NEAR Protocol Eyes Deflationary Turn with Proposed Tokenomics Upgrade

NEAR Protocol, a sharded layer-1 blockchain that has processed billions in transaction volumes over the past five years, is now advancing a community-led initiative to refine its token economics. This proposal arrives at a time when the network has seen substantial activity, including more than $1 billion in volume through its cross-chain Intents infrastructure in the last 30 days alone, and the launch of features like the House of Stake governance platform. 

The changes aim to address evolving needs in network security, decentralization, and participant incentives, building on recent upgrades that have reduced gas prices by a factor of ten and introduced stateless validation. While the original economic model served to establish a robust validator set, current conditions—such as lower fee burning rates and a mature ecosystem—have prompted discussions on sustainability. The NEAR Foundation supports these efforts in a facilitative role, emphasizing research and communication to aid community decisions via the House of Stake.

Validators began voting on the protocol upgrade on October 21, 2025, with adoption requiring at least 80% of staked validators to update their nodes to the new binary. This process, which avoids any network fork unless the threshold is unmet, reflects input from ecosystem participants including NEAR One, Aurora, RHEA Finance, MetaPool, LiNEAR, and Hot DAO. An initial community poll showed 91% approval, though some validators abstained due to regulatory constraints. The overall package includes a halving of inflation alongside two reward programs, designed to balance reduced issuance with continued support for key network roles.

Halving Upgrade: Reducing NEAR’s Maximum Inflation

The proposal aims at a direct reduction in NEAR's maximum annual inflation rate from 5% to 2.5%, intended to curb unnecessary token dilution and align with the protocol's current phase of increased real-world usage. This adjustment, detailed in the nearcore version 2.9.0 release notes, will adjust staking rewards to approximately 4.75% assuming half the total supply remains staked. 

The rationale stems from the network's growth: with over 300 validators and efficiencies from stateless validation, the original inflation rate now exceeds what is needed for security. Each month under the current model adds millions of tokens to circulation, potentially discouraging DeFi participation and other on-chain activities. By contrast, the halving could foster greater engagement, as seen in similar adjustments on other blockchains. Ecosystem members note that emerging fee sources, such as those from Intents and upcoming AI products, will help offset the change while promoting a positive economic cycle. 

If approved, this marks NEAR's first halving, setting a foundation for future inflation strategies managed through House of Stake governance.

HSP-002: Support Smaller Validators to Ensure Network Decentralization

To mitigate potential consolidation among validators following the inflation cut, the HSP-002 proposal allocates an annual budget of 100,000 NEAR from the House of Stake to assist smaller operators. Distributed quarterly, this program targets the 100 smallest validators by stake who maintain at least 97% uptime over three months. Eligible participants could receive 150 NEAR per quarter initially, with snapshots taken at the start and end of each period to confirm qualifications.

This measure addresses concerns that halved rewards—dropping by about 50%—might challenge independent validators more than larger ones, risking reduced decentralization. Network resilience depends on a diverse validator set, which prevents vulnerabilities from concentrated control. Exclusions apply to those already benefiting from other incentive programs by the NEAR Foundation, LiNEAR Protocol, or MetaPool, promoting equitable distribution. 

The full proposal, available at the House of Stake governance forum, outlines performance reviews to adapt the program as needed, and it activates only after the inflation reduction takes effect. Validators can engage by reviewing the details and participating in discussions to refine eligibility criteria.

HSP-003: Increased Rewards for veNEAR Holders to Reward Governance Participation

Complementing the validator support, HSP-003 introduces a three-month pilot program with a 280,682 NEAR budget to incentivize veNEAR holders, who lock tokens for governance voting power in the House of Stake. veNEAR, obtained by locking LiNEAR, stNEAR, or rNEAR for varying durations, grants weighted influence based on lock length, encouraging long-term commitment.

The structure scales dynamically: Month one targets 10 million NEAR staked with a 7.5% annual reward rate, distributing about 62,500 NEAR; month two aims for 30 million with a 3.6% rate and 90,374 NEAR; month three seeks 60 million at 2.6% and 127,808 NEAR. These estimates, informed by Gauntlet research on comparable ecosystems, use a formula to align rewards without excessive dilution. Participation requires active governance involvement, and the program assumes HSP-002's approval for broader economic coherence. For those looking to join, staking begins at the House of Stake platform, where users can lock tokens and delegate votes. The full document on the governance site includes plans for extending beyond the pilot, allowing community feedback on adjustments.

Validators like Vini Barbosa have shown support, publicly committing to the upgrade while entities such as HOT Protocol emphasizing the changes' role in fostering scarcity and alignment. Some discussions note challenges for validators balancing short-term rewards against long-term sustainability, but overall sentiment favors the shift toward a more efficient model.

These enhancements position NEAR to capitalize on its strengths in cross-chain liquidity and AI integration, such as the Zolanear connection for privacy assets. By refining tokenomics, the protocol seeks to sustain decentralization while rewarding contributors, potentially drawing more developers and users. Stakeholders can influence the outcome by upgrading nodes or engaging in House of Stake, where ongoing votes will shape future parameters. 

Sources:

• _{Supporting Community Proposals to Upgrade NEAR Tokenomics (NEAR Foundation Blog): https://near.foundation/blog/supporting-community-proposals-to-upgrade-near-tokenomics-halving-inflation-and-introducing-rewards-to-support-small-validators-and-venear-holders/}