The Graph hit the crypto market like a storm in December 2020. This is a project, which has been built for years and it’s backed by the best VCs in the business. Investors are even calling it as the Google of blockchains. What is The Graph and how does it work? This is the ultimate beginner’s guide.
The Graph is a multi-purpose token
First, let’s place The Graph in the correct cryptocurrency category. We like to divide all coins into three different categories: currencies, platforms, and tokens.
Bitcoin, Litecoin, Bitcoin Cash, and Monero are the best-known currencies. Even if the narrative of Bitcoin has evolved into digital gold, it was originally a P2P digital currency as well. And still is, of course. Currencies are designed to be digital money without other significant use cases.
Ethereum is the king of the platform category. These projects are also called ecosystems, frameworks, and operating systems. You can think of them as iOS and Android. Platforms are operating systems for Dapps and smart contracts. Other popular platforms include Cardano, Zilliqa, Tron, and Binance Chain.
Tokens are issued on platforms, which means tokens don’t have a blockchain of their own. One could say that all significant tokens run on Ethereum at the moment. Tokens have utility inside a specific application. Good examples are Chainlink and DeFi tokens such as Aave, Uniswap, and Compound.
The Graph belongs to the token category. It’s built on the Ethereum platform using the ERC-20 standard, like most of the tokens these days. In the future, The Graph will be available on other platforms too. Ethereum has just become a de-facto standard for many projects to start with.
What makes The Graph interesting is the fact that there are no direct competitors. Someone might call it “Chainlink’s cousin” since The Graph is operating on the same niche. The official title of the project is indexing protocol. It is also called the Google of blockchains.
The native token of The Graph has the ticker GRT. Despite its young age, the token can be traded in the biggest crypto exchanges. This tells a lot of the status and importance of this project.
GRT is a multi-purpose token, which is needed by different operators in The Graph ecosystem. We will dive deeper into tokenomics of GRT later in this article.
The Graph was founded by three software engineers
The Graph is a relatively young project in the crypto scene. The roots of the project can be traced back to 2017. The founders of the Graph are Yaniv Tal, Jannis Pohlmann, and Brandon Ramirez. Yaniv Tal is the project leader.
Below is a Youtube clip of Yaniv Tal having a speech at ETHDenver.
The previously mentioned trio had already worked earlier with multiple startups designing tools for software developers. Once they discovered Ethereum in early 2017 and fully understood its potential, there was no turning back.
It didn’t take long for Tal & co. to discover serious issues with the Ethereum blockchain. They found out that there weren’t good tools available for blockchain data processing, which made the development of Dapps frustrating.
The heroes of the story decided to solve the problem by building an indexing protocol for the Ethereum blockchain data. This is how The Graph was born.
The first version of The Graph white paper was published in March of 2017. The first prototype was launched in late 2017. This was the peak of the 2017 market bull run, so it was ICOs and other cryptocurrencies stealing the headlines.
The Graph was officially announced in June 2018.
We’re so excited to be announcing The Graph! 🗿✨ A decentralized query protocol for blockchains. The Graph lets you build dApps more easily on Ethereum and IPFS using GraphQL. Together we can build a new generation of the web free from monopolies. https://t.co/CRn36kuF2B
— The Graph (@graphprotocol) June 5, 2018
It’s no surprise this launch went mostly unnoticed, at least for the mainstream audience. The whole market was suffering from a serious hangover after the crypto rally of 2017. The ICO bubble had also popped. However, many projects were developed hard behind the scenes.
Even if The Graph project started in the middle of the ICO boom, they never went for it early on. The funding was first received from VCs. The Graph raised 2.5 million USD in 2019 and 5 million more in 2020.
One should notice, that The Graph is backed by the biggest VC names in the crypto industry including Coinbase Ventures and Digital Currency Group. You can find the following list on thegraph.com front page.
The most memorable events of the (short) history of Graph took place in late 2020. This is when the ICO was finally launched, with some heavy restrictions. Just 4% of the 10 billion tokens (400 million) were sold in the public ICO and each investor could invest a maximum of 5000 dollars.
The Graph ICO took place in October 2020 and it had 4500 participants. The project raised 12 million dollars, meaning each GRT token was sold with a price of 0.03 dollars.
In December 2020, The Graph MainNet was launched. This is when the GRT token became available for everyone to trade.
GRT was instantly supported by the biggest exchanges, including the likes of Coinbase and Binance. The token price went all the way to 0.65 dollars on the opening weekend. This means that ICO participants earned 20 times their investment in just two months.
The Graph is an indexing protocol
As the title says, The Graph is a blockchain data indexing protocol. What does it mean in practice? What is indexing used for?
Think about a table of contents of any book. This is a good example of an index. Imagine you want to jump to a certain chapter without a table of contents. You would have to scroll through the book page by page until you found the right place. An index can take you there in a matter of seconds.
If you have ever worked with databases, you are familiar with indexes. They can reduce the time of a 5-minute data search to 5 seconds. Wikipedia says the following about database indexes :
Indexes are used to quickly locate data without having to search every row in a database table every time a database table is accessed.
This sums it up pretty nicely.
The image below represents the Ethereum blockchain. As you might know already, a blockchain consists of blocks, which are linked to each other. Each block can include thousands of transactions, which have just been executed in the network.
If you want to find a certain transaction from the blockchain, you must crawl through the information block by block starting from the latest one. This is extremely slow and ineffective.
Now you might think: how is it possible that explorer sites like Etherscan.io can return information so fast? This is possible because such services are constantly scanning the blockchain data and storing it in their own database. This information can be then indexed, cached, etc.
Sites like Etherescan are called ingestion services.
Even if this works, it’s not a sustainable solution for the long run. Smaller projects don’t have the resources to build a scanner of their own, which forces them to use APIs from Etherscan or other centralized services. It would be also very ineffective if each project would build such scanners on their own.
The Graph has been built to solve this problem.
The Graph and subgraphs
The Graph is basically an ecosystem, where distributed operators are working together incentivized by the GRT token. There is one piece, which is at the center of this puzzle. It’s called a subgraph.
A subgraph is like a window to a blockchain data of a certain Dapp. It tells indexers, what data should be indexed and where to store it. Descriptions of subgraphs are recorded in a distributed fashion using the IPFS protocol.
Subgraphs are components built for software developers to use. They can be found using the subgraph explorer marketplace. You can browse all subgraphs at thegraph.com/explorer/.
There is one thing you should remember. Even if the MainNet was launched in December 2020, this marketplace has served Dapp developers for over a year. There are billions of searches made through The Graph ecosystem every month!
Subgraphs are available for every popular DeFi application, such as Compound, Uniswap, and Aave. The stablecoin USDC is also included. Subgraphs can include any information, which a certain Dapp is producing. Prices, transactions, and volume information of a decentralized exchange are good examples.
If there is a new Dapp in the market, the developers of that service are incentivized to create a subgraph to The Graph marketplace. This will make it easy for other devs to connect to this Dapp and use its information.
There is also a special query language being used. This is called Graph Query Language (GraphQL). Don’t get confused with the name. GraphQL has nothing to do with The Graph project. It has existed for 5+ years already as an open-source query language.
Different roles of The Graph ecosystem
The Graph ecosystem is an interesting puzzle, which has many pieces with different functions. Let’s go through the most significant players of The Graph. These operators are called indexer, curator, delegator and consumer.
An indexer is one of the key players in The Graph ecosystem. Indexers are also entities running The Graph nodes. If you want to become one, you must stake GRT tokens. This is the first use-case of GRT.
As the name suggests, indexers are responsible for indexing the data for each subgraph. These node operators make sure that the subgraphs include the latest information from the blockchain. Indexing nodes are scanning the blockchain constantly for new blocks.
Indexers are rewarded based on the indexing work and the queries they perform for consumers. When a consumer wants to run a query on a subgraph, indexers return this information for a fee. Prices are kept in check by the marketplace of indexers.
Check the video below by Finematics. It describes the different roles very well.
Delegators are connected to indexers. As you might guess already, they are investors who want to stake their GRT tokens for the network but don’t want to run a node. Operating a node requires some technical skills and it isn’t for everyone.
If you want to participate in the network anyway, it’s possible to delegate GRT tokens to an indexer. The delegator will then receive a share of the staking rewards. A similar delegating system is used in almost every Proof of Stake blockchain.
Curators have also a critical role in The Graph ecosystem. The word curate comes from Latin (curare) and it means literally to take care of. This is what curators are doing in The Graph ecosystem as well. They are taking care of the quality of the data.
Curators are the ones, who tell indexers which subgraphs to index and prioritize. Curators must also stake GRT tokens in order to operate. They are being rewarded based on the popularity of the subgraphs they recommend. This means curators have an incentive to recommend the highest quality information.
The consumer is the final piece in the puzzle. These are the software developers, who actually need the data. A consumer can be also an application, company, or any other entity. Consumers pay GRT tokens to indexers for data queries.
How The Graph works?
There is lots of information in the previous chapters, which might take some time to digest. Let’s go through The Graph ecosystem one more time by using an example. The following picture is a screenshot of this excellent Youtube video by Finematics, which you should watch as well.
Let’s assume there is a new decentralized (DEX) Dapp built and launched on Ethereum. The creators of this Dapp want as many other devs as possible to connect with it, use the data, build supporting Dapps, etc. This is how the process goes in The Graph ecosystem.
First, the creators of the DEX will build a new subgraph on The Graph marketplace. If this DEX is a hyped project and a very known one, curators would probably tell indexers to start indexing this subgraph instantly.
If this DEX was a small and unknown project, the creators would stake some GRT and become curators themselves. Then they notify indexers about the new subgraph and the data would become available.
Finally, consumers will enter the picture. These are other developers who want to build something and connect with this information. Indexers are being paid and queries are executed. The Graph has also a special trading algorithm, which defines the indexers being used in each case.
The Graph token (GRT)
We went through the use cases of The Graph token (GRT) in the previous chapters. By now, it should be pretty clear, why and how this token is needed in the ecosystem.
It all sounds almost too good from the investor’s point of view, but there is a catch. There always is. We are talking about the tokenomics of GRT. You can also check the video below starting at 11:45.
You might already remember from the history chapter, that only 400 million GRT tokens were sold in the public sale (ICO). This is just 4 percent of all tokens. At the time of writing this article (Jan. 2021), only 1.2 billion (12 %) GRT are in circulation.
This means that early backers of the project still hold the majority of GRT tokens. These tokens have unlocking periods, which will be expiring in 2021 and 2022.
The amount of GRT tokens in circulation is going to grow a lot in just six months. Of course, it doesn’t mean all investors will be dumping the tokens and cashing out, but many will, for sure. This is not good for the token price. One should also remember there is a 3% yearly inflation.
Tokenomics is an area a potential investor must consider carefully. This kind of issuance means that the GRT token is unlikely to “moon” in 2021 and early 2022. On the other hand, it should provide good buying opportunities for a long-term investor.
Investing in The Graph
The Graph token has been available for the public since December 2020. Even if it’s a new player in the market, it’s already obvious, that The Graph will be an essential part of the Ethereum DeFi ecosystems. It wouldn’t be a shock if the market cap of The Graph would exceed Chainlink one day.
Remember, these two projects are not competing but complementing each other. Chainlink provides external data for Dapps, for example, price information from other blockchains. The Graph is a marketplace for the data already in the blockchain.
The usage of The Graph is also growing exponentially. Below is a picture from December 2020, which shows the number of daily queries.
The number of subgraphs grew 3x in 2020 and the number of daily queries grew 10x in the second half of 2020.
It looks like the trio of Chainlink, The Graph, and IPFS (Filecoin) could all play a significant part in the Dapp development of Ethereum. These projects are already working closely together.
Even if the future of GRT is a bit blurry due to horrible tokenomics, it has positive features as well. GRT is needed by all operators in The Graph ecosystem. There is a real use case and demand for it.
In 2021, The Graph Explorer will also become a fully decentralized app (Dapp). So far it is hosted by a centralized entity.
There will be also changes in the project management. The Graph Foundation was founded recently to guide the project development. There will be also a separate council, which has representatives from all different user roles. You can read more about The Graph Council from here.
The importance and the possible impact of The Graph can be easily discovered by anyone, who has worked with application development and databases before. The same can be said about Chainlink.
The Graph Price and how to buy GRT
When the GRT token was launched on public exchanges, it was instantly listed by the biggest operators. This says a lot about the significance of the token. We recommend using Binance, which is the market-leading cryptocurrency exchange.
You can purchase GRT with BTC, EUR, and USDT trading pairs.
Since GRT is an ERC-20 token, it can be stored in standard Ethereum wallets like MetaMask. Trust Wallet is also a good option for those who like mobile wallets.