After the L1 wars of last year, this year was going to be all about ETH L2s, their current and upcoming tokens, their narratives and above all, performance. But I see the L1 wars continuing, and even intensifying. Most of the serious chains have been deploying massive war chests to support their ecosystems. Web 2 taught us all about the network effects and the monopoly power they bring to the winners. How can NEAR, which recently raised $150m from major crypto investment firms, distinguish itself?
First, there’s that valid question: is Web 3 like Web 2 at all, i.e., will it be winner-take-all down the stretch or is the future multichain / cross chain. It’s relatively easy to leave EVM chains and fork dapps. On non-EVM chains there’s a bit more work to do, but the open source can be used to eventually copy any dapp anywhere. What then?
NEAR’s bet is around performance and community.
Let’s talk performance. The first major differentiator is the non-EVM compatibility at L1. The escape from the awkward handcuffing of the EVM environment means (like it does for Solana, Terra and others) improved performance. In terms of TPS, NEAR is already far ahead of Ethereum. The introduction of Simple Nightshade late last year, the start of a full-blown sharding functionality, has begun improving the performance even further. The goals is in the hundreds of thousands of TPS, better than Visa and comparable to Solana and Ethereum L2s.
The NEAR team has also been pretty smart about keeping some sort of interoperability with the Ethereum account system (think Neon on Solana, Moonbeam on Polkadot) - on NEON, the solution is called Aurora. It’s implemented as a smart contract on the NEAR blockchain and it offers transaction costs up to 1,000 times lower than Ethereum. It’s based on the Rainbow Bridge technology.
So, so far so good - the performance and the potential for future performance is there. But that’s unfortunately not a sufficient differentiator in today’s DeFi. This is how I see the phases of Web 3 playing out:
Early phase: Built by 1) true believers in underlying libertarian ideas and/or in the technology 2) experimenters 3) ponzi artists. Invested in by 1) highly technical folks 2) gamblers 3) speculators. Differentiators for chains and dapps: yields, opportunity to 100x one’s investment. Celebrity- and meme-driven.
Semi-maturity phase: Built by everyone, including people migrating from Web 2, with a variety of underlying motivations. Invested in by 1) people who missed on the early phase, coming in from adjacent fields or from the general public (FOMO-driven, typically white middle-aged, middle class men) 2) professionals who are beginning to find niches of reliable alpha 3) some parts of the general public, via easy on-ramps such as Coinbase 4) people looking for a community and recognition (hence the NFTs, the DAOs, etc). Differentiators for chains and dapps: number of use-cases covered, ability to organize communities around unique value propositions.
Maturity phase: Built by specialists. Invested in by everyone along the demographic types and age ranges. Availability of products ranging from index funds to fixed income. Full abstraction of underlying technology - users don’t know / don’t care what software/hardware is running the service they’re using. Differentiator: performance, seamlessness of experience.
If NEAR has the underlying technology to be a viable solution for the maturity phase, and has survived the early phase, then it needs a strategy for the semi-maturity phase, which we are arguably entering now. Its strategy is around area number 4 above - community. Specifically, the community they’re targeting are the people conscious about sustainability and the role of technology in society.
Some ways of positioning in this respect are better than others. Let’s start with the ones that I believe less in. First, the team makes much of the fact that their chain is PoS and not PoW. They write long articles about the disastrous effects of PoW on the environment and the carbon footprint of Ethereum and Bitcoin. NEAR makes a point out of being carbon neutral and its vision is for its entire ecosystem to be carbon neutral.
All of this is true, and necessary to be said, but it’s not a sufficient differentiator, for a few reasons. First, we are still to have a critical mass of people in DeFi who really care about anything other than quick profit. When it comes down to it, the thinking of many is that carbon effect are secondary, even decentralization is secondary - show me the money first. Why else would the number of wallets on Binance, a super-centralized chain, be growing so fast in comparison to Ethereum and other chains going through all the pains to keep and increase the decentralization?
The second reason for being skeptical about the environmental angle is that others can, and will, copy it. Greenwashing is notoriously difficult to combat. Environmental friendliness notoriously difficult to define and prove. I wrote a whole book on that, based on my experience in ESG and sustainable finance. The people you’re trying to convince are not experts - they will be convinced by a competitor’s press release. KlimaDAO bought those carbon offsets a few months ago, for dubious reasons and with dubious effect, and few in the community criticised that.
With those concerns out of the way, there are many things in terms of its narrative that NEAR does very well.
Start with one major pieces of outlook for 2022 - regulation. Delusions aside, regulation is coming to DeFi and when it comes it will hit like a hammer. NEAR is positioning itself for this. This is smart.
Next, NEAR understands how important the onboarding is for founders, developers and users. There are specific learning paths for each one of those profiles. They set up NEAR University with lots of information on how to use the system and build on it. MetaBUILD hackathons are becoming regular.
Then, there’s the small issue of the $800m ecosystem grant announced last year. With that, NEAR can really move the needle, and it’s not surprising that the protocol has started to top the charts in terms of developer activity.
The NEAR world isn’t, publicly at least, dominated by one all-important individual (Ethereum - Buterin, Fantom - Cronje, etc). Moreover, the strategy of the NEAR Foundation is one of directing and encouraging development but not exactly functioning as one big, central VC firm that controls everything and has ownership stakes everywhere. This model can foster organic development and be more resilient in the long run.
The dapp landscape on NEAR is improving. There’s no killer app to speak of just yet but there are projects that have gained some traction. Examples are Mintbase, an NFT marketplace, DAOrecords, a music streaming + NFT project, Ref.finance, an exchange, and Machina, akin to something like Arweave.
What should NEAR do?
I see three advantages that NEAR might be able to utilize:
Develop an ecosystem of apps with real-world application. I strongly feel that the next phase of DeFi will favor projects that have some sort of an impact in the real world rather than the 100th DEX, the 10,000th PFP project or the next sophisticated ponzi scheme. What I mean here are projects like Helium, Silta, Grid Singularity and similar. If NEAR can position itself as chain of choice for such initiatives then it can foster the birthing of projects with longer lifespans and greater ambitions. The aura of being serious, real-world focused and regulation-friendly might in turn attract that holy grail all others are looking after - institutional investors. This approach would require a slightly more interventionist mindset than NEAR has exhibited so far - actively betting on potential champions and choosing the areas in which to develop the ecosystem, rather than “letting a thousand flowers bloom.”
NEAR could be the natural place for TPS-heavy applications to develop, primarily games and metaverses. The competition here is going to be ferocious. A lot of VC funding, not to mention big tech money, is flowing into projects in this space. NEAR’s strategy here too should be a little more interventionist. They will need those two or three winner apps that will end up bringing people to the chain and creating the traffic. Complementary to this should be a branding that emphasizes purpose and being mission-driven. All this of course depends on the underlying technology holding up to its promise, Nightshade proceeding on schedule, etc.
Occupying the space where there are currently gaps. Web 3 allows everyone to develop and participate, anywhere on earth. Talent is (or will soon be) available everywhere, beyond the major nodes in the US, Western Europe and East Asia. There will be benefits to mapping out and investing into teams in CEE, Africa and the Middle East. I have seen this shift happen in philanthropy (non-Western social movements are some of the most effective) and sustainable finance (some emerging markets offer extremely ESG-friendly investment opportunities) and won’t be surprised to see it happen in Web 3. A breadth of scouting and being able to onboard global teams will pay off, and NEAR should focus on this.
It remains to be seen if the NEAR Foundation’s strategy starts to shift in this direction. The hiring of a new CEO is a move in the right direction, I think. The public is certainly expecting something, with a recent $150m funding round and a coin ATH of $20 ten days ago. Can NEAR live up to its potential?