What is The Graph?

The Graph is a protocol that indexes data from blockchains such as Ethereum. Developers use The Graph to create apps that use open application programming interfaces (APIs), known as subgraphs, to readily access on-chain data indexed by a network of node operators. Since subgraphs are open source, anybody can utilise the APIs to create decentralised apps (DApps). As the market for queries about on-chain data forms in the wake of The Graph’s use, its GRT token serves as the utility token for giving incentives to participants in this market.

A brief history of The Graph

Yaniv Tal, Jannis Pohlmann, and Brandon Ramirez founded The Graph in January 2019 to address data query problems associated with creating smart contracts on Ethereum. Specifically, before the creation of The Graph, developers needing to access, index, and query data from blockchains were required to use centralised in-house servers and databases, making it difficult, costly, and risky for them to create apps that leverage blockchain data. The team behind The Graph then created an indexing protocol, through the use of subgraphs, that makes it convenient for developers to draw data from blockchains like Ethereum. In connection with this, The Graph team created GRT tokens on the Ethereum blockchain as ERC-20 tokens that play a central role in the project’s economics.

In October 2020, ahead of the launch of The Graph’s mainnet, the project team distributed GRT tokens to would-be network participants. The initial circulating token supply was set at 1,245,666,867 GRT tokens, 400 million of which were sold for US$0.03 worth of ETH each. The total GRT supply for the mainnet launch was set at 10 billion, with further token issuance through indexing incentives beginning at around 3% yearly and subject to future independent technical governance. After three years of beta testing, The Graph’s mainnet became operational in December 2020, during which about 12.5% of the total token supply went into circulation.

Shortly after its inception, The Graph obtained many high-level integrations from emerging DeFi platforms. The network indexes data from the Ethereum, InterPlanetary File System (IPFS), and POA networks, with more networks to come. The Graph, in this sense, removes the technological hurdles of querying. Many Ethereum apps have already constructed and used subgraphs, including Audius, Uniswap, Opyn, ENS, DAOstack, Synthetix, and Moloch. In February 2022, investors Digital Currency Group, Multicoin Capital, Reciprocal Ventures, Gumi Cryptos Capital, NGC Ventures, and HashKey created a US$205 million ecosystem fund for The Graph.

How The Graph works

The Graph works as a protocol that indexes and organises data from blockchains and then processes them in a more accessible manner. Through this protocol, developers can build subgraphs, or open APIs, that allow decentralised apps (dapps) to search and process blockchain information and build solutions on blockchains. The project, which claims to be the Google of blockchains, created Graph tokens (GRT) that network users can lock up into various services provided. This staking activity allows GRT holders to earn from providing network services like indexing and curating.

Users of The Graph Network for open data are classified into four groups: indexers, curators, delegators, and consumers. The Graph uses a proof of stake (PoS) consensus mechanism, as it incorporates staking activities for members of this network.

Indexers operate nodes in The Graph Network; they stake GRT to provide indexing and query processing services and then earn GRT for their services. Curators signal which APIs should be indexed on the network by depositing GRT into a bond related to a subgraph, where they earn a portion of the fees from the subgraph being signaled. Delegators allocate GRT to indexers in exchange for a portion of the fees and rewards earned by that indexer, while also helping in securing the network. Consumers pay GRT to use The Graph’s services and benefit from the service that the network provides. The convergence of these functions, in addition to the quality of service being rendered by the network, comprise the economic model of the project.

What is The Graph used for?

The Graph (GRT) tokens are mainly used for indexer staking and curator signalling.

Indexers stake GRT to become more visible in The Graph’s query market and secure the network as they conduct their services. Curators deposit GRT in a curation market to choose the subgraphs that will bring the most value to the network, after which they are rewarded for their service.

Delegators and consumers in The Graph Network also use their GRT tokens to provide staking support to indexers and to purchase services from the network, respectively. The project also issues new GRT tokens to incentivise beneficial behaviours, such as indexing new subgraphs.