Nearing Abstraction

In the evolution of blockchain technology, chain abstraction is becoming a mysterious concept that has left many individuals without a technical background searching for answers.  In this week’s edition of the Crypto Market Monitor, we explore this concept of chain abstraction - why it’s needed and the future it promises. We then turn our attention to NEAR Protocol - a layer-1 blockchain which is a major player in the race of chain abstraction. We will see how NEAR’s impressive on-chain metrics underscore the expansion of its ecosystem, positioning it at the forefront of this movement.   

The odyssey thus far 

The cryptocurrency market’s evolution has been nothing short of a thrilling rollercoaster, representing one of the most interesting developments in modern finance. It started with Bitcoin - originated as a simple P2P payments system independent of the rails of the traditional finance system. Driven by leaps in blockchain technology, new blockchains followed which unlocked utility, scale and smart contract capabilities. To date, we continue to see a slew of blockchain launches. This has created a multichain ecosystem with interoperable architecture and independent solutions.

However, the journey toward mainstream adoption is filled with challenges, chief among them being the complexity of navigating through multiple blockchains. The landscape is highly diverse consisting of various networks, each with its own protocols, rules and consensus mechanisms. While this diversity fosters innovation, it also leads to fragmented liquidity markets, creating significant obstacles for both developers and users. This situation presents a few key challenges. Firstly, single-chain applications have restricted addressable markets for applications, limiting their potential reach. Today, fragmented liquidity across chains and sub-par user experience has created obstacles for growth. Additionally, managing multiple wallets becomes unsustainable for users as the number of ecosystems continues to go up. As a result, crypto remains inaccessible to the masses.

Chain Abstraction 

Enter chain abstraction, which is similar to account abstraction. Account abstraction enabled wallets to function like smart contracts, removing complicated wallet requirements like seed phrases and enabling features like batching complex actions or automatic payments. On similar lines, chain abstraction refers to the creation of a seamless, unified experience across multiple blockchains. In this framework, users and developers can move beyond the complexities associated with individual chains. In a chain-abstracted environment, users are free from concerns about which chain they are interacting with, what gas token is needed or how to bridge assets across different networks. It enables  individuals to use decentralised applications (dApps) without needing to manage the underlying blockchain details.

The destination is Near

In any competitive landscape, the greater the distribution power, the stronger the competitive advantage. With a total value locked (TVL) exceeding $244 million and daily active addresses surpassing 3.2 million, the layer-1 blockchain NEAR is well positioned in the chain abstraction race.

A key component within chain abstraction is account aggregation, a technology that the NEAR team is actively working on. Account aggregation enables users to transact cross-chain using a single account and interface, simplifying the user experience. For developers, account aggregation allows them to build dApps on any chain that aligns technically with their goals, rather than being restricted by the need to access a specific market or liquidity pool. This approach ensures that dApps can still provide a unified user experience. Importantly, the single account will be non-custodial and independent of any specific wallet software or service provider. For those interested in a more technical overview of NEAR’s stack that supports chain abstraction, further information is available here.

As of now, NEARCatalog highlights several protocols that align with NEAR’s vision for chain abstraction. One notable example is Atlas Protocol, which enables Bitcoin liquid staking. Atlas utilizes the NEAR 's chain signatures, allowing users to stake native BTC and receive its liquid staked derivative on any network.   Another example is Templar Protocol, a lending platform developed on NEAR that leverages the chain abstraction stack to serve markets on other blockchains.

 NEAR’s significant advantage in the chain abstraction landscape lies in its distribution, which is evident in the robust on-chain metrics of its ecosystem. The network's daily transaction count has surged by approximately 327% over the past year, reaching 6.4 million transactions per day at the time of writing. Similarly, daily active addresses have seen a remarkable increase of about 336%, currently hovering around the 3.2 million mark per day.

Figure 1: Daily transaction count and the number of active addresses have both risen meteorically on NEAR over the past one year

At the time of writing, the total value locked (TVL) in NEAR DeFi is around the $244 million mark, up roughly 698% over the past one year. While the NEAR token’s 400% price rally during this time has contributed significantly to the network’s USD-denominated TVL, the network’s NEAR-denominated TVL too is up significantly at +45% over the past twelve months. Another metric to pay attention to is stablecoin market capitalisation. Since stablecoins are widely used for transactions, trading and lending within DeFi, their market capitalisation is a good indicator of the demand for liquidity on the network. When the stablecoin market cap increases, it suggests greater activity. For NEAR, stablecoin market cap is also up by a staggering 940% since October last year and is currently at $690.54 million.

Figure 2: DeFi TVL and stablecoin market capitalisation are both up significantly on Near over the past one year

The growth of NEAR is also reflected in the total economic security provided by its validators, which has increased slightly over the past 12 months. As of now, NEAR has 223 validators and a total value staked of approximately $2.94 billion, resulting in a staking ratio of 51.2%. Over the past year, the total stake (denominated in NEAR) has grown by 2.4%, further underscoring the network's strengthening foundation for economic security.

 Figure 3: 1-year percentage change in total stake for economic security of NEAR and some of its competitors (native coin denominated) 

While economic security and on-chain demand are important factors driving token demand, one major concern for many market participants is the selling pressure created by token unlocks. This concern is valid, as projects with a high concentration of tokens held by insiders can lead to centralisation issues. However, NEAR stands out in this regard, as 94% of its total token supply is already unlocked, and the remaining 6% will be fully unlocked by October 2025. This level of unlocked supply is significantly higher than that of several competitors, such as Sei (37%), Sui (28%), Aptos (41%), and Zeta Chain (52%). NEAR’s ratio of circulating market cap to fully diluted valuation at 99% too is higher than its competition. These two factors are beneficial for NEAR because it reduces the risk of sudden selloffs that can negatively impact the token's market price, leading to a sudden drop in TVL and economic security of the network. With less concern about large amounts of tokens being released into the market all at once, participants can have greater confidence in the stability of the ecosystem.

Figure 4: CMC/FDVs and token unlock percentage for NEAR and some of its competitors 

Playing the long game

NEAR Protocol shows promise. With a steady rise in onchain addresses, transaction counts and increasing TVL, the ecosystem is clearly expanding. The growing demand for staking yield, reflected in the jump in staking TVL, is another positive sign. Plus, NEAR’s avoidance of the low market cap-high FDV category is beneficial for price discovery and strengthens community sentiment.

 For the long-term, its vision of chain abstraction aligns well with the future of crypto, aiming to create an interconnected and scalable ecosystem. NEAR’s Data Availability (DA) solution also brings significant value by making data posting cheaper for EVM-based L2s, reducing developer costs. NEAR DA currently has partnerships with leading rollups including Arbitrum Orbit, Polygon CDK, OP and AltLayer. Additionally, with the Horizon AI Incubator, NEAR is now focusing on its next major milestone: becoming the home for user-owned AI. These factors not only drive value to the NEAR token but also position the ecosystem as a major player in bringing the chain abstraction experience.