NEAR Protocol Introduction

In this PembRock’s Decentralized Finance (DeFi) 101 lecture, you’ll find out what NEAR Protocol has to offer to players in the space as a layer-1 blockchain.

What L1 Is

In the blockchain space, L1 (or Layer-1) means a base network that everything—DeFi apps included—is built upon. NEAR is an example of L1, along with other popular chains such as Bitcoin, Ethereum, and Binance’s BNB Smart Chain. Often, base networks fail to meet certain requirements, so they need L2 (or Layer-2) solutions.

For example, until the recent major upgrade called The Merge, Ethereum was running on the outdated PoW (Proof-of-Work) consensus algorithm. Solutions like Optimism and Arbitrum helped it be more scalable and lowered transaction fees for the end user.

Sometimes, introducing such a pivotal change isn’t easy, and certain chains like Bitcoin are still powered by the PoW model. The history’s first distributed ledger also has an L2 solution of its own. Lightning Network opens a direct channel between the sender and the receiver, enabling them to transact (including micro-payments) at a lightning-fast (hence the name) speed and more-than-affordable cost. The channel is closed only after all transfers have been made, which is then reflected on Bitcoin’s main chain.

Developers of other, more recent networks, such as NEAR, had been observing all the bottlenecks that old-gen tech inflicted on existing chains and made a decision to do everything right from the very beginning.

Why NEAR Protocol Is a Great Match for DeFi

The most significant metric for any decentralized finance application is total value locked, or TVL. But rather than being just a numerical value, it shows the value that users give to the platform, its trustworthiness. According to data aggregator Artemis, NEAR has the highest correlation between its market capitalization and total value locked among the most popular chains. It means that within the NEAR ecosystem, DeFi takes a much more center stage than anywhere else.

To cut a long story short, there are six features that make the NEAR DeFi boom a reality.

Feature #1: Low-fee

Transaction cost is a serious concern for DeFi users. Most of them get involved with several earning opportunities at once and use different DEXes for that. On NEAR, an average transaction fee stands at less than US$0.01, which makes switching between options and platforms a cost-efficient activity.

Feature #2: Fast

Another top consideration for someone in the DeFi space is speed. NEAR comes out on top here as well with just around 2.5 seconds needed to reach finality. For comparison, on Ethereum-based DeFi platforms, it takes ~10–15 seconds at regular gas prices for a transaction to be finalized.

Feature #3: Scalable

Once the NEAR’s sharding architecture is up and running in its entirety, the protocol is expected to be processing up to 100,000 transactions per second (TPS)—a threshold on par with that of Ethereum’s anticipated Surge. The NEAR developer team has already kicked off the first phase of its sharding roll-out on September 12, and once it’s delivered in 2023, such DeFi users as high-frequency traders will have even more flexibility on-chain.

Feature #4: Multi-chain

Instead of being forced to stay within the NEAR boundaries, the users have the ability to interact with the Ethereum network and send tokens across the two chains through Aurora‘s Rainbow Bridge. Needless to say, this unlocks even more opportunities for DeFi token hunters who can swiftly jump from one hype train onto another.

Feature #5: User- & dev-friendly

On top of all the advantages NEAR gives to regular users, it also incentivizes developers. For example, the protocol lets one run a Solidity contract through its own EVM, enables Terra and Solana engineers to natively transfer their Rust contracts to NEAR, and allows for the launch of substrate-based app-chains via Octopus Network. Also, NEAR Foundation offers numerous grant programs, which can be found here.

Feature #6: Environmentally conscious

With the appearance of the regenerative finance (ReFi) community that’s been gaining momentum lately, the greener blockchain ecosystems are poised to lead the crypto market in the not-so-distant future. As a sign of acknowledgment, the South Pole organization awarded NEAR with the Climate Neutral Product label, finding that the network’s energy-efficiency is 200,000 times better than that of Bitcoin.

Growth of DeFi Ecosystem on NEAR

Around this time last year, the number of DeFi projects fueled by the NEAR protocol stood at just 18, according to the AwesomeNEAR curated catalog. Today, there are as many as 195 of them. Some of the most popular DeFi projects on NEAR include—but are not limited to—Ref.finance (a decentralized exchange), Burrow (a lending platform similar to Compound and Aave), and PembRock Finance (leveraged yield farming protocol).

As we’ve already mentioned at the beginning of this lecture, TVL is the one and only indicator critical to measuring the DeFi health. And NEAR is staying fitter than ever, having reached its all-time high (ATH) of US$1.8 billion earlier this year—a fact that can be observed on NEARWEEK.

Getting Started with NEAR

To begin using NEAR, you’ll need a wallet. There are two types of them—custodial and non-custodial. Custodial wallets are those created for you—for example, when you sign up for a centralized crypto exchange like Binance. In this case, you don’t in fact have full ownership of your funds.

Non-custodial wallets are those created by you. This means that you have a private key (12/24-word seed phrase) and are the one and only owner. To set up a non-custodial wallet, choose a provider—for example, a native NEAR Wallet, Sender, or MyNearWallet. Other wallet services, such as super-popular MetaMask are not supported yet, but are expected to enter the NEAR ecosystem soon.

Almost there! Once you’ve created a wallet and logged in, you’ll need to top it up to cover transaction fees in future. You can either transfer NEARs that you have somewhere else, or buy them using other cryptos or fiat (learn more).