TL;DR
- NEAR staking metrics have trended upwards YoY. Staked tokens increased by 19.73%, staking wallets grew by 80%, and the staking ratio reached 47%.
- NEAR has undertaken several initiatives to optimize for scale, including a sharding mechanism to manage demand spikes, named accounts, and 3) supporting common coding languages like JavaScript
- NEAR sharding, coined Nightshade Sharding, has been a work in progress since 2021, has four planned phases, and is currently in phase two – which splits the chain into four shards and only shards state but not transaction processing. The final two stages will shard both state and transactions, and make sharding dynamic, increasing/decreasing nodes depending on demand. Executing Nightshade Sharding is crucial for the future of NEAR scaling.
- NEAR Co-founder Illia Polosukhin proposes a change to NEAR storage staking, which will remove the initializing requirement of funding new wallets with a minimum NEAR balance
- NEAR continues to rely on its community of validators and developers to implement validator standards, and best practices, along with incentivizing and growing the developer ecosystem
In February 2023, NEAR co-founder, Illia Polosukhin, joined our Head of Strategy, Marian Walter, on the Staking Insider Podcast to discuss NEAR and the road ahead. Learn about NEAR staking, scaling, validator requirements and economic incentives, and upcoming protocol upgrades in the 30-minute episode.
Let’s dig into key takeaways from the podcast episode and our NEAR staking data on stakingrewards.com.
What is NEAR?
Near is an L1 blockchain optimizing for scaling and mass adoption for Web3. NEAR addresses scaling and adoption in three ways while maintaining security, 1) Nightshade sharding, 2) named accounts similar to and preceding Ethereum’s ERC-4337 abstraction accounts, and 3) supports familiar developer languages like JavaScript to quickly onboard developers.
1. NEAR staking delegators earn a 9% yield while staking metrics continue climbing.
NEAR staking delegator reward rates sit at 9%, and running a validator yields 9.69%, according to stakingrewards.com data. Adjusted for inflation and commission rates, delegators earn 3.90% APR.
The staking ratio increased from 39.07% to 46.78%, growing by 19.73% YoY.
The number of active staking wallets has also grown by 79.26% in the past year, approaching almost 100,000 staking wallets.
Overall, staking activity on the network is on an upward trajectory despite the price declining from the bull market peak in Q1 2022.
2. Where do NEAR protocol rewards come from?
NEAR rewards source differs depending on the participant. Validators earn rewards from a set reward rate and storage staking. In a unique approach, NEAR smart contract developers earn rewards via transaction fees.
Validator Rewards Rate
In exchange for servicing the network, validators earn a target number of NEAR every epoch. The target value is at least 4.5% of the total supply annually.
If less than 100% of NEAR tokens are staked, validator rewards increase accordingly. Currently, ~47% of NEAR tokens are staked, resulting in a nominal APR of 9.65%.
Storage Staking
An account owner who owns and deploys a smart contract to NEAR must pay for the storage the contract requires via a storage staking mechanism. The account that owns the smart contract must lock tokens according to the amount of data stored in that smart contract, effectively reducing the balance of the contract’s account. Storage costs and storage staked tokens will continue to increase as more users interact with the contract. Storage-staked tokens earn no direct yield for the smart contract owner – the tokens are locked and out of circulation.
Storage staking indirectly earns validators a yield for the expense of storing smart contract data. Remember what we said earlier? If less than 100% of NEAR tokens are staked, validator rewards increase accordingly. As more NEAR smart contracts deploy and protocol transactions increase, more NEAR will be storage staked, reducing the balance of NEAR that can be normally staked and the number of NEAR circulating. As a result, storage staking increases rewards since NEAR tokens are removed from circulation and can’t be staked, directly reducing the staking ratio.
Transaction Fees
70% of every transaction fee is burned, and 30% is allocated to the owner of the contract called in the transaction. This transaction fee structure aims to pay and incentivize developers on NEAR to build useful smart contracts.
Validators are not awarded transaction fees. Illia explains, “The idea is to guarantee rewards for the validators, but there is no point in paying them more from transaction fees. So the protocol burns 70% of transaction fees, pays developers 30% of transaction fees, and mints a specific amount for validators.”
3. Of the ~200 NEAR validators, 12 are verified on StakingRewards.com
Finding a dependable and highly performant PoS validator is the most critical decision staking delegators make. To help, we launched our Verified Provider Program (VPP) in June 2022. Through the VPP program, we thoroughly scrutinize potential validators, evaluating security measures, on-chain reliability, provider setup, value-added services, and many other factors. Check out our Verified NEAR Staking Providers list:
- HashQuark
- Stakin
- Everstake
- stakefish
- 01node
- Allnodes
- Lavender.Five
- Luganodes
- Chorus One
- P2P Validator
- Stakeseeker
- Staking4All
4. NEAR staking organically scales with network adoption through Sharding
At the heart of NEAR’s economic security is its staking mechanism, an integral aspect of its sharded network structure. Like other PoS networks, every node in the network requires either a minimum self-stake (NEAR also has a maximum validator stake size) or delegated stake to start validating. As network usage and capacity demand increase on NEAR, expanding the number of shards becomes necessary and, in turn, requires the number of nodes operating to increase as well. At least, this is the vision once Nightshade Sharding is fully implemented. NEAR Nightshade Sharding is a work in progress, currently in its second phase, and aims to complete all four phases by the end of 2023. The first implementation, Phase 0, launched in September 2021. Phase 0 only sharded the blockchain state into four shards (increasing throughput) but required all validators to validate transactions.
5. NEAR launched the #StakeWars program to onboard ‘Chunk-Only’ validators in its second phase, ‘Phase 1’ of its Nightshade Sharding implementation
Phase 1: Chunk-Only Producers reduces hardware requirements for validators. The majority of Chunk-Only Producers’ validator hardware requirements reduce to a 4-Core CPU, 8GB of RAM, and 200 GB of storage SSD. Phase 1 significantly lowers the barrier to entry relative to Phase 0, which required a machine with an 8-core GPU, 16GB RAM, and 1TB SSD storage. NEAR’s current strategy aims to onboard 200-400 Chunk-Only Producers as it lowers the hardware entry barrier, effectively increasing the total number of validators on the network.
NEAR’s Phase 2 of Nightshade Sharding will again lower hardware requirements and implement sharding for both state and processing. Finally, Phase 3 aims to dynamically merge and split the number of shards with network usage spikes.
6. Illia’s latest proposal on storage staking highlights NEAR’s obsession with not only technical scaling but also scaling user adoption
Creating new NEAR wallets required a minimum amount of NEAR to be deposited in the new wallet so it could be initialized for use. Initially, to make the account creation process more accessible, the team distributed NEAR tokens to new accounts so users wouldn’t have to go through funding the account. As a result, bots depleted NEAR distributed for account creation. In addition, applications looking to create NEAR wallets on behalf of users needed to account for funding new wallet accounts. However, applications on NEAR are disincentivized to create user wallet accounts, given the cost and additional work.
Illia proposes instead of having to deposit NEAR into a new account; users pay additional gas instead during creation, which is burned, which also accounts for storage required to create a new account. This way, new accounts can have full functionality starting with a 0 NEAR balance. The proposal makes the account creation process faster and more straightforward for all parties. This is another example of how the NEAR team constantly prioritizes scaling and optimizing for user adoption.
Conclusions
NEAR continues to prioritize efforts around being one of the most scalable L1s. Time will tell if the team pulls off its ambitions. So far, the team continues to iterate, pioneer new approaches to scaling, and is heavily focused on working with validators and developers in its ecosystem. NEAR staking metrics also continue a positive trend.
Listen to the Staking Insider podcast episode with Illia and Marian to dig deeper into NEAR. Interested in staking NEAR? Calculate potential rewards you can earn and learn about vetted staking Providers on the NEAR asset page.