Near implements Stake Farming

 

NEAR is the first proof-of-stake blockchain with the Nightshade sharding project that allows its participants to receive rewards in more than one token type. What's it all about?

The Near protocol implemented stake farming contracts on its in-house second-layer solution Aurora on January 14th. According to the Near Foundation, the aim of this introduction is to further decentralize the network. Stake farming aims to give validators a “more active role in supporting new and emerging projects.”

How is stake farming?

The Near Foundation's proposal recombines the different DeFi earning opportunities:

Stake farming is a powerful new technique that combines yield-farming-like distribution, staking to ensure network security, and capital accumulation.

Near Developer February 4, 2022

According to a blog post, so-called delegates are given the opportunity to transfer their NEAR tokens to validators so that they can stake with them. The delegates receive a share of the staking reward. With stake farming, the reward is no longer limited to NEAR tokens, depending on the project. Instead, several and sometimes different tokens should be able to be repaid with stake farming.

The projects decide which tokens they distribute and what percentage of the wagered rewards they want to keep (0 to 100 percent). Stakers always keep their full balance and also earn the project tokens. The stakers must claim the tokens manually and can opt-out if they wish.

According to the blog post, this would have a decisive advantage:

This gives NEAR validators a unique opportunity to attract more capital while ensuring that new and growing projects participate in network security. These projects can thus at the same time increase their level of awareness among delegates.

Near blog post , January 14, 2022

In the crypto space, it is a well-known procedure to use innovative ideas to make forms of yield farming more attractive for stakers. Projects such as Avalanche and Terra have also been able to gain new validators in the past and generate more liquidity on the platform. In both cases, the growth of the transactions, the total value and the projects themselves was triggered.

NEAR Tokenomics und der Delegated Threshold Proof of Stake

However, if you do not want to use your NEAR tokens to generate different tokens from them, you can also use them to participate in the consensus mechanism. With a stake of about 3.3 million NEAR, the so-called “Threshold” (in German “Schwelle”), one can become a validator of the network. This threshold is adjusted according to demand: the more people want to be validators, the higher the threshold. The stake typically serves as the network's insurance and is burned for fraudulent behavior.

But owners with smaller amounts also have the chance to participate as delegates. You can delegate any number of NEAR tokens to a validator for free. There is no minimum quantity specified. The delegates do not have to worry about a possible loss. Even if the validator starts a fraud attempt, the borrowed coins will be transferred back and not destroyed.

The staking reward is currently between ten and twelve percent and can be accessed by both validators and delegates after three epochs (about 12 hours each).

In addition, the tokens also serve as governance shares. The following applies to Near: “One token, one vote”. It is interesting that the Near Community organizes itself in so-called “guilds”. Each guild, like a department in a company, works on different suggestions for improvement.

NEAR is also used to carry out transactions in the system. The lower limit of the transaction reward is set at 30 percent. This is to ensure that those involved do not undercut each other, migrate and the decentralization of the system decreases.

Near is understandable and compatible

The fact that Near appears with these more sophisticated structures is not only due to the fact that the blockchain has only been live since 2020. The protocol was developed by Alex Skidanov (ex-Microsoft) and Illia Polosukhin (ex-Google) to enable an accessible blockchain-based new Internet. Among other things, the founders defined design principles that presuppose that the handling of the platform is always user-friendly and understandable.

Aurora , Near's second-layer solution, is built to be compatible with the Ethereum Virtual Machine. You can also pay with ETH on Aurora. This allows developers to relatively easily transfer their projects built on Ethereum to the near blockchain. This is an attractive offer, especially in times of expensive and slow transactions on Ethereum.

For a connection between Near, Aurora and Ethereum, the developers have programmed the “ Rainbow Bridge ”. With the help of this, a bridge to the Cardano protocol via Ardana (DANA), the stablecoin hub of the cryptocurrency, is also to be built in the coming months .

Sharding technology as a competitive advantage

Near is a first-layer protocol, just like Ethereum or Bitcoin. The developers are currently rolling out a special form of sharding with “Nightshade” in order to increase the speed of individual transactions. By splitting the validation participants into so-called “shards”, Nightshade should also enable participation in the consensus mechanism on mobile devices when it is fully implemented in the second quarter of 2023 . The aim of the integration is also that the blockchain remains lean in the future, but at the same time becomes faster and cheaper.

The implementation of Nightshade takes place in individual phases. The technology is currently in its first phase, the "Simple Nightshade". A Medium post says:

Originally, think of NEAR as a single checkout line. However, NEAR already has several checkout lines. The Simple Nightshade upgrade leads to an even higher number of checkouts and thus transactions in the network. These are opened as required, thus increasing throughput and reducing network load.

“How NEAR’s Simple Nightshade Works”, 25. November 2021

In order to continue to provide security, so-called “Chunk Validators” are integrated by Nightshade. Your job is to post “snapshots” from the different shards on the NEAR chain at regular intervals. Within each shard, different actors validate different transactions.

As the blog post suggests, Nightshade should be “dynamically scalable” in the future. This means that new shards (checkout queues) can be added and closed again as needed . In this way, according to the whitepaper, Nightshade enables around 100,000 transactions per second at a price of around 0.0005 NEAR. These services could play a major role in the future, especially for the GameFi, NFT and DeFi areas.

Aurora DeFiLlama currently has a Total Value Locked (TVL) of $532.35 million. Since Aurora was “only” programmed as a smart contract on NEAR, this results in a TVL of US$ 652.7 million for NEAR.

network problems

So far, the NEAR concept sounds very promising: the blockchain is innovative and has a large backbone of excellent developers. In addition, NEAR has raised over 300 million US dollars in various financing rounds from investors such as Dragonfly, a16z and Mechanism Cap in recent years.

But the near protocol has one catch, if not two. For one thing, the project is relatively centralized at the moment. On the one hand, this is due to the relatively influential board of the NEAR Foundation, which consists of four people. On the other hand, only 84 validators are currently active. However, according to co-founder Illia Polosukhin , this number will increase to 400 next year. Compared to the Ethereum network, which currently has over 222,000 validators, even then a very small number.

However, what could become an even bigger problem for NEAR is the equally small number of active accounts. This was between 50,000 and 90,000 in the past month.

However, there is a glimmer of hope for NEAR fans: the number of transactions carried out has already increased significantly compared to last year. At the time of the peak in the following chart (January 2022), NEAR reached its all-time high in price (US$ 20.44) and also in transaction volume. The trigger for this rally was probably the most recent round of funding in which NEAR secured USD 150 million for the further development of the protocol.

The competition is on

Whether NEAR can assert itself in the strong environment with Solana, Cardano and Co. remains to be seen. As a result, cooperating with the more popular currencies seems like a smart move. Aurora and Nightshade promise a lot, at least technically - and with stake faming more liquidity could now come to the platform. On the one hand, this could result in more validators and, on the other hand, a higher transaction potential. However, only time will tell if NEAR will be as successful as Avalanche or Terra. At the time of writing, NEAR is trading at $ 13.68 with a market cap of just over $8.5 billion.

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