From Messari by Mihai Grigore

Key Insights

Primer

The Graph is an indexing protocol that provides onchain data — such as DeFi transactions and liquidity pool data — from a wide spectrum of sources. It removes the need for data consumers (e.g., app developers) to build out complicated infrastructure to get onchain data. Instead, data consumers pay to query custom APIs of onchain data — called “subgraphs” — via the GraphQL API. Subgraphs define a data schema to be indexed, making that data queryable. Subgraphs can be developed and queried by anyone.

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:

The Sunrise of Decentralized Data is The Graph’s initiative to upgrade all subgraphs to its distributed network of independent data indexers. As of the end of Q2’24, nearly 7,400 subgraphs have successfully transitioned from the hosted service to the decentralized network. This transition corresponded to an all-time high in revenue accrued from increasing demand for data indexed by The Graph.

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Key Metrics

Performance Analysis

The Graph Network is used by developers and data consumers who pay to query data. The performance of the network can be measured by the growth of the volume of queries serviced, the active subgraphs serving queries, and the network's revenue in query fees.

Usage

Query Volume

Demand for data organized by The Graph reached an all-time high of over 2.9 billion queries in Q2’24, up 84% from 1.6 billion queries in Q1’24. In terms of the chains that drove the most queries throughout Q2’24, The Graph Network Mainnet led the way with 1.4 billion successful queries (48% of the total of 2.9 billion queries in Q2’24), followed by Arbitrum One with 464 million queries (16%), and Polygon with 411 million queries (14%).

Notably, query volumes have seen an upward trend ever since Q2’23. While the initial growth in query volumes was likely driven by a recovery of crypto activity in general, there were other recent contributing factors to the increase in query volume, including:

Subgraphs

To bootstrap The Graph, a hosted service was initially created. This service hosted subgraphs as the protocol gradually transitioned to its decentralized network. The hosted service was free (subsidized by The Graph ecosystem) and offered indexing infrastructure run by Edge & Node, the initial team behind The Graph.

The first decentralized subgraph launched on the decentralized network in Q1'21. Since then, the Sunrise of Decentralized Data has been on a course to upgrade all subgraphs to its distributed network of independent data indexers in three phases: Sunray, Sunbeam, and Sunrise.

The first phase of the upgrade — Sunray — was completed in March 2024. Sunray brought more chains, free queries, and improved billing, including a free query plan of 100,000 queries per month. This helped developers get started on the network and scale their development.

The second phase — Sunbeam — started in April and concluded in June. Sunbeam focused on upgrading hosted service subgraphs to The Graph Network. As a consequence, nearly 7,400 active subgraphs successfully transitioned from hosting services to The Graph’s distributed network of independent data indexers as of the end of Q2’24. This translates into a 278% QoQ.

The third phase of the upgrade — Sunrise — retired hosted service endpoints as all query activity is currently being upgraded to The Graph Network. The number of deployed subgraphs on The Graph’s Network will likely increase, in turn growing ecosystem participation and revenue.

Ecosystem Participation

Subgraphs provide an arena for both technical and non-technical ecosystem participants to interact symbiotically:

Staked GRT is required for indexing subgraphs. As Indexers get more GRT delegated, they increase their capacity to index more subgraphs on the 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 at 100,000 GRT (approximately $21,000 as of June 30, 2024). In addition to this minimum, Indexers can also receive delegated stake from other ecosystem participants. Delegators can increase their total stake up to 16x an Indexer's personal stake.

Indexers actively serving queries on The Graph Network decreased 9% to 116 at the end of Q2’24 from 127 at the end of Q1’24. This continues a downside trend in Indexers actively serving queries ever since Q1’23, explained by the end of The Graph’s Multi-Chain Incentivized Program at the end of Q1’23 as well as by some Indexers simultaneously un-staking their GRT. Notably, this drop in the number of Indexers has not resulted in performance drops of Indexers covering a large number of subgraphs.

Revenue

The GRT token follows the Stake-for-Access model, also known as a utility 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 decentralized network. Both services require GRT to be staked. An Indexer’s stake comprises their own GRT tokens (i.e., self-stake) and GRT delegated toward them (i.e., delegated stake).

Both indexing rewards and query fees are funneled through Indexers, who then distribute them 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 indexing rewards and query fees with Delegators, whereas the Curators earn a 10% portion of the query fees generated by particular subgraphs.

Source: The Graph: Choosing Indexers

As per the above example, if an Indexer sets the query fee cut to 13.96%, their Delegators would receive the remaining 86.04% of the fee revenue proportional to their stake. While Delegator stake cannot be slashed, Delegators should still consider several factors when staking GRT with Indexers. These include:

Indexing Rewards

Indexing rewards come from a GRT annual inflation below 3% (2.9% on average in Q2’24), 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.

Indexing rewards decreased 7% QoQ to nearly $18 million in Q2’24, driven by the depreciation in the USD price of the GRT token. In GRT terms, indexing rewards stayed relatively stable (decreased 1% QoQ) from 74.0 million GRT in Q1’24 to 73.4 million GRT in Q2’24.

Query Fees (Network Usage Fees)

Data consumers (e.g., app developers) pay query fees for Indexers to fetch and organize data. As of Q2’24, The Graph delivers data to projects like Polygon, Art Blocks, and Loopring. Query fees are determined by market demand and further distributed to Curators, Indexers, and Delegators.

Total revenue from query fees increased 160% QoQ in USD terms to an all-time high of $113,000 in Q2’24. This increase in demand-side revenue in USD was primarily driven by the increase in query volume and in subgraphs on the decentralized network. In terms of the chains that drove the most revenue from query fees throughout Q2’24, The Graph Network Mainnet led the way with nearly $53,000 (48% of the total revenue from query fees in Q2’24), followed by Arbitrum One with nearly $19,000 (16%), and Polygon with nearly $16,000 (14%).

For The Graph, the Q2’24 total revenue from query fees (over $113,000) made up nearly 0.7% of the total indexing rewards (approximately $17.5 million). This distribution indicates that The Graph’s network participants still rely on indexing rewards for sustaining their day-to-day operations.

Qualitative Analysis

Key Developments

Sunrise of Decentralized Data

The Sunrise of Decentralized Data is a plan enabling all subgraphs to upgrade to The Graph Network. It consists of three phases: Sunray, Sunbeam, and Sunrise. The first phase of the upgrade — Sunray — was completed in March. Sunray brought more chains, free queries, and improved billing. Notably, a free query plan of 100,000 queries per month was introduced on The Graph Network. This helped developers get started on the network and scale their development.

The second phase — Sunbeam — started in April and concluded in June. Sunbeam is focused on upgrading hosted service subgraphs to The Graph Network. As a result, as of the end of Q2’24, 7,370 subgraphs have successfully transitioned from hosting services to The Graph’s distributed network of independent data indexers.

In the third phase of the upgrade — Sunrise — hosted service endpoints were retired as all subgraphs will be upgraded to The Graph Network.

Sunrise Upgrade Program

The Graph introduced the Sunrise Upgrade Program to support The Graph's Sunrise of Decentralized Data in Q2’24. The Graph Foundation has allocated up to 4 million GRT ($840,000 as of June 30, 2024) to be earned by the program's participants.

There were both technical and non-technical contributions to the Sunrise Upgrade Program, ranging from content creation to technical contributions to The Graph Network. The successfully completed contributions were eligible for a reward in GRT tokens.

The Graph as AI Infrastructure

Semiotic Labs, a core development contributor to The Graph Protocol, introduced two AI-based services: Inference and Agent. These two services aim to leverage The Graph's historical data and decentralized infrastructure for AI models and applications:

More details can be found in the white paper.

Subgraph Support

Throughout Q2’24, subgraph support on The Graph Network was announced for Injective, Base, Gravity, and BNB Chain. Upon completing the Chain Integration Process, indexing rewards were enabled. Additionally, there are ongoing discussions to add support for Eclipse, IoTeX, Rootstock, peaq, Edexa, and Inco. Simultaneously, indexing rewards for subgraphs and Substreams-powered subgraphs were enabled. A full list of supported networks can be found here.

Key Governance

Deprecate the L1 (Mainnet) Protocol (GIP 0067)

This successful proposal resulted in the deprecation of the L1 (mainnet) protocol following GIP 0052 and the migration of all indexing rewards to Arbitrum. The motivation behind the deprecation is to lower potential user costs and eliminate potential confusion regarding running two protocols in tandem.

The deprecation is set to occur over a six month period:

Closing Summary

Demand for data on The Graph Network reached an all-time high of over 2.9 billion queries in Q2’24, up 84% from 1.6 billion in Q1’24. Driven by the query volume increase, demand-side revenue in USD grew 160% QoQ to an all-time high of $113,000.

The Graph is on a journey to upgrade all subgraphs to The Graph Network. As of the end of Q2’24, a total of 7,370 subgraphs have been published to the decentralized network, up 278% from 1,952 at the end of Q1’24. The number of deployed subgraphs on The Graph Network is expected to continue increasing, which would, in turn, increase query demand and revenue.

Semiotic Labs, a core development contributor to The Graph Protocol, introduced two AI-based services that leverage The Graph's historical data and decentralized infrastructure for AI models and applications. This marks potential new use cases where The Graph could be further leveraged.