🚀 Demystifying Delegation: A Visual Guide to GRT Flow in The Graph Protocol 📊
💡 Navigating the Nuances of GRT Earnings 💰
In the complex world of decentralized protocols, visual aids can provide much-needed clarity. The Graph, an open-source protocol for indexing and querying blockchain data, relies on its native token, GRT, to incentivize a network of Indexers, Curators, and Delegators. But how does the GRT flow look like from the perspective of Delegators? Let’s unravel this intricate web step-by-step.
Delegators are participants in the Graph Network who delegate, or “stake,” their GRT to one or more Indexers. Unlike Indexers, Delegators do not run a Graph Node. By aligning with an Indexer, they support network security and in return, earn a slice of the Indexer’s query fees and indexing rewards.
The potential revenue an Indexer can generate is a function of their total staked GRT amount (this includes both self-stake and tokens delegated to them) and their query pricing. Thus, a higher staked amount translates to more potential queries and consequently, more rewards.
First step is to Delegate to an Indexer:
Indexers: Indexers operate the Graph Node and self-stake GRT (The Graph’s native token), which can be slashed if Indexers are malicious and serve incorrect data to applications. They are essentially responsible for processing raw data from the block chain and serving it to users and applications. In return for their service, they earn query fees from data consumers and indexing rewards (GRT issued by The Graph as a form of bootstrapping mechanism.)
Delegators: Delegators are individuals who want to participate in the network but don’t have resources or technical experience to run a Graph Node. Instead, they delegate their GRT to an indexer. By doing this, they help the indexer increase their total stake, potentially improving the Indexer’s chance of being chosen for queries, and therefore, earning more rewards. In return, delegators receive a portion of the Indexer’s rewards and fees, proportional to their own stake minus the Indexer’s fee.
Indexing Subgraphs is a critical task managed by Indexers who operate Graph Nodes. These nodes are processing the vast and intricate data from blockchains and organizing specific chunks of this data into what’s called “subgraphs”. These subgraphs are essentially well-defined channels (or APIs) that are specially crafted to pull out, reshape, and save this specific data. The ultimate goal is to make this data easily accessible and understandable for anyone who wants to use it in their applications.
Indexers in The Graph network have two primary avenues to earn GRT rewards. One is through query fees, which are GRT payments made by developers/users in exchange for subgraph data queries. The distribution of these query fees to Indexers is determined by the exponential rebate function, as detailed in GIP-0051.
The query fees are charged to each user of a subgraph. They are charged on a weekly basis and claimed later by Indexers that close allocations on seperate subgraphs. For example, the top dApp for query fees as of this article is “Snapshot.” When an Indexer opens an allocation on Snapshot, they earn query fees for the period of time their allocation is open.
The other way is from indexing rewards.
Indexing rewards come from protocol inflation which is set to 3% annual issuance. They are distributed across subgraphs based on the proportion of all curation signal on each, then distributed proportionally to Indexers based on their allocated stake on that subgraph. An allocation must be closed with a valid proof of indexing (POI) that meets the standards set by the arbitration charter in order to be eligible for rewards.
Each Indexer sets the amount or percentage they will take from each pot, with the remaining amount going to their delegators. The metrics shown are Query Fee Cut and Indexing Rewards Cut.
Indexing Reward Cut:
As an example, imagine you’re investing in a startup, and in return, the startup promises to give you dividends from its profits. The owner of the startup (Indexer) sets a certain percentage of the dividends they’ll keep and the percentage they’ll distribute to investors (Delegators). It should be worth mentioning that Indexers can change their cuts, so be weary of negative cuts or Indexers who frequently change cuts drastically.
- If the startup owner decides to keep all the dividends, that’s a 100% reward cut. As an investor (Delegator), you wouldn’t see any returns.
So if an Indexer sets a 100% reward cut, they keep all GRT fees and rewards.
- If the owner keeps 20% of the dividends and distributes 80%, then for every 100 units of profit, the investor reward pool will get a share of 80 units of profit, while the owner keeps 20 units.
So if an Indexer sets a 20% reward cut, for every 100 GRT earned, they will keep 20 GRT while the Delegators share the remaining 80 GRT.
Query Fee Cut:
Now, imagine another source of income for these startups: a rare product they occasionally sell, which initially doesn’t bring in much money, but is expected to grow in significance overtime (like query fees). The startup owner also decides on a percentage distribution for this income, same as for indexing rewards above.
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It should be noted, The Graph protocol aims to transition its incentive structure over time. Initially, indexing rewards serve as an incentive to attract Indexers to the platform, much like a promotional offer to get new businesses on board. But as the ecosystem matures and more users query the network, generating more and more query fees, the ultimate goal is for these query fees to become the primary incentive. In essence, The Graph envisions a self-sustaining ecosystem where the real-world demand for data (reflected in query fees) fully compensates Indexers, making the protocol more decentralized and less reliant on inflationary rewards. The end goal would be to eventually remove indexing rewards all together.
The delegation pool refers to the total amount of tokens that have been delegated to a particular Indexer. A Delegator’s proportion, or share in this pool, is determined by the amount they have delegated relative to the total amount in the pool. Rewards are distributed to Delegators based on their proportion in this pool. Delegators get paid out rewards only when Indexers close allocations (positions on subgraphs). Each Indexer has their own strategy, so there is no set cadence of payouts. Each allocation should only stay open for 28 epochs (approximately 28 days).
Formula for Calculating Your Portion in a Delegation Pool:
Your percentage of delegation pool = (new tokens delegated × 100) / total delegated tokens.
For example, if you have 10,000 GRT you want to stake with Indexer A, and that Indexer has 250,000 GRT already staked with them, then your calculation would be:
Your percentage of delegation pool = (10,000 × 100) / 250,000 or 4%
In the example above this delegator has 36.837% of the pool share. The pending rewards for all delegators listed is 39,150 GRT. From here we can see how the pending rewards number is calculated to get 14.42K. (39,150 x 0.36837 = 14.42K). In this example, the delegator has 177.54k unrealized rewards, which are rewards earned and automatically put back into the total delegated amount (autocompounding). They only become realized when you undelegate.
Delegators can undelegate at any time, but should attempt to time this so as to not miss any large Indexer allocation closings, as this is when a Delegator receives rewards. Whenever a Delegator wants to undelegate, their tokens are subject to a 28-day unbonding period. This means they cannot transfer their tokens, or earn any rewards for 28 days. Once the waiting period is over, then you can go back into the Graph Explorer and withdraw your tokens back to your wallet.
Do you have any questions?
Graphtronauts is the largest, unofficial community for long-term GRT holders who believe in The Graph’s web3 vision for the future. Our goal is to educate the broader crypto community and help them become contributing members within The Graph ecosystem.
If you have any questions, or concerns, or want to submit feedback, you can reach out to us using our social channels:
- App: graphtronauts.app
- Telegram: t.me/graphtronauts
- Twitter: twitter.com/graphtronauts_c
- YouTube: youtube.com/@graphtronauts
- Blog: blog.graphtronauts.com
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- Reddit: reddit.com/r/Graphtronauts
- LinkedIn: linkedin.com/company/graphtronauts
Graphtronauts indexer is live on The Graph!
You can read our official launch announcement here.
If you want to delegate to us, you can go directly in Graph Explorer, using the link here.
You can contact us using our dedicated social channels for our Indexer operation:
- Twitter: @graphtronauts_x
- Discord: Join our Server
- Telegram: @GraphtronautsIndexer
- Delegate to us
