tether, which critically distinguishes it from previous disasters. It is also over collateralized at 1.5 per every 1 USN, making it much safer than the algorithmic UST model, which was essentially backed by a high-risk supply demand algorithm and fewer than 30% Bitcoin and other volatile crypto assets. Since the demise of UST, more precautions and safety measures will be added into the USN stablecoin and developers will learn from the failed experience.
The top Near and Aurora projects are displayed below, listed by Total Value Locked (TVL).
To further strengthen the ecosystem, Near introduced Near Pay, which is a direct response to Solana Pay. Contrasting Solana Pay, Near will be issuing physical cards to pay with either the Near token or USN stablecoin through a network of hundreds of merchants ready to receive such payments. This is one of the highest quality Web 3 to Web 2 brick and mortar partnerships we have seen in the space. Additional ecosystem growth plays include crypto project incubators like Pagoda, educational programs like the Teachers program as well as Near meetups all around the world with targets of 100 meet ups a month globally.
Near’s focus on holistic ecosystem growth, cross chain interoperability, builder support and willingness to partner with various synergistic projects in the entire crypto landscape will undoubtedly help them strengthen the entire ecosystem for many years to come. Investing and building with these types of high caliber ecosystems with long term visions of a sustainable future, will be the winning approach to making Web 3 a prosperous reality.
~ Lang Cui
*Disclaimer: None of this is financial advice, intended for education and entertainment purposes only. Views are that of the author’s only and in no way represent Northwestern Kellogg or any other companies in the Web3 space.
Key Sources:
Near Foundation: https://near.org/
A16z State of Crypto: state-of-crypto-2022_a16z-crypto.pdf
Web3 Venture Capital primary source conversations
DeFi Edge