When you research cryptocurrencies for long enough you start to realize just how similar some of them are and what this could mean for the competition between them.
Solana and Near Protocol are two cryptocurrencies with no shortage of similarities, and given how much institutional interest each one has attracted the competition between them is likely to intensify. That’s why today I’m going to size up two of the most promising smart contract cryptocurrencies out there, and tell you whether it’s SOL or NEAR that will win the hearts and wallets of institutions.
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Founders
Let’s start with the founders. Solana was founded in 2017 by Anatoly Yakovenko. Anatoly holds a bachelor’s in computer science and he spent most of his career working as a senior software engineer at Qualcomm creating some of the core technologies used in every mobile phone.
Solana is named after a beach close to San Diego California, where Anatoly was working at Qualcomm. He came up with the idea for Solana during a ‘caffeine induced fever dream’ wherein he realized the Bitcoin’s Sha-256 hash function could be used to timestamp transactions.
Anatoly created Solana to compete with centralized stock exchanges such as the Nasdaq, which can process hundreds of thousands if not millions of transactions per second. This is why Solana is so fast and it is technically the fastest cryptocurrency on the market more on that in a moment.
Near Protocol was founded in 2018 by Ilya Polosukhin and Alexander Skidanov. Ilya holds a masters in computer science and spent most of his earlier career working as a software engineer for various tech companies including Google, where he focused on machine learning technologies that are used as part of Google Translate.
Alexander also holds a masters in computer science and spent most of his early career working at memSQL where he served as director of engineering for over three years. For your information memSQL is a cloud computing platform and database similar to Amazon Web Services.
Ilya and Alexander met through the famous Y Combinator startup accelerator and founded Near Protocol, which began as an AI focus project in 2017. The slogan was something along the lines of AI is NEAR, hence the name.
After the pair had difficulty making payments to employees overseas they decided to turn Near Protocol into a crypto project that would focus on payments and decentralized applications inspired in part by Ethereum and other smart contract cryptocurrencies at the time.
As you’ll soon see many aspects of Near Protocol were inspired by other popular crypto projects. This is thanks to Near Protocol’s whiteboard series where they would invite founders of crypto projects to explain how they work under the hood.
As it so happens episode 2 of Near Protocol’s whiteboard series featured Solana founder Anatoly Yakovenko, and it seems that the founders of both have been on a friendly first name basis since their respective crypto projects were created.
Development
This brings me to the development of both projects. Solana was built by Solana Labs a software company based in San Francisco California, which was co-founded by Anatoly along with other top-tier computer scientists.
SOLANA development is coordinated by the Solana Foundation a non-profit organization based in Switzerland. According to Messari Anatoly also sits on the Solana Foundation’s board of directors. Solana raised around $25 million across various ICOs in 2018, 2019, and 2020 and raised an additional $340 million from various crypto VCs last year.
Solana’s mainnet went live in march 2020 and its blockchain is still technically in beta as clearly noted in the right hand corner of its official explorer. It’s not entirely clear when Solana’s blockchain will transition to its alpha stage as it does not have an official roadmap, though an answer to this question in Solana subreddit from last March suggests this will take place sometime this year.
Fun fact Solana is the official blockchain for Circle’s USDC stablecoin, but the overwhelming majority of USDC’s supply is currently circulating on Ethereum.
Near Protocol was built by Near Incorporated a software company also based in San Francisco California, which was of course co-founded by Ilya and Alexander and other top-tier computer scientists.
Near Protocol’s development is coordinated by the Near Foundation a non-profit organization also based in Switzerland. According to Messari Ilya also sits on the Near Foundation’s board of directors.
Fun fact number two Circles former chief marketing officer Marieka Flament became the CEO of the Near Foundation earlier this year really gets the noggin jogging.
Near Protocol raised around $35 million across various ICO in 2017, 2018, 2019, and 2020 raised an additional $150 million from various crypto VCs last year, and raised another $350 million from various crypto VCs earlier this year. That’s an additional $500 million of post ICO funding.
This makes Near Protocol the second most funded crypto project post ICO with Solana in third place. This is significant because lots of post ICO investment indicates that institutions believe a crypto project has serious long term potential. If you’re wondering, which crypto project has received the most post ICO funding that would be Avalanche at close to $700 million.
Anyways Near Protocol’s mainnet went live in october 2020 and its blockchain is likewise in development. Near Protocol’s development roadmap was posted to its governance forum last June and it notes that Near Protocol’s blockchain will essentially be complete later this year.
Technology
When it comes to what’s going on under the hood Solana uses a Proof of Stake (PoS) blockchain that can reportedly process anywhere between 45,000 and 65,000 transactions per second.
This insanely high speed is made possible by a series of Novel technologies notably Proof of History (PoH) a component of Solana’s Proof of Stake (PoS) consensus that makes it possible to timestamp transactions.
As far as I know Solana speed also applies to smart contract transactions, because unlike most smart contract cryptocurrencies Solana uses its own virtual machine, not the Ethereum virtual machine.
That said a Solana project called Neon will soon be launching an EVM layer for Solana that will be able to process around 4,500 transactions per second, so be on the lookout. I’ll also quickly note that Solana is coded in the rust programming language.
Solana’s speed means the size of its blockchain is growing very quickly. This could threaten Solana’s decentralization in the long term as a smaller and smaller subset of validator nodes would be able to store its blockchain history. This is why Solana uses Arweave (AR) to store its blockchain history instead.
The Solana blockchain is currently secured by around 1800 validators, but it’s important to note that transactions on Solana are processed by smaller groups of up to 150 validators called Solana Clusters.
In a 2019 debate between Anatoly and Alexander Anatoly noted that the maximum number of validators Solana can support is around 20,000 though it’s possible this has changed since then.
Near Protocol uses a Sharded Proof of Stake (SPoS) blockchain that can process around 1000 transactions per shard. With four shards currently live this means Near Protocol can process around 4000 transactions per second.
For those unfamiliar sharding essentially involves splitting a blockchain into multiple parts, which makes it possible to do things like process transactions in parallel or assign different decentralized applications to different shards to ensure fees stay low and transactions continue to process without issues.
Even though Near Protocol is not nearly as fast as Solana, it’s fast enough that its blockchain could face the same blockchain storage centralization issues as Solana in the future. This is why Near Protocol is working on its own decentralized data storage protocol called Machina.
On Near Protocol one of its four shards is dedicated to running Aurora an EVM layer for Near Protocol that can process ‘thousands of transactions per second’ as per the blog post announcing the project. Given that each shard can process a maximum of 1000 TPS this is probably Aurora’s actual TPS.
In any case Near Protocol also has its own virtual machine for smart contracts and every Near Protocol wallet is actually a smart contract, which makes it possible to unlock new use cases like borrowing using your entire wallet as collateral rather than a single coin or token.
Near Protocol’s 4 shards are secured by the same set of 100 validators, which makes its blockchain fairly centralized.
For what it’s worth Near Protocol plans on onboarding hundreds more validators by the end of the year as part of its sharding roadmap.
Near Protocol is also working towards implementing something called Dynamic Resharding, which will make it possible to automatically create and destroy shards based on the demand for its blockchain. I’ll quickly note that Near Protocol is also coded in the rust programming language.
Assuming there’s no limit to the number of validators Near Protocol can support Dynamic Resharding will theoretically make Near Protocol infinitely scalable, though NEAR’s tokenomics will likely put a cap on how many validators can realistically be added.
Tokenomics
Speaking of tokenomics, SOL is the native cryptocurrency of the Solana blockchain. It’s used for staking and to pay for transaction fees, which are burned. SOL staking rewards are currently around 5% per year for both validators and delegators with a five-day lock-up. There’s no minimum stake for validators or delegators and misbehaving validators are slashed.
Setting up a validator on Solana is known to be extremely difficult to do, and it requires extremely expensive hardware. Delegation can be easily done using the Phantom wallet, which exists as both a browser extension and a mobile app on Android and IOS devices.
SOL’s initial supply was 500 million and it has no maximum supply. Roughly 38% of SOL’s initial supply went to investors, 12% went to the team, 12% went to the Solana Foundation, and the remaining 38% was set aside as community reserves, which are custodied by the Solana Foundation.
SOL’s vesting schedule is quite frankly the most aggressive of any cryptocurrency and I’ve long wondered why unlocking almost all its initial supply at the start of last year didn’t completely crash its price.
Solana’s explorer reveals that much of SOL’s supply is concentrated in the top 25 wallets. Unfortunately these wallets are not labeled, so it’s hard to know who they belong to without the help of a blockchain analytics company.
Anyhow SOL’s inflation rate is currently around 5% per year and it’s scheduled to decline over about the next decade before settling at around 1.5%. Note that SOL’s real inflation rate isn’t likely much higher as early investors can sell at any time and are likely doing so slowly but surely.
They have also likely accumulated more SOL via staking in the interim. The silver lining to SOL’s supply situation is that with enough transactions SOL could become deflationary due to the transaction fee burns I just mentioned. This would serve as rocket fuel for SOL’s price.
NEAR is the native cryptocurrency coin of the Near Protocol blockchain. It’s used for staking and to pay for transaction fees, which are also burned unless they involve a smart contract in which case 30% of the transaction fee goes to the smart contract creator, and the remaining 70% is burned.
As you might have guessed this is to incentivize developers to build on Near Protocol, which is a good idea since Solana and Polkadot seem to be the only other two big cryptocurrencies coded in the Rust programming language and that means they’re all fighting for the same pool of crypto developers.
Near staking rewards are currently around 10% per year for both validators and delegators with a one day lockup. There’s currently no slashing on Near Protocol either.
While there’s no minimum stake for delegators validators must take more than 166,000 NEAR to become a part of the validator set, which is more than $800,000 at today’s prices. Ironically the hardware required to become a validator node on Near Protocol isn’t far off from the specs you get with a standard laptop or PC.
For what it’s worth Near Protocol will soon be introducing a new type of validator node called a Chunk Only Producer, which will not require a six figure stake. Delegation can easily be done using the NEAR wallet, which only exists as a web wallet for the time being. This might have something to do with the fact that all wallets on Near Protocol are elaborate smart contracts. Note that a small amount of NEAR must be locked to create a wallet.
NEAR’s initial supply was 1 billion and it also has no maximum supply. Roughly 35% of NEAR’s initial supply went to investors, around 12% went to early participants of Near Protocol’s ecosystem, 14% went to the team, 10% went to the Near Foundation, and the remaining 29% was set aside for grants.
NEAR’s vesting schedule is to put it bluntly second only to SOL’s. Most of NEAR’s supply will be vested by the end of this year, and the remainder will be vested by 2025.
Although Near Protocol’s explorer does allow you to see wallet addresses it apparently doesn’t let you sort them by the amount of NEAR they hold, which makes it impossible to know how NEAR’s supply is currently distributed, frustrating to say the least.
NEAR’s inflation rate is fixed at 5% per year and this percentage applies to its current supply not its initial supply. The silver lining to NEAR supply situation is that with enough transactions NEAR could become deflationary and though this may be more difficult for NEAR to do due to its transaction fee model the fact that a small amount of NEAR is locked up in each wallet could actually accelerate the process.
Price Action And Potential
This ties into everyone’s favorite part and that’s the price action and potential of these two cryptocurrencies.
Starting with SOL you can see that it hit an all-time high of around $260 last November. With an average ICO price of around 22 cents this translates to well over a 1,000x return for early investors who sold their SOL at or near the top.
SOL has been on the decline ever since and this is due to a combination of factors notably the fact that crypto has entered a bear market, and the fact that Solana’s blockchain keeps experiencing outages. I’ll come back to that in a moment.
SOL’s circulating supply has also increased by around 60 million over the last year. Assuming an average price of around one hundred dollars per sold during that time this means SOL could have seen as much as six billion dollars of sell pressure, which is certainly possible given all the gains early investors made.
What’s interesting is that SOL doesn’t seem to be as correlated to BTC as most major altcoins, which suggest that its price is being driven significantly if not primarily by organic demand rather than retail speculation as is the case with most cryptocurrencies.
This makes sense given that Solana is also the de facto exchange chain for the FTX cryptocurrency exchange, which is invested heavily into Solana’s ecosystem and is also building its own niche of DeFi protocols dApp project Serum (SRM).
Solana’s ecosystem has consequently grown exponentially over the last year and the hundreds of dApps on its blockchain continue to see hundreds of thousands of monthly users despite the crypto bear market.
As I mentioned earlier Solana is the official blockchain for Circles USDC stablecoin and the recent rollout of Solana pay suggests that the project is trying to pivot into payments to continue adoption during said bear market. Move to earn game STEPN also seems to be a selling point for Solana.
More importantly however there’s no shortage of demand coming from all the institutional investment vehicles for Solana, which hold over 100 million dollars of SOL according to just ETF. The Chicago Mercantile Exchange is even looking at offering Solana futures though that probably won’t affect the price of sold directly.
Regarding price potential SOL is currently constrained by its massive market cap. Despite its precipitous drop it’s still one of the largest cryptocurrencies and that means it’s going to take a lot more money to push up its price in percentage terms, obviously there isn’t all that much money kicking around during bear markets.
Next up is NEAR and you can see that it hit an all-time high of around $20 dollars in January this year. With an average ico price of around 20 cents this translates to a 100x return for any investors, who sold at or near the top.
Hilarity aside NEAR was actually holding up quite well until early May, and I suspect this has something to do with Terra’s collapse. Its UST stablecoin had found its way into just about every smart contract cryptocurrency’s DeFi.
If you’ve been keeping up with our Near Protocol updates you’ll know that the UST stablecoin landed on Near Protocol’s aforementioned EVM layer Aurora in December last year.
Whereas Solana’s DeFi ecosystem was large enough to take the blow it seems that Near Protocol’s DeFi ecosystem on Aurora took a massive hit as indicated by the sharp decline in total value locked on the day Terra entered a death spiral.
To make things worse NEAR’s circulating supply has increased by more than 400 million over the last year, which is literally 40% of its initial supply and close to a 2x increase in its circulating supply.
Assuming an average price of around $7 per year during that time this means NEAR could have seen as much as $2.8 billion in sell pressure, which would be a massive amount given that Near Protocol’s market cap was $12 billion at the top.
This potential CEL pressure makes NEAR’s robust price action all that more impressive even though it underperformed many altcoins in percentage terms. Moreover the fact that its price action is even less correlated to BTC than SOLs suggests there’s lots of organic demand for NEAR.
Blockchain statistics on the Near Protocol confirm this hypothesis the number of daily transactions and the amount of gas used continues to rise regardless of NEAR’s price, and in the case of wallets the growth has been nothing short of exponential.
This might have something to do with the fact that Near Protocol has spared no expense expanding its ecosystem. Its 800 million dollar ecosystem developer fund announced last October is a great example. The caveat is that this aggressive expansion has almost certainly created lots of sell pressure for NEAR as much of this money came from and is coming from sales of NEAR by the Near Foundation.
Coincidentally Near Protocol also seems to be pivoting to payments to stay afloat during the bear market as it recently announced the release of Near Pay.
Near Protocol even partnered with a move to an app called Sweatcoin (SWC), which as the name suggests is basically STEPN, but on Near Protocol if that wasn’t crazy enough Sweatcoin has over 63 million users already even though the token won’t be released until later this summer, take note.
Unlike SOL there don’t seem to be very many institutional investment vehicles for NEAR. even so Messari’s massive report about the crypto trading market in 2021 found that NEAR was the most held cryptocurrency by institutional crypto funds after BTC, ETH, and DOT.
Anyhow Digital Currency Group CEO Barry Silbert also recently revealed that NEAR is his company’s largest holding after BTC and ETH. For those who don’t know DCG is one of the largest companies in crypto it owns Grayscale and its crypto company portfolio also includes Circle and Coinbase.
That’s why it’s odd that NEAR isn’t listed on any U.S. exchanges besides Binance US. With Coinbase’s recent track record of listing obscure altcoins you’d think it would at least consider listing NEAR. I suspect this is because Near Protocol has focused more on overseas adoption rather than U.S. adoption.
Whatever the reason one of the convenient consequences of NEAR’s lack of exchange support means that it has much more room to grow, and this is the case when it comes to its market cap as well. With a $4 billion market cap it wouldn’t take much money to push up NEAR’s price, however this also means it wouldn’t take much money to push down NEAR’s price and this relates to the challenges these crypto projects are likely to face going forward.
Challenges
In terms of the challenges Solana is likely to face the elephant in the room is all the outages its blockchain has been experiencing. I’ve lost count of how many times Solana has gone down, but it’s definitely been more than 10 by now.
As much as I want to believe the crypto VCs when they said that institutions don’t care about Solana’s outages during Algorand’s Decipher Conference last year I know for a fact that legacy institutions see security as the number one priority. Forget the $320 million wormhole hack the fact that Solana can’t stay fully functional for more than a few days or weeks at a time is a huge turn off to every institution, who’s looking to use it for payments and it seems that even Circle is starting to become skeptical.
The second challenge for Solana is development. Solana founder Anatoly Yakovenko has mentioned on many occasions that building on Solana is akin to quote eating glass, and this is something that has been confirmed to us by multiple Solana developers. If building on Solana is that difficult then it’s eventually going to fall behind in terms of development, no matter how much money is thrown at developers especially in the middle of a crypto bear market where devs are scarce and the morale of the ones who stuck around is as red as their portfolios.
The third challenge for Solana is decentralization. Even though Solana has managed to delegate the storage of its blockchain history to Arweave the hardware requirements for Solana’s validators have only continued to grow, and never mind the massive amount they need to stake to generate good returns. Interestingly high hardware requirements for Solana validators is actually something Near Protocol co-founder Alexander Skidanov predicted during his debate with Anatoly in 2019, but Anatoly scored a few points on Alexander too.
The first challenge for Near Protocol is the same as Solana’s third challenge, which is again decentralization. Having low hardware requirements for your validator nodes means nothing if they have to shell out up to a million dollars or more for their minimum stake, their minimum stake.
NEAR protocols founders have also mentioned on many occasions that they are not rushing to decentralize, but this could also become an issue when it comes to regulations, particularly in the United States.
The second challenge for Near Protocol is exactly that regulations. To be clear Near Protocol doesn’t seem to be in any danger from regulators outside the United States, and the fact that it hasn’t really established itself in the united states means it probably won’t be subject to a crackdown there either.
Still, Near Protocol’s admitted centralization along with its surprising lack of transparency could be the real reason why other U.S. exchanges haven’t listed NEAR and it’s likely serving as a red flag to any funds looking to offer institutional investment vehicles for NEAR.
The third challenge for Near Protocol is competition specifically from Solana. Even with its frequent outages Solana remains a formidable foe and its massive market cap says it all. I really do think that Near Protocol and Solana are fundamentally fighting for the same pie, and that means there might only be one winner of their pie eating contest. Funnily enough this could have the paradoxical effect of limiting the growth of both cryptocurrencies since the same capital is chasing them.
The presence of so much competition between smart contract cryptocurrencies in general seems to be why ETH didn’t hit 10K during the previous bull run.
Conclusion
For the moment of truth, Solana or Near Protocol, so let’s take it from the top. As far as the founders go Anatoly, Ilya and Alexander all seem to be evenly matched though I suspect that the combined brain power of Ilya and Alexander far exceeds what Anatoly could muster on his own.
Then again there’s more to Solana and Near Protocol than their founders and apparently Ilya and Alexander don’t always get along either part of the process I suppose.
In the domain of development all seems fairly equal there. It’s really quite amazing how similar the structures of the entities behind both projects are. The only difference there seems to be the amount of post-ICO funding, which when you consider how much money has been poured into Solana projects like its Phantom wallet comes out fairly even at the ecosystem level.
Under the hood is where things get interesting especially if you’ve watched the debate between Anatoly and Alexander that I keep talking about. I keep talking about it because the topic was sharding versus no sharding and I really think Alexander won that debate.
In short Solana having a single blockchain means it’s likely to face lots of issues in the long run including those I mentioned earlier like progressively higher validator node requirements. Anatoly believes that the declining cost of hardware and continued innovation will solve these issues, but that’s not a given. Moreover, Anatoly only seemed to shy away from sharding because it was a quote hard computer science problem that would take years to solve. Aside from a few minor security issues associated with sharding Anatoly seemed to admit it was superior he just doesn’t have the patience for it.
Tokenomics is where Solana shines I don’t know what the hell they did behind the scenes but the early investors managed to find a way to both have their cake and eat it and by that I mean get access to all of their SOL and be able to sell some or even lots of it without crashing SOL’s price.
As novel as Near Protocol’s transaction fee mechanism is Solana seems to have a better grasp of the long-term implications of things like fee burns, inflation, and staking rewards. There’s also nothing stopping Solana from implementing the same transaction fee mechanism. Robust tokenomics is arguably why Solana wins on the price side too even with its massive market cap. There’s a high chance that SOL could see more gains in percentage terms than NEAR when the next bull market comes around simply because it somehow cracked the tokenomic code of cryptocurrency.
The wildcard in this prediction is NEAR’s circulating supply, which once it vests means there will be next to no sell pressure left from Near Protocol’s early investors. This could give NEAR the conditions it needs to really rally when that speculative demand comes back around.
If you ask me the challenges both of these crypto projects face are the real deal breaker and which one comes out on top ultimately depends on how easy it is to solve these challenges. I must confess that I think Solana faces much bigger hurdles than Near Protocol.
The fact that Solana’s blockchain continues to go down even after its developers have promised different fixes suggests the issues are bigger than they admit or even know about. The fact that building on Solana is the equivalent of eating glass only makes things worse. Make no mistake if Solana’s outages don’t get addressed they will eventually kill the project. There’s no ignoring that and there’s no ignoring that this is an existential threat that Near Protocol doesn’t face nor any other major crypto project for that matter.
To be fair Near Protocol is still in the process of rolling out its Novel sharding mechanism, which could cause a whole bunch of other issues. Case in point Near Protocol already discovered a few of these issues after rolling out its first four shards last autumn. The thing is that these issues were actually solved and that’s why at this point in time I think Near Protocol comes out on top. I must stress though that this could change and in the broader niche of smart contract cryptocurrencies there are others that could challenge and even beat both projects.
That’s why I hold both NEAR and SOL as well as a bunch of other smart contract cryptocurrencies. The reality is that it’s too soon to say, which one will win and it’s looking more than likely that we’re going to be dealing with a multi-chain future. I am happy that my portfolio reflects that.
[This article is a transcription of a video made by Coin Bureau]
[Original video: https://youtu.be/_QUb8zdo3Xc]
