Internal Controversy Over Inflation Policy Unearths Governance Challenges in NEAR Protocol

NEAR Protocol, a leading Layer 1 blockchain known for its scalability and usability, is facing significant internal discord as community members debate proposed changes to its token inflation rate. The disagreement highlights broader questions about balancing governance principles and economic sustainability within decentralized networks.

Failed Proposal to Slash Inflation Rate

The latest flashpoint in the ongoing debate occurred on October 25, when the NEAR community voted on a proposal to reduce the network’s annual token issuance rate from 5% to 2.5%, effectively halving its inflation rate. Despite receiving majority support, the proposal ultimately failed to gain approval, falling short of the stringent supermajority threshold of 66.67%.

Economic Sustainability Under Scrutiny

The discussion stems from mounting concerns regarding NEAR Protocol’s financial model and overarching economic sustainability. Presently, the blockchain allocates roughly $140 million a year to reward its network validators through token issuance. Critics, however, argue that this rate of issuance is misaligned with the network's current economic scale.

According to data provided by analytics platform DeFiLlama, NEAR’s total value locked (TVL) stands at approximately $162 million. Since its launch in 2020, the protocol has generated a cumulative revenue of just $17 million, with recent figures showing monthly earnings of merely $259,000. These numbers fall far short of the operational expenses needed to sustain the network, signaling potential long-term financial instability if adjustments are not made to the current reward structure.

Governance Dilemmas Divide the Community

While a significant portion of the NEAR community supported reducing the inflation rate, the failure of the proposal to meet the voting threshold has given rise to discontent among certain factions. Some developers have reportedly expressed intentions to push through the reduced inflation rate as part of an imminent network upgrade, regardless of the vote’s outcome.

This contentious move has been firmly opposed by groups such as Chorus One, a prominent validator collective within the NEAR ecosystem. Chorus One critiqued the suggestion, warning, “Unilateral implementation of the inflation reduction violates governance rules. Overriding the democratic vote jeopardizes the integrity of the network and threatens its credibility.”

In contrast, proponents of the inflation cut argue that the long-term survival of NEAR Protocol is a more pressing priority. These supporters advocate bypassing procedural constraints when existential challenges, such as economic instability, require immediate, decisive action. According to one community faction, “Practical solutions for fundamental survival must take precedence over strict adherence to procedural formalities.”

A Divided Community: Governance Principles vs. Practical Survival

The ongoing dispute underscores a critical rift within NEAR’s decentralized community. On one side are advocates for stringent adherence to governance standards, warning of potential risks to network credibility if set protocols are disregarded. On the other side are those prioritizing adaptability, arguing that financial sustainability is paramount for the protocol to thrive long-term.

This sharp division has drawn comparisons to Ethereum’s infamous DAO hard fork incident in 2016, which was sparked by a major security breach. The controversial decision to undertake a hard fork created irreconcilable differences within Ethereum's community, ultimately leading to the blockchain’s split into Ethereum (ETH) and Ethereum Classic (ETC). Some analysts believe NEAR Protocol might be inching toward a similarly pivotal moment.

Market Dynamics Amid the Governance Quarrel

Amid the governance tensions, NEAR’s market performance has remained relatively stable. As of October 26 at 7:25 a.m. KST, the token was valued at $2.273, marking a nominal increase of 0.009% over the preceding day. On South Korea’s Upbit exchange, NEAR traded at 3,386 KRW.

Implications for Blockchain Governance and Sustainability

NEAR Protocol’s current internal conflicts and unresolved governance dilemmas have spotlighted one of the foundational challenges facing decentralized networks: how to balance principles of democratic governance with the pressing need to ensure economic viability.

The result of these discussions and decisions could set a critical precedent for the blockchain industry, determining how networks like NEAR approach change when caught between competing priorities of survival and integrity. As the debate continues, the outcome may shape the evolution of decentralized governance and its role in the broader digital economy.