Introduction

NEAR Protocol was launched in April 2020 to help transform Web3 into an ecosystem available to all—not just the tech-savvy. The NEAR team is working to bring their vision to life by creating a simplified infrastructure that's quick, low-cost, and scalable. With its Layer 1, sharded, proof-of-stake (PoS) blockchain that emphasizes usability, NEAR's transactions are fast, inexpensive, costing less than 1¢ in fees.

Sharding is a crucial component of the NEAR Protocol. So, it's unsurprising that its team includes ex-MemSQL engineers responsible for building cross-shard transactions and ex-Google employees with expertise in building distributed systems.

This article will explore sharding, chain abstraction, and how validators earn rewards on NEAR Protocol. More importantly, it will delve into the exciting partnership between NEAR and Eigen Labs to explore the Super Fast Finality Layer they are creating.

Partitioning Blockchains into Shards

Low throughput, high latency, and high prices hinder Ethereum from running services that need to scale as user adoption grows. The primary reason for low throughput on Ethereum is that every network node must process every transaction.

Many talented developers have proposed different solutions to address the issue of throughput. For the most part, these solutions fall into two categories:

1. Those where a small set of powerful nodes do the computation work.

2. Those that split up the work so that each node in the network only does a subset of the total amount.

The latter approach is called sharding, and it is how the Ethereum Foundation plans to scale Ethereum. Near Protocol is also based on sharding. It treats each account and smart contract as a separate shard. So, instead of running one blockchain, NEAR will run multiple chains, and each blockchain will be a "shard" with its own set of validators.

NEAR and Chain Abstraction

NEAR Protocol's moniker on X is: "Delivering on the promises of Web3, with Chain Abstraction." While other projects might give lip service to "Account Abstraction," it is a built-in feature in NEAR.

The concept of chain abstraction is that blockchain technology should be abstracted away from the UX so that it is not a barrier to entry for the masses. Users should not even be aware that they are using a blockchain.

NEAR's services allow users to create and recover accounts, acquire funds, and control accounts in other chains seamlessly—with their email.

Fast Authorization with Email

The crypto wallet requirement is one of the first hurdles new Web3 users must overcome. Before they can begin to participate, they must choose a wallet, a recovery phrase, and deposit funds. With "FastAuth," users only need an email address to create a NEAR account. Users can access their accounts using the same email address across different applications and devices.

Multi-Chain Signatures

One challenge in Web3 is that users and applications are separated by different chains. Thus, users must create new accounts for each chain they wish to use. This process is cumbersome for both users and developers, who must maintain different codebases for each chain.

NEAR offers a multi-chain signature service so users can sign transactions with their NEAR Account on other chains. Chain signatures allow NEAR accounts to execute transactions across many different blockchains. For example, users could interact with blockchains like Ethereum, Binance Smart Chain, and NEAR with the same account.

This advancement unlocks new levels of interoperability by offering ownership of diverse assets in cross-chain accounts to a single NEAR account.

NEAR Protocol and Eigen Labs Partnership

An exciting development that's created much buzz in the Web3 space is the partnership between NEAR Protocol and Eigen Labs and their "Super Fast Finality Layer."

At NEARCON 2023, the protocol revealed upcoming developments that aligned with Ethereum's rollup-centric roadmap. Layer-2 Rollups on Ethereum execute transactions off the main blockchain and are one of the fastest-growing sectors in Web3. However, Rollups faced challenges with finality and cost, making them an inexpensive option for developers building on Ethereum.

Ethereum’s Dencun Upgrade has mitigated some of those costs, particularly for Layer 2 networks like Optimism, Polygon, and Arbitrum. Fortunately for NEAR Protocol, its sharding capabilities still make it an excellent option for those building Rollups. Additionally, in November 2023, the protocol announced its partnership with Eigen Labs. Eigen Labs developed EigenLayer, a leading scaling solution on top of Ethereum, and introduced restaking. By joining forces, EigenLayer will leverage NEAR's technology to enable faster, cheaper transactions for Layer-2 Rollups on Ethereum.

EigenLayer uses re-staked ETH to power its Actively Validated Services (AVS) functionality. Rollups benefit from these modular services delivered by AVS. Therefore, combining NEAR smart contracts with full nodes as AVS and EigenLayer's dual-quorum data availability layer ensures security and finality.

"Quorum" refers to the minimum number of approved members present for a motion to pass. EigenLayer's data availability layer has a "Dual Quorum" feature that requires two separate quorums to attest to the availability of data.

For example, one quorum could be the ETH quorum composed of ETH re-stakers, and the other could be the Rollup's native token stakers. Both quorums are independent and redundant sources of data availability. Thus, an adversary must compromise both quorums to force the data availability layer to fail.

The Super Fast Finality Layer

The partnership will reveal the world's first Super Fast Finality Layer for Layer 2s, thus removing the transaction "finality and cost" roadblock. Transaction times will be significantly reduced, and transacting on this new finality layer will cost 4,000 times less than it does now.

"Finality" provides certainty and refers to confirming a block of transactions. Once a block achieves finality, it cannot be reversed or altered. Settlement refers to the agreement and confirmation of the state of transactions.

The NEAR Protocol uses self-executing smart contracts. In this partnership, full nodes on NEAR serve as AVS on the EigenLayer; by incorporating these full nodes into EigenLayer, the union benefits from NEAR's smart contract capabilities and EigenLayer's scalability prowess. The goal is to establish this Super Fast Finality Layer for Rollups with AVS. The AVS inherits security and finality from NEAR and Ethereum via EigenLayer.

The good news is that the Super Fast Finality Layer accelerates settlement mechanisms. After claiming the changes, the system continues to achieve consensus among the Super Fast Finality Layer validators and finally settles on Ethereum.

During the challenging period, fraud-proof submission safeguards against incorrect claims, with EigenLayer's validators ensuring security on the AVS. This layer will speed up the settlement process and reduce the time it takes for transactions to be finalized. Rollups will execute transactions and claim state changes to the Super Fast Finality Layer in 3 to 4 seconds—a significant improvement compared to Ethereum's current processing time.

Moreover, transactions will reach finality faster and inherit EigenLayer and NEAR guarantees before settling to Ethereum. This technological advancement will also reduce liquidity fragmentation between Layer-2s and offer choices between the sequencers (on-chain or off-chain) they use to process transactions.

In sum, this partnership combines NEAR smart contracts and NEAR full nodes as AVS on EigenLayer with its dual-quorum data availability layer. The goal is to inherit the top strengths from both parties. Teaming up also contributes to chain abstraction's broader vision of making Web3 more user-friendly.

Additionally, the partnership will benefit projects built on Ethereum and the NEAR protocol by improving their bridging experience.

Proof of Stake on NEAR Protocol

NEAR Protocol is a PoS network, which means that Sybil resistance against potential attacks is accomplished by staking. Its particular version of PoS is called "Thresholded Proof of Stake."

Node providers on NEAR receive rewards for their work in the native cryptocurrency, $NEAR. Each user transaction requires bandwidth and computation to be included in the block, so users must pay a transaction fee. The network collects and automatically burns these fees. The team crafted the economics so that higher network usage increases the incentives (higher yield) to run validating nodes.

The annual fixed token issuance is approximately 5% of the total supply. 90% of this 5% issuance goes to validators to pay for their work securing the network. NEAR Protocol's inflation (token issuance) is thus necessary to pay network validators.

NEAR Protocol Validators

Validators have two vital jobs:

1. Validate, execute, and aggregate transactions into the blocks that form the blockchain.

2. Monitor other validators to ensure they don't produce invalid blocks or alternative chains for double-spend attacks.

Misbehaving validators get slashed by the protocol, which means the protocol burns their entire stake or part of it. The threat of losing one's stake thereby incentivizes good behavior amongst validators.

Each validator does the same amount of work on the NEAR network, so the block producer does not get special rewards. However, validators receive rewards proportional to their participation.

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PoS on NEAR becomes more complicated than other Layer-1 chains because fees are distributed within a sharded network, where receipts travel between shards and are executed by different validators.

More on NEAR Validators

The minimum cost to become a validator is based on the network's 300th proposal. The threshold will be the stake of the 300th proposal, as long as it's greater than the minimum threshold of 25,500 $NEAR. The NEAR Explorer shows live updates of the current active validators and the price required to become one. Anyone who can stake more than the seat price can validate the network. Stake, hardware, and hosting are required to join the active set of NEAR validators.

Validators must validate all shards, so running a node requires high hardware requirements. Additionally, hosting costs approximately $330 per month at the time of writing.

After each epoch, validators are evaluated based on the number of blocks they produced compared to expectations. Validators with a 99% or above online presence receive 100% of the rewards. Those with at least 90% online presence get rewards that grow linearly to the 100% level. Validators who produce less than 90% of what's expected are considered "offline/unstable" and do not receive any rewards. These nodes will lose their validator status and must re-submit a staking transaction.

Shards and Validators

Since NEAR is a sharded blockchain, its throughput scales as usage grows. The network starts with one shard and 100 validator seats. The NEAR protocol proportionally assigns the validator seats and redistributes the rewards depending on stake. The number of validator seats increases with the number of shards. If eight shards are running, there will be 800 seats available.

Initially, small numbers of shards will require a more significant stake. Thus, professional validators and organizations will allocate substantial resources to NEAR. However, as the network's usage grows, the number of shards and seats will increase. The minimum stake to become a validator should also scale lower over time. Furthermore, eminent growth in the number of validators will provide greater decentralization to the network.

Delegation on NEAR Protocol

In PoS, users support specific network validators by delegating their tokens to them during the staking process. The idea is that the validator who gains the most trust from the community has the most tokens delegated to them.

NEAR Protocol enables delegation via smart contracts so that third parties who don't want to run their own nodes can still participate in securing the network by delegating $NEAR tokens to validators. The goal is to attract enough funds from delegators to allow validators who might need more $NEAR to participate.

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Summary

NEAR Protocol recently increased its number of shards to five. This accomplishment will enhance its network's capacity and scalability while the team works on an additional upgrade to bring the total to six shards. These upgrades will help NEAR meet the growing demand for its protocol.

(High) Five shards on mainnet 🖐️

NEAR Protocol now has 5 shards!

The jet was refueled whilst flying, and the NEAR ecosystem and @PagodaPlatform pulled it off.

Read on to find out more technical details: pic.twitter.com/83bIw9AbF6

— NEAR Protocol (@NEARProtocol) March 13, 2024

The protocol's mission to create a leading Layer-1 blockchain seems to have shifted more to unifying all blockchains into one ecosystem with its Eigen Labs partnership. Their Super Fast Finality Layer is a significant technological advancement for Web3. While NEAR and Eigen Labs' Super Fast Finality Layer appear to have an early advantage, they will likely face competition from other projects like Polygon and Optimism, which are developing seamless interoperability solutions. Celestia will also bring competition to the data availability front.

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About Luganodes

Luganodes is a world-class, Swiss-operated, non-custodial blockchain infrastructure provider that has rapidly gained recognition in the industry for offering institutional-grade services. It was born out of the Lugano Plan B Program, an initiative driven by Tether and the City of Lugano. Luganodes maintains an exceptional 99.9% uptime with round-the-clock monitoring by SRE experts. With support for 40+ PoS networks, it ranks among the top validators on Polygon, Polkadot, Sui, and Tron. Luganodes prioritizes security and compliance, holding the distinction of being one of the first staking providers to adhere to all SOC 2 Type II, GDPR, and ISO 27001 standards as well as offering Chainproof insurance to institutional clients.