Key Insights
- As of Q4’22, 618 subgraphs have migrated from The Graph’s hosted service to the decentralized network (mainnet), up 25% QoQ and 151% YoY.
- The Graph’s ecosystem of active Indexers (+33%), Delegators (+9%), and Curators (+2%) continued its growth QoQ.
- In Q4’22, The Graph experienced a 66% QoQ increase in GRT revenue from query fees (over 6,200% YoY). In USD terms, this corresponds to a 5% increase QoQ and 265% increase YoY.
- Revenue from indexing rewards increased 12% QoQ in GRT terms (15% YoY). In USD terms, this corresponds to a 23% decrease QoQ and 81% decrease YoY.
- The Graph’s Multi-Chain Incentivized Program (MIP) is aimed to fund 75 million GRT to Indexers supporting new chains on the decentralized network.
Primer on The Graph
The Graph is an indexing protocol that provides on-chain data to consumers from a wide spectrum of sources. It removes the need for data consumers (e.g., app developers) to build out complicated infrastructure to get on-chain data. Instead, data consumers pay to query APIs of on-chain data — called “subgraphs” — via the GraphQL API.
To ensure the protocol runs correctly and efficiently, The Graph network incentivizes several key roles within its ecosystem of both technical and non-technical participants:
- Indexers process and store on-chain data from subgraphs. They usually have advanced technical knowledge to operate nodes. In return, Indexers receive query fees from data consumers and indexing rewards from new token issuance.
- Curators are economically incentivized to analyze and signal which subgraphs are valuable to index. Curators earn a portion of the query fees generated by a particular subgraph.
- Delegators do not employ resources to index on-chain data; instead, they delegate The Graph’s native token GRT to Indexers. In return, Delegators earn a portion of query fees and indexing rewards without running nodes themselves.
As of December 2022, Ethereum and Gnosis Chain are supported by The Graph’s decentralized protocol and hosted service.
Key Metrics
Performance Analysis
The Graph ecosystem is based on the relationship between subgraph developers and data consumers (e.g., app developers) that pay to query subgraph data. The performance of the network can be measured by the growth of active subgraphs, the network’s revenue in query fees, and the activity of Indexers, Delegators, and Curators.
Usage (Subgraphs)
To bootstrap The Graph, a hosted service was initially created. This service aims to host subgraphs as the protocol gradually transitions to its decentralized network (mainnet). The hosted service is free and consists of a large Indexer run by Edge & Node, the initial team behind The Graph.
As of Q4’22, The Graph protocol is a hybrid of its hosted service and mainnet. The first subgraph launched on the mainnet in Q1’21.
Over the past six quarters, the number of subgraphs launched on mainnet has steadily grown. As of December 2022, there are 618 active subgraphs on mainnet, which is a 25% increase QoQ and a 151% increase YoY. Substreams launched in November 2022 with the aim to speed up indexing by allowing data to be transformed in parallel. Several prominent Web3 companies are leveraging subgraphs and substreams to execute on their data strategy and retain data transparency:
- Oasis.app – employs subgraphs to index and monitor MakerDAO’s vault
- Solana – has its own subgraphs and substreams for real-time and historical data
- Request – uses subgraphs to scale and improve payment features on its platform
Unlike the hosted service, The Graph’s mainnet requires data consumers to pay a fee per query to Indexers. Query fees are further distributed by Indexers to Delegators and Curators.
Source: The Graph Explorer
Curators are incentivized to signal quality subgraphs that should be indexed by The Graph to earn a share of the query fees that subgraphs generate. Curators are currently signaling over 26 million GRT (~0.4% of the circulating supply) toward The Graph’s active subgraphs. The amount of GRT signaled toward a subgraph represents the market’s prediction for future query volume on a subgraph. Curators currently signal the highest amount of GRT toward the Livepeer, Premia, and Snapshot subgraphs.
Over the next several quarters, the number of deployed subgraphs on The Graph Mainnet is expected to continue growing. The Graph community aims to migrate all subgraphs from the hosted service to its mainnet, as more chains integrate with the decentralized network. This increase in mainnet subgraphs should facilitate growth among other key metrics of The Graph, ranging from ecosystem participation to the demand-side revenue generated from query fees.
Ecosystem Participation
Subgraphs provide an arena for both technical and non-technical ecosystem participants to interact symbiotically:
- Indexers operate Graph Nodes to process and store on-chain data. Data consumers can then query this data via GraphQL, an open-source language for The Graph’s APIs.
- Curators signal to Indexers which subgraphs are worth indexing. Curators may also often act as subgraph developers.
- Delegators are ecosystem participants who may lack the technical know-how or resources to index; they may choose to delegate GRT to Indexers.
Staked GRT is required for indexing subgraphs. As Indexers receive more GRT via delegation, they increase their capacity to collect a larger portion of the indexing rewards.
The number of Indexers (+33%), Delegators (+9%), and Curators (+2%) continue to increase QoQ as more mainnet subgraphs are deployed. In particular, the growth of Indexers is critical to scaling The Graph’s network. Indexers monetize their indexing and query processing services on The Graph’s query market by staking GRT. The minimum stake for an Indexer is currently set to 100,000 GRT (roughly $5,500 as of Dec. 31, 2022). On top of this minimum, Indexers can also receive delegated stake from other ecosystem participants. Delegators can increase their total stake above an Indexer’s personal stake, up to a 16x multiplier of an Indexer’s stake.
While all 424 Indexers have either allocated or are currently allocating their own stake towards their subgraphs to earn staking rewards, 292 are actively staking GRT (i.e., are active) as of the end of Q4’22, up 33% QoQ and 88% YoY. This growth in active indexers may be explained by Indexers anticipating the migration of more subgraphs to the mainnet, which would lead to more indexing opportunities.
Revenue
The GRT token follows the Stake-for-Access model, also known as a work token model. Participants in The Graph’s ecosystem earn revenue in GRT by performing work in the form of indexing and querying services on the mainnet. Both services require GRT to be staked. Indexers’ stake comprises their own GRT tokens (i.e., self-stake) and GRT delegated toward them (i.e., delegated stake). As of Q4’22, over 2.9 billion GRT tokens were staked, corresponding to 39% of the circulating GRT supply. This percentage remained flat QoQ.
The two main sources of revenue for The Graph are inflationary indexing rewards and query fees paid by data consumers. Revenue from both indexing rewards and query fees is funneled through Indexers who then distribute it to Delegators and Curators.
Every Indexer is free to define their own individual cut of query fees and indexing rewards, based on the supply-and-demand dynamics of the open marketplace. According to this individual cut, each Indexer then distributes the revenue as follows: query fees are shared with Curators, whereas both indexing rewards and query fees are shared with Delegators.
Source: The Graph: Choosing Indexers
As per the above example, if an Indexer set the query fee cut to 15.2%, their Delegators would receive the remaining 84.8% of the fee revenue. While Delegators’ stake cannot be slashed, there are several aspects that Delegators consider when staking GRT with Indexers. These aspects relate to:
- Indexer choice, i.e., choosing effective Indexers with the most optimal reward payouts.
- Unbonding period, i.e., no GRT transfers or rewards are possible within a 28-day window after undelegation.
- Delegation tax of 0.5%, i.e., calculating how long it takes to earn back the 0.5% tax on delegation.
Indexing Rewards
Indexing rewards come from a 3% annual inflation in the GRT supply, derived from the GRT issuance rate. Rewards are distributed to staked Indexers in return for providing indexing and querying services on The Graph’s open marketplace.
The GRT distributed as indexing rewards in Q4’22 increased 12% QoQ in GRT terms (15% YoY). In USD terms, this corresponds to a 23% decrease QoQ and 81% decrease YoY. Notably, over the past six quarters, Delegators received more GRT indexing rewards than Indexers themselves. In Q4’22 alone, Delegators were rewarded over 45 million GRT, which is approximately 57% of the total indexing rewards distributed. As more subgraphs are deployed to The Graph Mainnet, a larger number of Indexers are expected to join the network and provide indexing and querying services on the open marketplace.
Query Fees (Network Usage Fees)
While the bulk of Indexer earnings come from rewards, the second source of network revenue comes from query fees. Data consumers (e.g., app developers) pay query fees for Indexers to fetch and organize data. Query fees are determined by market demand and distributed to Curators, Indexers, and Delegators. That is, not only do Indexers and Delegators benefit from query fees, but so do Curators.
While query fee cuts generally remained flat for individual Indexers, total GRT revenue from query fees increased 66% QoQ and over 6,200% YoY. In USD terms, this corresponds to a 5% increase QoQ and 265% increase YoY.
Notably, on a month-over-month basis, December 2022 saw a 35% increase in query fees relative to the previous month and a doubling of the monthly levels recorded throughout Q3’22. Further growth in query volumes is expected in subsequent quarters as more subgraphs migrate to The Graph’s mainnet.
Qualitative Analysis
Key Milestones
Substreams
Substreams launched in November 2022 aiming to speed up indexing by allowing data streams to be transformed in parallel. The substreams data pipeline is split into four major steps:
- Extract – data is extracted from Firebase.
- Transform – data is transformed via subgraphs (linear indexing) or substreams (parallelized indexing).
- Load – data is loaded to the Postgres database.
- Query – the data is finally queried.
Sunrise of Decentralized Data
The sunrise of the decentralized data network on The Graph marks the beginning of the transition from chains integrated on the hosted network to chain integrations on the decentralized network. However, chains that have yet to be deployed on the decentralized network will remain operational on the hosted network until that transition for the chain is complete.
Key Initiatives
Multi-chain Incentivized Program
The Graph’s Multi-Chain Incentivized Program (MIP) is a six-month incentive program following the launch of the decentralized network. MIP intends to fund Indexers looking to support new chains on the decentralized network. The program is funded with 75 million GRT (0.75% of the total GRT supply). Out of this fund, 50 million GRT will be allocated to the reward pool for Indexers while 25 million GRT will be distributed as grants for new subgraphs.
Wave 7 Grants
In Q4 2022, The Graph Foundation allocated over $400,000 in grants for projects working on growing The Graph’s ecosystem:
- Protocol Infrastructure: $155,000
- Tooling: $30,000
- Dapps and subgraphs: $27,000
- Community building: $189,000
The Graph and Code4Arena Host Audit Contest
The Graph hosted an audit contest with Code4Arena in early October 2022. The total prize pool was $50,000, and the top competitor took home around $25,000.
Key Events
Graph Node v0.29 Release
Graph Node v0.29.0 was released on Dec. 6, 2022. This release includes a fix for two determinism bugs that affect a small number of subgraphs. The release notes provide instructions for upgrading and rewinding affected subgraphs.
Solana Support with Substreams
The Graph Foundation has announced its support for Solana with substreams, which allow developers to extract and interpret on-chain data to feed their applications. Developed by StreamingFast, a core developer in The Graph ecosystem, substreams allow fast historical processing, including feeding data systems through technology-specific sinks, reusing Solana program’s Rust code, and reliable refinement of data streams.
A full list of The Graph events can be accessed via Messari Intel.
Key Governance Decisions
Arbitrum Migration
This accepted proposal resulted in the deployment of The Graph contracts on Arbitrum to lessen gas costs by 30x.
Oracle Introduction
This accepted proposal introduced an Epoch Block Oracle to enable indexing rewards and network growth on external chains.
Inclusion of Gnosis Chain as a Data Source
This accepted proposal updated the subgraph API feature matrix to include the Gnosis Chain as a data source.
Keep Annual GRT Issuance at 3%
Following The Merge, the number of blocks created on Ethereum increases annually, leading to the current GRT rewards issued per block to increase to 3.2% annually. This accepted proposal decreased the issuance rate back to The Graph’s original 3%.
A full list of The Graph governance proposals can be accessed via Messari Governor.
Closing Summary
The Graph is primarily focused on migrating from a hosted service to a decentralized network (mainnet). As of Q4’22, 618 mainnet subgraphs were successfully migrated. Notably, The Graph’s ecosystem of staked Indexers (+33%), Delegators (+9%), and Curators (+2%) continued to grow QoQ.
Simultaneously, The Graph experienced a 66% QoQ increase in GRT revenue from query fees in Q4’22 and a 6,228% increase YoY. Query fees should continue to increase as more subgraphs are migrated to mainnet in the coming quarters. This increase in volume may attract more key participants to the protocol as it drives profitability for existing ones. By adding more subgraphs, The Graph will continue to remove technical barriers for developers, ultimately leading to faster innovation across Web3.
