NEAR co-founder Illia Polosukhin proposes establishing a protocol sovereignty fund

Illia Polosukhin, co-founder of NEAR Protocol and CEO of Near AI, posted a proposal on the NEAR Governance Forum to establish a Protocol Sovereignty Fund.

8/5/20264 min read

Fund Structure and Operating Mechanism

The proposed fund would hold NEAR tokens and generate returns from the portfolio rather than directly distributing the protocol's assets. The returns generated by the fund would cover essential operating costs of the protocol, including supporting the Validator Program, paying Multi-Party Computation (MPC) service providers, and other core infrastructure services. This represents a significant shift from the approach of most current cryptocurrency protocols—where teams typically spend directly from reserves or sell tokens to cover operating costs; this approach tends to create persistent selling pressure and gradually diminish the token's value over time, regardless of whether the underlying protocol is growing.

Representatives from the House of Stake – NEAR's primary stake-weighted governance mechanism – will participate through existing governance processes, ensuring the fund operates under decentralized oversight rather than as an asset managed by a central entity. A team of experienced investment professionals will manage the fund's assets with a focus on generating sustainable returns while controlling downside risk.

Similarities with the Norwegian and Singaporean models.

Polosukhin's comparisons of national wealth funds are deliberate and highly accurate. Norway's Global Government Pension Fund (often called the Oil Fund) accumulates oil and gas revenues into an investment fund managing assets worth approximately $1.6 trillion; this fund spends only about 3 to 4 percent of its annual profits while preserving its principal indefinitely. Singapore's GIC and Temasek funds also apply a similar principle at the national level. Similarly, the endowment funds of Harvard and Yale Universities use investment profits to cover regular operating costs while preserving and increasing their principal over generations.

The logic applied to NEAR is simple: instead of continuously issuing new tokens or selling tokens in the treasury to cover operating costs, the protocol would build a sufficiently large capital base to generate annual yields that would cover those costs solely from investment income. If successful, this mechanism would theoretically eliminate or significantly reduce token inflationary pressure—a problem most Layer-1 protocols have yet to solve—by replacing token issuance for fundraising with investment income. This would be a genuine structural improvement to the long-term value of tokens, rather than merely a change in the interpretation of existing mechanisms.

Proposal for 30 million NEAR funding.

The proposed initial funding of 30 million NEAR tokens – worth approximately $57 million at the time of writing – is substantial enough to support effective income-generating strategies if professionally managed. However, discussions within the community immediately raised questions about whether NEAR's DeFi ecosystem has sufficient liquidity to absorb such a large amount of funding without reducing yields or increasing concentration risk.

Initial forum responses questioned whether the treasury would rely on staking, lending, protocol-owned liquidity (POL), stablecoins, or other assets. The community also noted that NEAR's staking rewards primarily come from token issuance rather than external revenue; meaning the treasury's NEAR staking is essentially reusing inflation rather than generating real external yields. Furthermore, activities such as lending, liquidity provision, and leverage could increase counterparty risk, smart contract risk, liquidation risk, or market risk. Discussions also called for the implementation of limits on the level of centralization, independent oversight mechanisms, and transparent performance reporting processes (measured in NEAR units instead of just USD), because performance metrics calculated in USD could obscure whether the protocol is actually increasing purchasing power within its own ecosystem or simply fluctuating according to general market trends.

Assessment and Conclusion

This proposal addresses a real problem that most Layer-1 protocols face but rarely acknowledge publicly: issuing tokens to cover operating costs creates persistent selling pressure, not stemming from actual demand for the asset, which gradually erodes the token's value over time unless demand grows faster than the issuance rate. The proposed sovereign wealth fund model breaks this cycle by replacing the capital from token issuance with investment income; however, this alternative is only effective if the investment returns are large enough to cover the protocol's actual costs on a large scale—a condition not guaranteed in a bear market, where protocol revenue may decline simultaneously with shrinking investment returns.

NEAR's price of nearly $1.76 at the time of the proposal represents a significant drop from its 2025 peak, creating a context where the long-term sustainability of the token model becomes a genuine concern for the community, rather than just a theoretical issue. Whether a sovereign wealth fund mechanism is suitable for a bull market, where selling pressure from the fund is less apparent, is a question that the governance process will implicitly answer through the nature and level of community interest and participation in the proposal.

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Compiled and analyzed by HCCVenture

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