Data Availability On NEAR

You’ve probably seen the phrase ‘DA’ thrown around X and Discord as a new concept in the already jargon-filled crypto dialect. It means Data Availability, and it relevance has directly to do with the rise of Rollups and Layer 2 (L2) Networks on Ethereum: 

Every L2 on Ethereum, has traditionally relied upon the Ethereum base-layer for settlement of transactions, and more specifically, the posting of transaction data to Ethereum Validators (a highly secure decentralized network). 

With more advanced scaling solutions (take for example Polygon’s Zero-Knowledge Rollup), an L2 Network may scale faster by NOT posting specific transaction data onto Ethereum (which comes with both a cost and time impact), but rather only posting cryptographic proof that the transaction is valid. 

As CoinTelegraph Explains: 

“Unlike zero-knowledge rollups, which batch transactions on a layer-2 network and verify them on a layer 1 like Ethereum, validium networks do not post transaction data to an L1. Instead, validiums post cryptographic proof that transactions are valid, a setup that aims to achieve higher scalability as full transaction data doesn’t need to be stored on-chain.” 

There is a twofold consequence of this design:

1. The sequencer data of the L2 Network is no longer written into the Ethereum Base Layer (the proof of the transaction still is). Result: Increased Scalability and Diminished Cost as Ethereum is an expensive network for data storage and gas fees. 

2. The sequencer data needs to be stored somewhere else (for anyone who would like to read or call the data of an application on the L2). Result: Another Chain Can Offer To Store The Sequencer Data, because it can do so for a cheaper cost than the Ethereum Base Layer.

All of this context helps explain the graphic below: 

Enter NEAR DA

Currently, there are TWO competitive Data Availability (DA) options for Ethereum Layer 2 Networks: NEAR ($NEAR) and Celestia ($TIA).

NEAR is more cost effective, and has a larger Data Throughput Capacity (in terms of Mb/ per second). The NEAR solution involves an off-chain Light Client that enables easy access to the transaction and receipt inclusion proofs within a block or chunk on NEAR from the original L2 Network sequence. 

In other words, NEAR will take the sequencing data from the L2 Network, verify it, store it, and keep the receipts, such that it can be easily retrieved for indexing purposes. The proof of such transactions is still settled on the Ethereum Network (in spite of the data being stored on NEAR). 

The Business Case Around Data Availability (DA)

The technical details can be boring for many, so let’s zoom in on the business value of offering Data Availability solutions to Layer2 Networks on Ethereum. 

Here are some things we know for certain: 

1. It is more cost competitive for a Layer 2 to use either NEAR or Celestia, compared to the current Ethereum Network and the future EIP-4844, proto-danksharding update. 

2. There are only 2 solutions that currently offer such massive cost reductions. DA is a market of two - more than enough space for both solutions to succeed. 

3. According to L2Beat, there are 36 L2s on Ethereum Currently, and 35 more being built (January, 2024). This number is expected to increase in the coming 12 - 24 months. 

Now Let’s Crunch Some Numbers: 

Rollup Revenue Using NEAR as a DA Solution

With NEAR DA, Optimism will only have to pay Ethereum to submit Transaction Proofs, without the data itself: 

NEAR DA Cost Per Block: $0.0016 cents per block per 220kb per batch call on ETH.

7 Tgas: 0.00027 N

Cost per Batch: 2.52 (relative price of NEAR) x 0.00027 = $0.0006824

Batch Demand: On average we see around 30 batches per hour (although it can get up to a batch per minute) x 24 hrs per day x 30 days per month = 

$14.69 USD per month for Optimism’s DA Needs. 

All that is left for Optimism to pay, is the L2 Output on Ethereum, sent on the hourly for roughly 7$ per transaction.  

How much is Optimism Saving Using NEAR? 

This link shows the Optimism Batcher, sending Data to Ethereum roughly every minute for a fee of around 100$ (conservatively). 

60 minutes per hour, 24 hrs per day, 30 days per month (on average), means Optimism usually pays ETH around… millions. We can be conservative and say that even if Optimism uses Ethereum for DA, at roughly 30 batches per hour they still end up paying over $1.5mm USD per month. 

Note: This fluctuates with the cost of ETH, Batch frequency on Optimism, and Congestion on Ethereum. 

The business math is pretty clear: Every block of data that goes to NEAR for DA purposes and isn’t paid for on Ethereum, is money saved for Optimism (and Optimistic Users). As the Optimism Network continues to grow, this business case begins to make even more sense. 

What is important to notice is that NEAR DA is not a zero sum solution: NEAR DA is SO fairly priced that it could affordably power hundreds of rollups without becoming congested or expensive over time. 

Expected Growth in Rollup Transactions Over Time

Let’s zoom out. There are 36 L2s Live on Ethereum. In terms of their ‘activity’ they are in their infancy in terms of usage but steadily growing on the weekly. 

https://l2beat.com/scaling/activity 

There are 35 Rollups preparing to come online in the next 12 - 15 months (probably more). As such, in a short 12 months, there will be 70 rollups on Ethereum, all competing for block space and all paying fees. 

NEAR currently has integrated DA with Arbitrum, PolygonZK Rollups, Madara by Starknet, Caldera and Movement Labs (5/70).

NEAR DA Helps Ethereum and Solidifies NEAR’s Position as a Sharded L1 Network

Anyone semi-familiar with crypto should be able to see for themselves how the DA play on NEAR plays out in the coming 12 - 15 months:

1. NEAR offers DA to more and more rollups at exceptional prices. 

2. More and more of the 70 Rollups on ETH choose to use NEAR for Data Availability as they themselves grow. 

3. All rollups using NEAR DA become more profitable, and more scalable. 

4. The market discovers $NEAR as a dependent partner of every single one of those Rollups. 

5. $NEAR trends up as the market front-runs future DA integrations (realizing this is how crypto grows, going forward) (Note: Not-financial advice!). 

Beyond being a rational business use-case, the net result is we now have a network of ETH L2’s that make more money, and can onboard more users. From a long-term perspective, NEAR DA is a foundational move in the mass adoption of the Open Web: It benefits everyone by reducing costs, and increasing users on-chain.