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The Graph Protocol

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  • The DeFi space without The Graph Protocol would be an abyss difficult to navigate like the internet would be without Google.
  • Dubbed as the Google of blockchain networks, The Graph protocol collects, organises and stores blockchain data to make it available for users when they search for it.
  • The Graph is blockchain-agnostic with practically no competitors and quite undervalued by the DeFi ecosystem.
  • With multiple successful partnerships under its belt and a recent partnership with the Polygon network, the Graph is set to take over the DeFi space in the near future.

Applications, whether decentralised or centralised, require a ton of data to be functional. In the centralised framework, data is usually easily available to developers in a usable form. On the contrary, in decentralised networks such as Ethereum, blockchain data is not easily accessible and it is extremely difficult to source and aggregate. In early 2018, blockchain developers Yaniv Tal, Jannis Pohlmann and Brandon Ramirez stumbled upon this problem while trying to build decentralised applications (dApps) on Ethereum. They realized that developers had to find their own ways to collect, aggregate and clean data from different sources, making the whole process of dApp development rather cumbersome.

To tackle this flaw, the trio decided to build a data-indexing protocol for Web3 that would enable developers to create dApps, fully powered by public infrastructure. This marked the beginning of Graph Protocol which came into existence in December 2020. The protocol became quite the rage immediately after launch and within just three days reached a market cap of $1bn. In February 2021, Graph Protocol’s native token, GRT, hit an all-time high (ATH) of $2.88. Since its peak, the attention waned and the protocol remained subdued in the DeFi ecosystem. But, given the recent development and growth in blockchain technology, the demand for dApps has almost quadrupled. In a time like this, experts believe that the Graph Protocol is crucial for the growth of the DeFi space and should be on the radar of anyone looking to invest.

The Graph (GRT)

The Graph Protocol, as mentioned before, is a data-indexing protocol for web3. It decentralises the API and the query layer of internet applications. The protocol is popularly referred to as the “Google of Blockchains”, because, just like Google, the protocol collects, stores and organises blockchain data in a way that is easily accessible to users when they search or query for it. Developers looking to build dApps can easily request the data they need from popular Ethereum protocols like Uniswap, Aave, Balancer and Compound using the Graph Protocol. They can also publish their own data and APIs on the platform. By making blockchain data readily available, Graph facilitates the creation of decentralised applications with fully public infrastructure without the need to rely on centralised systems that seek rent for data.

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The decentralised APIs facilitate unmatched levels of interoperability and makes decentralised apps immune to business failures. Put another way, it removes the risk of being dependent on a single party or central entity to provide data. Developers can either use the Graph’s hosted services or run the Graph node on their own infrastructure. Data on the Graph Protocol is arranged using a technique called subgraph manifesto. Anyone who uses the protocol is free to publish their own APIs which are then grouped into subgraphs. These subgraphs typically contain data about various blockchain protocols, smart contracts and events and are deployed on a registry hosted on the Ethereum blockchain. There are over 3,000 subgraphs published on the protocol to date and developers who need data from a subgraph can request for it by raising a ‘query’.

The Graph Protocol Working

On the Graph Protocol, there are essentially six key players who interact with the network and keep it running. They are consumers, indexers, curators, delegators, fishermen and arbitrators.

  1. Consumers: Consumers on the Graph Protocol are end users, typically dApp developers and middleware or web services, who might need blockchain data. They can make use of the built-in Graph explorer to browse through the existing subgraphs and request the one they need by paying a fee and raising a query.

  2. Indexers: Indexers are the users who essentially operate the entire protocol. They are responsible for indexing these queries and delivering them to the end users. Indexers stake their GRT tokens and then search the entire database of the blockchain to find the subgraph requested by the consumers and deliver it to them. For this, they receive the fee paid by the consumers and are motivated by financial gains to act in the best interest of the protocol. If an Indexer acts maliciously their stake is slashed.

  3. Curators: Curators are responsible for maintaining the quality of subgraphs of the protocol. It is not uncommon for dApp developers to serve as curators in order to maintain the value of data. Curators stake GRT tokens to signal high-quality subgraphs and, the ones with the most number of signals, get picked by the Indexers. For maintaining the quality of the subgraphs, curators are rewarded with a part of the transaction fee paid by users.

  4. Delegators: Delegators are users who are not directly a part of the querying and indexing process. They stake their GRT on behalf of an Indexer to support them and earn a part of the rewards they receive.

  5. Arbitrators: Arbitrators are also not directly involved with the network but work to keep a check on the Indexers’ behaviour to ensure they’re acting in the best interest of the protocol.

  6. Fishermen: Fishermen are responsible for ensuring that the users’ queries are aptly delivered.

Everytime a consumer raises a query, this whole cycle of querying and indexing kicks in. The decentralised network of Indexers compete with each other to provide the best service at an affordable rate to the consumers. This means that even if one Indexer is offline, the cycle does not stop and the other Indexers are incentivised to take on the extra load.

The Graph Token

The Graph Protocol is powered by the GRT token, which is the native utility and governance token required by all players to interact and communicate with the network. The two indispensable functions of GRT are for Indexer staking and Curator signalling. Indexers use GRT to be discoverable in the network and Curators use GRT to ensure quality subgraphs are discoverable on the network. Apart from this, consumers are required to hold GRT in order to pay the transaction fees to the Indexers. Furthermore, a portion of the tokens collected as transaction fees are burned, making it a deflationary asset. Therefore, as the Graph Protocol continues to grow it leads to the classic supply/demand imbalance.

The total supply of GRT is 10 billion with 4.72 GRT already in circulation. As of October 2021, the token is valued at $0.72 making it a perfect time for investors to grab the token at a lower rate. As the DeFi space grows, so will the need for data and the graph protocol appears to be in the perfect spot to service this growing demand.

Conclusion
Decentralised applications powered by the Ethereum ecosystem have only started to gain popularity among users. As the DeFi space continues to grow, dApp development, adoption and use is also expected to grow exponentially. This is where the Graph Protocol could be a gold mine for developers. By making blockchain data and APIs easily accessible, the Graph could promote the development of highly functional, next-generation dApps for the DeFi ecosystem. This, in turn, could attract more users to this space and steer it towards mass adoption.

Nothing in this article constitutes professional and/or financial advice. The content is provided exclusively for informational and/or educational purposes. Nothing is to be construed as an offer or a recommendation to buy or sell any type of asset. Seek independent professional advice in regards to financial, tax, legal and other matters.

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