NEAR's Governance Crossroads

Summary

Five years after its Mainnet launch, NEAR sits at a defining moment. The protocol has evolved into an ecosystem that focuses on AI and builds its governance identity through those means. The House of Stake (HoS) launch, the inflation halving, and the introduction of veNEAR governance rewards mark a new era, one where decentralization is both a goal and a performance. The underlying question is whether NEAR can leverage the volume and attention generated by Near intents to expand its ecosystem organically, and what governance model would be most effective for this purpose?

At first glance, the ecosystem is getting a lot of buzz, mainly due to the recent influx of cross-chain transactions using Near Intents, and integrations like Zolanear connecting privacy assets across ecosystems. This has brought over $1 billion in volume over the past few months, but can the ecosystem position itself and organize to capture value from this opportunity? As we know, volume metrics only tell half the story.

Three proposals are the catalysts for the major governance activity currently going on in the ecosystem. HSP-002 (the validator subsidy program for small operators), the inflation reduction from 5% to 2.5%, and HSP-003 (establishing an initial 3-month rewards program for veNEAR holders to incentivize governance participation in the House of Stake). These are three proposals focused on economic policy passing through a governance system that is currently under construction.

Governance is like a fire extinguisher; you don't notice it when you don't need it, but when fires ignite, it's the most valuable thing in the room.

For transparency, I'm an outsider to the NEAR community, but I've witnessed many governance scenarios, particularly at the protocol level rather than within DAOs of L2 ecosystems. I previously worked as a Protocols & Governance Lead at a validator, and after we parted ways, I became curious about the idea of integrating AI into digital governance. Over the past two months, I've conducted ethnographic research and documented observations within the community. This report compiles those findings with the aim of identifying governance weaknesses, strengthening legitimacy within the House of Stake, and empowering dedicated NEAR contributors to become better stewards of their ecosystem. These insights reflect my independent analysis, and I remain open to community feedback and corrections.

Drawing on Telegram transcripts, interviews with a DeFi builder and a validator, public forum threads, and NEAR Foundation materials, this report documents how informal authority has re-emerged in a system trying to govern itself by code and how difficult it can be to balance tangible progress with essential process.

Background & Context

The collapse of the NEAR Digital Collective (NDC) left a deep scar. Perusing through prior conversations and threads on the forum, you can sense the distrust between the foundation and foundation-adjacent parties and some community members. The NDC was a community-driven governance framework within the NEAR Protocol ecosystem, designed to empower stakeholders, users and projects to co-organize decision-making and manage treasury governance on-chain. Instead, it became a cautionary tale about opacity, personality politics, and foundation dependency. When the NEAR Foundation (NF) launched the House of Stake (HoS) in 2024, it promised a reset: fewer committees, clearer roles, and AI-assisted processes to curb human bottlenecks.

Three economic shifts underpinned this reset:

1. Inflation Reduction upgrade — Protocol-level halving of maximum inflation (5 → 2.5%).
2. HSP-002 — Validator subsidy program to protect small operators.
3. HSP-003 — Increase rewards for veNEAR holders to reward early governance participation.

Together they form a coordinated narrative of maturity: less inflation, more decentralization, and stronger community participation.

veNEAR Holder Rewards Program

The introduction of veNEAR, vote-escrowed tokens that reward governance participation, was supposed to deepen community ownership. By linking governance power to time-locked liquidity, it rewards early adopters with persistent influence. While this encourages long-term alignment, it can also create a durable political class. veNEAR could either stabilize participation or ossify control. The difference would depend on how the incentives evolve once the initial incentives expire. Lane, Head of Research @ NF, highlights some reasoning to back the veNear initiative, as a means to retroactively determine who has had the most conviction at any point in time. His philosophy leans towards moving voting power to those who have diamond hands and are willing to lock their NEAR into the HoS for years or months.

It also risks attracting mercenary participation: yield farmers who lock tokens not to vote with conviction, but to chase a boosted APY. As one contributor noted in response: "This is how veNEAR could become a risk-free yield instrument, curators can lend against it and pocket the fees." If that happens, NEAR governance becomes a financial derivative of itself. As a second-order effect, incentive misalignment could also hinder DeFi growth if governance incentives are more favorable than DeFi ones.

Some mentioned that we use it as a band-aid for now until we have some form of legitimacy. This manufactures engagement and gives some form of legitimacy to HoS in the meantime. Regardless, an argument can be made that vote escrow tokens don't guarantee long-term commitment, sustain the price of a token, and don't align long-term incentives.

The Halving Is NEAR

The following contentious proposal at play is the inflation proposal. Most chains have not resolved this issue yet. Inflation reduction proposals consistently draw significant attention and prompt a shift in focus to governance. (See Cosmos prop 848, See SIMD-228). Solana's inflation reduction proposal didn't reach quorum, even though there was more stake in favor of the proposal to pass. Since it didn't pass and the community saw flaws in its governance processes they decided to amend them before revisiting the proposal.

On October 21, 2025, validators were asked to upgrade to NEARcore's v2.9.0, thereby signaling support for cutting protocol inflation from 5% to 2.5%. The vote, hosted on Linear Protocol's portal on June 24th 2025, appeared to have failed to reach the required stake threshold. Participation hovered below the 66.7% mark.

Despite this, NEAR Core announced that the upgrade and inflation change would proceed in the next scheduled release. This concerned some validators like Chorus One, meanwhile others like FastNEAR interpreted the vote legitimacy differently, with reason. It seems like there may have been some information asymmetry when it comes to how the vote was interpreted. It was calculated as if those who didn't vote for the proposal abstained. Who agreed that those who couldn't vote do not affect the quorum? Why are people perceiving the vote differently? These are questions that surface governance fragility or lack of institutional memory.

NEAR lacked the necessary tooling for validators to cast an automatic abstain vote. The on-chain voting system lists a quorum of 66.7% for a proposal to pass. However, NEARcore can justify the update by pointing out that the quorum only counted validators who voted. Furthermore, the upgrade would be treated as a separate hard vote, raising the quorum to 80%. The question of how that was decided is a critical issue that metagovernance addresses.

The inflation rate reduction can also put further pressure on the smaller validators and builders in the ecosystem. To mitigate this, Metapool, one of the top liquid staking projects, proposes a validator subsidy to the bottom 100 validators by stake.

Balance Between Progress and Process

Governance rarely works without context and data backing decisions. There are numerous factors in play, including the market. I've come up with a framework called the governance memory system that tracks the decisions and outcomes (intended or unintended) within a governance ecosystem. It's designed to enhance institutional memory, evaluate governance health, and prevent projects from repeating the same mistakes.

The story of the NDC collapse is scattered throughout conversations on the forum, Discord, and Telegram. It's a messy task to get a complete picture of how it transpired from beginning to end if you were not present in the community while it was occurring. Dialogue and references to a subjective past often surfaced in conversations about governance and economic policy. That shift of focus makes it more difficult to make great decisions. This is due to the organization's lack of institutional memory.

Members of the community have voiced their frustrations with governance, displaying sentiments of exhaustion or apathy. I spoke to one builder who claimed that they never wanted to participate in governance. Still, due to the instability of the past and present governance culture, they decided to participate more.

"You may not like that the governance will be run by those with the most NEAR, but that's a different philosophical question. Personally speaking, I think it's absolutely critical that those who control the governance are also those who are the most economically aligned and most vested in the continued success of the ecosystem. You simply can't credibly say that about a group of people who just spend a lot of time in a chat channel or a forum."

The builder first noticed that the NFT markets were experiencing a decline. Then they felt that DeFi was dying. Now there's a paradox where builders, who want to focus on their apps and tools, must focus on governance to steer policies that will affect the revenue of their products and services.

An interviewee argued that a majority of intents volume, "is just bridge aggregators using NEAR intents for bridging. People don't actually create new NEAR wallets or participate in DeFi. They just bridge from Bitcoin to Zcash or from Ethereum to Arbitrum."

Personal Takeaways

• The community can opt to take a page out of Solana's book and build the governance foundation of the ecosystem before pushing through a contentious proposal.
• This architecture assumes alignment between economic and procedural layers. In practice, NF and Meta Pool hold financial levers that influence delegate deliberation. Small validators rarely have the luxury to vote against their funders.
• Governance discourse on NEAR mirrors a post-traumatic ecosystem learning to speak again. Rules exist, but they lack consensus. Every proposal becomes a proxy for old grievances.
• Create a real-time threshold tracker for future upgrades. GitHub notes are good, but they're not a dashboard a non-validator can parse in 10 seconds.
• I am not against the inflation reduction proposal. I believe the decision-making process would have benefited from better standards and greater consensus on its metagovernance component.
• In the absence of a neutral ledger of decisions and outcomes, legitimacy flows to whoever controls resources and narrative timing. Solved with GMS.
• Code upgrades appear to be political acts; upgrading is voting by default. If it is not clear how this was decided, the result risks legitimacy.
• Without proper metagovernance, using AI to augment governance will just hide human bias.
• Continue encouraging builders to co-author governance proposals with validators, bridging economic and political capital with diverse perspectives.
• Some participants describe governance engagement as "riskier than silence."

Define meta-governance classes & quorums

• Operational (parameters, budgets): lower quorum, shorter windows.
• Protocol (client, issuance): validator-weighted confirmation + public log.
• Constitutional (roles, charters, fund movement): higher quorum, longer cooling-off, multiple chambers (e.g., veNEAR + validator advisory + NF Council acknowledgment).

Codifying this before the next upgrade reduces emotional blowback.

Implications for NEAR's Future

1. Builder Exodus Risk — Builders measure legitimacy through opportunity. When builders are unable to focus on their products or services due to governance issues, it creates a cycle of missed opportunities, leading to stagnation in innovation. Already, several DeFi teams have reduced their footprint or pivoted to chains with more explicit governance norms or activity.
2. Metrics vs. Meaning — Without metrics for legitimacy, participation diversity, and proposal follow-through the system cannot self-diagnose.
3. Governance Amnesia — Unless incidents like the initial inflation vote and the NDC are archived as case studies, they will recur under new names. Institutional memory is a precondition for legitimacy.

Conclusion

NEAR's current governance turbulence is not an existential crisis; it is a common step in a maturing ecosystem. (See also: NEAR Foundation's supporting statement) All decentralized networks eventually confront the moment when code is no longer enough to guarantee consent and economic policies need maintenance. NEAR has reached that moment.

The inflation vote showed that procedural legitimacy can vanish even while software functions flawlessly. The subsidy program revealed that economic dependency can masquerade as decentralization. The veNEAR rewards showed that incentivized participation can simulate conviction without cultivating it. Slow motion is better than no motion and action is better than being stagnant so I commend the community for actively engaging this complex situation.

If NEAR wants to mature from foundation-led coordination to genuine self-governance, it must prioritize these lessons:

• Transparency must precede efficiency.
• Memory must outlive leadership.
• Trust must be audited, not assumed.

Until those conditions are met, governance will remain a performance — convincing on paper, brittle in practice. The task ahead is not to build new mechanisms but to restore meaning to the ones already deployed. When small validators can dissent without fear, when builders see fairness and can focus on building, and when an accurate and agreed-upon method of voting truly binds implementation, NEAR will start to balance its entanglements of economic policy, software, legitimacy, metagovernance, and AI.

Prepared by: Othman Gbadamassi