What Is Near Protocol and How Does It Work?

• Near Protocol is a layer 1 blockchain network. It provides a platform on which developers can build decentralized applications (dapps). The most successful layer 1 blockchain is Ethereum, so protocols like Near are seen as challengers.
• The key yardsticks for layer 1 networks are transaction costs, speed and the ability to maintain those features as transaction volumes grow. These factors are the focus for layer 1s like Near to improve upon Ethereum, which has encountered issues with costs and speed over the last few years.
• Near Protocol is faster and cheaper than Ethereum. More importantly, it promises to be faster than some of the other largest challengers. When fully implemented, Near is expected to be able to process up to around 100,000 transactions per second (TPS). Ethereum’s largest rival, Solana, averages less than 3,000 transactions per second, according to its own blockchain explorer. Ethereum averages double-digit transactions per second. Bitcoin does less than 10.
• Outside the crypto sphere, an important comparison is Visa’s (V) capacity. The global payments giant processes around 7,000-8,000 TPS, based on its claim of 232.5 billion transactions over a 12-month period. Near Protocol could eclipse that, though it has not yet realized its theoretical potential as of July 2022.
• “Near has built technology to enable transactions that are fast (~1 second), quick to finality (~1-2 seconds), cheap (less than a penny), and secure,” crypto research firm Messari noted in March 2022.[1]

How was the NEAR token doing in 2022 in Q1 and Q2?

• The first few months of 2022 looked very encouraging for Near Protocol. Analysts noted rapid growth in the volume of applications developed on the network and intensifying interest from major investors. The NEAR token roughly doubled in value to more than $17 between March and April. The protocol raised $400 million in funding in just the first four months of the year.
• By May 2022, the outlook had started to sour for the wider crypto space. Near made a play to capitalize on the collapse of the terraUSD (UST) stablecoin by publishing an open invitation to the Terra community. It noted synergies including the fact that both networks used the same language, Rust, to write smart contracts.
• But that could not protect Near from the harrowing summer that was about to hit the sector.
• By July, the NEAR token's value had dropped to less than $4. [2]

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Transparency Report Overview

The report dives deep into the following topics and covers the analysis from 01-July-2022 → 30-Sep-2022. The aim of this transparency report is to do a detailed analysis of metrics over time to actually see how the Near ecosystem did in Q3 2022.

• High Level Numbers
• Transaction Metrics like Frequency, TPM, TPS and Success Rate.
• Bridge Transfers
• Governance Decentralization and Staking Metrics
• DEX Swap Metrics

DEX Swap Metrics

• Daily Number of Traders is quite variable between 500-900 traders per week.
• The Daily Swap Volume is also quite variable and varies between 2M - 4M $USD everyday.

Governance Decentralization and Staking Metrics

• Decentralization is very important in any platform or ecosystem.

• We try to see how NEAR is doing in terms of de-centralization by looking at the following metrics:

  • The Share of the Top 10 validators as compared to overall ecosystem.
  • The GINI Index and the Nakamoto coefficient

    • Nakamoto coefficient, GINI Index, dominance by the top validator and new stakers[3]

      For deep dive into these metrics:

• What is seen is that currently Top 10 Validators account for 57% of the share of all the validators.

Bridge Transfers

NEAR → Ethereum

• Bridge transfers are another important metric to see how much volume is flowing out of NEAR.
• USDT is the most common token transferred from NEAR → Ethereum with a cumulative of 54M $USD transferred followed by USDC for a total of 21M $USD.
• Seems like USDT is the preferred token of choice for transfer to ETH
• The surprising high volume of exodus was seen in the month of July 2022.

Ethereum → NEAR

• Bridge transfers are another important metric to see how much volume is flowing out of NEAR.
• USDT is the most common token transferred from Ethereum → NEAR with a cumulative of 45M $USD transferred followed by USDC for a total of 20M $USD.
• Seems like USDT is the preferred token of choice for transfer from ETH
• The surprising high volume of exodus was seen in the month of July 2022.

Transaction Metrics like Frequency, TPM, TPS and Success Rate

Transaction Frequency

• Transaction frequency is seeing a decreasing trend, highest being 3.6M transactions in Aug 20 2022, it is down to 0.5M transactions per day now.
• In Q3 we have seen 52M transactions out of which77% have succeeded and 22% have failed.

Transaction Success Rate

• The highest number of failing transactions were ~46% transactions failing on Aug 20, 2022., it is currently hovering around 20% and not decreasing, it is quite a high number.
• The highest rate of failures are seen on Sunday around 2AM UTC, followed by Monday 0-3AM UTC.
• The highest rate of successful transactions were seen on Tuesday at 1800 UTC.
• Function Call is the method that has seen the Most number of failed transactions.

Transaction Performance

• NEAR has worse performance than other L1s like Ethereum, Flow or Algorand.
• The current Max Transactions per minute are 922, where are the running average is around 19 transactions per minute.
• Median is around 30 transactions per minute which is not that high either.

Conclusion

• NEAR ecosystem seems to have done ok in Q3 overall stats-wise, the failure rate seems concerning, the transaction throughput is not that high either and that hasn’t improved in Q3.
• One of the steps in the right direction was the share of the Top 10 Validators stayed the same at 57%, even though it went up to 65%, it has come back.
• The number of active wallets are dwindling as well, seems like the bear market had an effect on less and less people using NEAR blockchain in Q3.
• A lot of wallets unstaked $NEAR in Q3 as well which is not a good sign.

Transaction Metrics like Frequency, TPM, TPS and Success Rate

Transaction Fee $NEAR overtime

• Transaction Fee was at peak for a few days during Aug 2022 ~8K USD in fees, it has since then fallen down a lot to around 2K NEAR in fee
• However the number of transactions has seen a rise since Sep 11 and is going down.
• 8.4M $USD fee was collected in Q3.
• 83% of the fee has come from FunctionCall method.

Number of wallets new vs active

• In terms of number of new wallets, we saw a spike around Sep 14, where we saw 350K wallets active on a single day, however after that day the number of active wallets have been around 150K per day.
• The cumulative number of new wallets has been falling since Sep 11 2022.
• If we look at the number of Active Wallets in terms of number of days of activity, then we only have about 5K wallets that have been active since the past 100 days, and 600 wallets active for the past 200 days.