Interpreting The Graph: The data market provides a rare product fit, will GRT become the new Alpha of data necessity?

Authored by: DeepTech TechFlow

Entering the new year, looking back at the cryptocurrency market in the second half of last year, emotions and hot topics seemed to experience roller-coaster-like ups and downs.

In September, some Ethereum developers thought they 'chose the wrong industry', as most projects lack novelty and real demand; at the same time, some voices believed that investing in tokens from the previous cycle was a waste of time. Speculating in new rather than old, old coins gradually lose value...

With the AI Agent trend igniting the cryptocurrency market, combined with the recent collective recovery of old coins, the enthusiasm of everyone's participation has reached its peak again, and they will look for more reasonable reasons for the rise.

In the current market environment, what kind of projects should we pay attention to in order to seize more opportunities?

The cycle repeats itself, and price fluctuations are the pulse of market excitement; but crossing the bull and bear markets, demand adaptation is the key to the life and death of the project.

Having demand does not necessarily mean prices will skyrocket, but having no demand definitely means eventual low liquidity or zero.

From the above ideas, what other tracks are beyond our sight but still have strong demand?

A recent popular narrative is that AI Agents need more and better data to become more intelligent; but in fact, any Web3 project actually has a continuous demand for data, it's just hard for ordinary people to observe:

Data index.

Querying through indexing from the chaotic and unordered data on the blockchain is the foundation for project teams, developers, and even blockchain users to understand projects, grasp the fundamentals, and conduct all kinds of analysis.

As long as there are new encryption projects, there is a demand for data querying/indexing. The more projects, the stronger the demand.

And in this direction, the old project The Graph, as a representative, still has a strong momentum in places we can't see:

Since December last year, the project has been established for 4 years. So far, it has built over 10,000 subgraphs, 100 indexers, over 170,000 delegators, and more than 800 curators. The user community is global.

In the rapidly changing world of cryptocurrency, longevity is not common.

If a infrastructure is really needed, this is the lower limit for the project to survive. But where is the upper limit of The Graph? Can the token GRT break the spell of not frying the old one?

If you are not familiar with the project and data indexing needs of The Graph, and are trying to find more potential profits in the current market environment, you might as well explore the underwater operation of The Graph, which is unknown but in high demand in the sea of on-chain data.

Data indexing requirements, perpetual motion under hot spot rotation

Analyzing a project, the ecological niche it occupies is very important.

Where is The Graph positioned in the current encrypted ecosystem? In fact, you can think of the entire market as an ocean, with completely different situations above and below the water.

Due to the limited human attention, you are more likely to see the 'bustle' on the water, with different projects appearing and disappearing one after another, and PMF (Product-Market Fit) is more often stuck in a slogan and a narrative that is being exploited.

However, I believe that the true PMF of the crypto market is not actually on the surface.

Underwater, no matter how the hot spots rotate, whether it's AI or Meme, the product that most projects will use is the best PMF at this stage; easily observable ones include Pump.fun.

If trading is likened to a continuous warm current in the sea of encryption, Pump.fun is naturally easy to understand; but on the other end, there is a demand that is not easy to observe, deeper, but sufficient to support various water-based projects: data indexing.

In simple terms, you may not need the data yourself, but as long as new encryption projects emerge, there is a demand for data querying/indexing.

For example, a chain-based DEX needs to analyze its own trading history and liquidity, and needs to query data;

For example, a Meme needs to examine the burning situation of its own tokens, whether the repurchase fee buys new tokens, and also needs to check the data...

You may not find the so-called rigid demand of the crypto market, but providing data services for projects is the most rigid demand --- Crypto projects need to provide services to users (or at least appear to do so), and in any case, they need to do their own business-related data analysis, visualization, and real-time monitoring based on on-chain data.

If a demand is not very picky about projects in the current crypto market, it indicates that the market is large.

On the other hand, if everyone has a demand for data indexing, it is better to focus on the person providing the shovel rather than distinguishing whether the demander is a good person or a bad person (there will also be air projects) - this is also a unique and realistic ecological niche that The Graph occupies in the current market environment.

This location is not easily discovered by the market, which is why you need to pay attention to projects like The Graph.

Providing data indexing for other projects is a practical, widespread, and genuinely needed PMF in the current environment, which is the only way for the project itself to have the possibility of surviving through cycles.

From the perspective of the project party, what would you think if you were a cryptocurrency project?

The on-chain data is messy and fragmented, making it very difficult for me to analyze whether User A has transferred Asset B to C. The cost of doing it themselves is too high for the encryption projects, so there must be a service provider to give them a "shovel".

So the question is: where does the data I need come from? How can I check it faster?

You need to go into The Graph and see the details.

Instant Understanding The Graph and Subgraph: The 'Electronic Catalog' of On-chain Libraries

Looking through the research reports and articles in the Chinese community, there is actually not much introduction to The Graph.

On the one hand, data indexing is more oriented towards the To B process, which is further away from ordinary users, while on the other hand, the underlying technology appears even more difficult to understand amidst speculative noise.

Therefore, we are trying to use a more popular analogy here to quickly help you understand The Graph; once you understand that the demand for data indexing is essential, you may have a different perspective on the investment value of Graph and tokens.

An example of removing all technical details is that you can think of The Graph as a librarian.

Now different public chains are a bit like forming a huge library, storing massive information (transaction records, smart contract states, etc.). But this library is very special:

The number of books (data) keeps increasing.

There is no fixed directory or indexing system.

To find specific information, you may need to consult thousands of books.

Having too many books and too little guidance is like looking for a needle in a haystack when trying to find what you want.

So, The Graph is like the librarian of this library:

It will continuously organize and index newly added books (blockchain data).

It creates an easy-to-use query system (similar to an electronic catalog of a library).

When you need specific information, you just need to tell The Graph what you want, and it will quickly find relevant books and "page numbers" (specific blockchain data) for you.

Therefore, what The Graph is actually doing is to create a well-organized electronic directory for the on-chain data of the entire crypto world, so that you can easily query it.

The benefits of doing so are also obvious.

Developers and projects do not need to build their own complex data indexing systems, allowing users to quickly obtain the blockchain information they need. This makes it easier to build complex decentralized applications (DApps) at the data level.

Returning to the project's value and narrative that we discussed earlier, the long-term effect of The Graph is that regardless of your purpose for entering the library (whether the application is real or virtual), as long as you want to look up a book, you will need to use The Graph. This is the real reason why data indexing is a necessity.

You may ask, what if I don't want such a large library and only want to check the books that interest me?

This also involves a core feature of The Graph --- Subgraph.

For example, you are particularly interested in the book 'Decentralized Exchange (DEX)'. You can create a subgraph specifically for DEX, which will actually include but is not limited to the following content:

Which specific smart contracts to index

To track which events (such as trades, adding liquidity, etc.)

How to organize and store this data

How to query this data

So, if you have multiple specialized interest directories, multiple subgraphs will be formed, serving various scenarios in the crypto world for various applications to use.

Or in a more popular way, the subgraph is more like the classification number of library management, where the same theme corresponds to the same type of bibliography.

And these subgraphs are still growing.

According to Messari data, as of the end of the second quarter of 2024, there have been 7,370 subgraphs deployed on decentralized networks, a 278% increase from the 1,952 at the end of the first quarter of 2024.

In the third quarter, the number of active subgraphs in The Graph continued to increase, reaching over 10,000 by January this year. This steady growth indicates the increasingly important role The Graph plays in supporting decentralized applications at scale.

After understanding the concept, it will be easier to understand the advantages of The Graph.

Since multiple specific themes can create dedicated directories, corresponding to the rigid needs of different encryption applications, at least two different things can be done:

From raw blockchain data to creating subgraphs, building indexes for different topics

Different projects use the Graph API to access indexes, providing data-based services for their respective businesses

Decentralized Data Index Market

Another question arises, if the librarian controls the query index of the entire chain's data, why should you trust this administrator?

In fact, in The Graph's design, different roles in the network jointly undertake the 'graph management' in a decentralized manner, rather than being decided by one person.

In more detail, indexers, delegates, curators, and developers together form a decentralized data indexing market.

First is the indexer, which plays the most basic role, that is, running nodes to process and index blockchain data. They are the main data processors of the network, responsible for creating and maintaining the initial steps of subgraph indexing.

The motivation to work is that they can earn fees and rewards by staking GRT tokens (the project's native tokens) and providing query services.

This is very similar to the validating nodes on Ethereum or other L1s, which require a certain scale to operate; but if you don't have enough scale but still want to participate, it involves another role, the delegator.

Similar to liquidity mining, delegators can also delegate their GRT to indexers to increase the security and efficiency of the network through delegation, without the need to run their own nodes.

In terms of economy, the principal can also share a portion of the income earned by the indexer.

Secondly, there is another key role, the curator.

When the indexer creates thousands of subgraphs, which one is the best or most suitable for a particular use case? This is where the curator comes in, discovering high-quality subgraphs and signaling them.

Economically, GRT token rewards can be obtained when the selected subgraph they choose is widely used.

In addition to these roles, project developers or independent researchers can use The Graph's subgraphs to define the data structures to be indexed and build applications that use this data; they benefit from the ability to access blockchain data quickly and efficiently, reducing development costs and complexity.

And the ultimate users here can be DApps, data analysts, or other entities that need blockchain data, to obtain fast and reliable data access services.

So, overall, we can see:

Some characters provide subgraphs and indexes, while others consume subgraphs and indexes, forming a decentralized data market that is not controlled by a single entity and involves multiple parties.

However, what I am more interested in is whether such a market is really being used by anyone.

Another data report from Messari shows that as of Q2 last year, The Graph's query fee total revenue increased by 160% compared to the previous quarter, reaching a record high of 113,000 US dollars;

Meanwhile, data demand reached a historic high, exceeding 2.9 billion queries, an 84% increase compared to the first quarter of 2024, which had 1.6 billion queries.

In Q3 of last year, this data reached over 5.3 billion times, an increase of 79% compared to the previous quarter.

Entering the new year, although the author did not obtain more public data, better market conditions and more narratives will inevitably give rise to more projects, while the active ecosystem also stimulates the aforementioned data query needs.

There is a real demand from real needs, but it may not necessarily come from the retail client as we usually think.

The data market, which has not yet been widely mentioned and discovered, also seems to show that old projects can also become alphas that benefit from cycle rotation.

The business aspect of The Graph is indeed well supported by data, but how is its token GRT performing? As ordinary players, what opportunities do we have to participate?

GRT, beneficiaries of stable returns

First, the role of the GRT token in the aforementioned data market is to regulate/incentivize the behavior of market participants:

Demand side: Data demanders/Dapp developers need to pay GRT to query the index, generating continuous consumption demand;

Supply Side: Indexers provide indexing services and receive GRT rewards; curators/developers discover high-quality subgraphs or create subgraphs and receive GRT rewards

Corresponding to what ordinary players can participate in, that is, becoming a delegator, staking GRT to the indexer to enable them to provide more indexing services (similar to staking ETH to nodes to maintain network security)

But the question is, is it worth staking GRT? Perhaps we can analyze it from the two aspects of external competitive environment and the project itself.

First, let's look at the competition.

Due to the opportunity cost of holding funds, you can also choose to collateralize your assets as LP in DeFi protocols.

But from the overall perspective of the track, DeFi itself is already very active, and ROI has already or can be quickly discovered in the promotional image, while doing LP may also lose money due to impermanent loss and other issues.

By staking in VC coins with High FDV Low Flow, the coins may gradually fall due to different unlocking conditions in the terms, and the returns from staking may not offset the losses in the underlying currency.

If you pledge to the data market, it is a track that is not so fixed in volume and ROI.

Next, let's take a look at the returns from staking on The Graph itself.

Overall, the specific rewards for stakers depend on the indexer they choose, the amount of GRT they stake, and the overall activity and income of the network.

When developers or users query data on The Graph, they need to pay query fees. Indexers have the right to decide how much of the query fees they want to retain. In the example below, the indexer chooses to retain 13.96% of the query fees as their income.

The remainder (100% - 13.96% = 86.04%) is distributed to Delegators.

Let's take another practical example: Suppose a total of 1000 GRT is staked to this indexer, and I stake 100 GRT (10% of the total staked amount):

For a query fee of 100 GRT

The amount that can be allocated to the staker is 86.04 GRT

As a staker, you will receive 8.604 GRT, calculated as 86.04 * 10%.

That is to say, under the condition of stable index demand, the more you pledge, the more GRT you can proportionally obtain.

So the question becomes whether GRT itself will experience a significant depreciation.

We are not a professional secondary trading team, nor can we provide accurate financial advice. But as a comparison, GRT, as an old project, has an obvious advantage: full circulation, no unlocked selling pressure.

Of course, the price of GRT also follows the crypto cycle, but if you look at the past year, the token price is even 30% higher than it was today last year; at the same time, checking on-chain data and connections, there are almost no traces of active market-making and manipulation.

Therefore, if only considering staking to obtain stable returns, it may still be an attractive choice with the increase in the quantity of the native currency and the stable price increase.

Although it cannot compare to Meme and other excessive gains, the risk is relatively small and the increase is stable, and the PVP situation is not so serious.

future

Does The Graph have more catalysts and events to attract market attention?

Currently, what we can see is that the project goes beyond the original indexer design and has also made more explorations in the field of AI.

For example, the essence of index service is to make on-chain data more searchable. In fact, this has already become a basic infrastructure layer for AI services, providing underlying support for the recent hot AI Agents.

Second, The Graph is also exploring hosting AI models in its own network, where you can upload the requested model to the indexer of your choice, perform inference, and return the results to the gateway. The Graph can also charge a service fee in it, forming a stable business model.

And on the more intuitive AI agent products, the project is also building tools similar to the encrypted version of ChatGPT, based on the data of decentralized exchanges indexed by The Graph. For example, you can directly ask which DEX has the highest trading volume in the past seven days, and use the index to query and return the results.

One advantage here is that, unlike the emerging AI Agent projects, The Graph is actually taking the route of indexing the stage and AI performing.

Furthermore, it can be tailored to the hot narrative for writing; and stepping back, it can still be used for data indexing to maintain the baseline and lower limit of the business.

This may also be one of the best footnotes for the current stage of PMF (Product Market Fit) for encrypted products.

The current PMF is not about going public and having bigger idealism. Providing data indexing services for all crypto projects is a practical and ongoing PMF.

Products with real demand should have a place, and paying attention to the growth of such products and projects is also a good way to obtain certain returns.