Is GRT Token a Good Investment?

Introduction

Smart contracts make up the majority of a blockchain. They are similar to how functions in mathematics works, they do a certain thing when certain conditios are met. However, smart contracts are limited by their ability to fetch data from the blockchains they’re built on, and developers have to spend more resources and time to gather the data. Moreover, most data centers are centralized and this makes the process extra time-consuming and complicated. The Graph acts as Google for blockchains; making developers able to search through decentralized databases and all the information on smart contrat blockchains. 

The Graph was founded by the trio Yaniv Tal, Brandon Ramirez and Jannis Pohlmann in June 2018 and completed the ICO in late 2020. They had previously worked on various startups with their manin focus being developer tools. The trio started working on The Graph when they found out about Ethereum in 2017, trying to find a solution to a common problem that most developers who are building developer tools would often face: most databases are centralized and not available to everyone. This makes it even harder to build powerful developer tools, as most tech giants who own these databases are openly against sharing the database with outsiders. With this, they started working on building dapps on Ethereum blockchain but this wasn’t the end of the complexity.Even though Ethereum has a lot of data that is open and accessible to anyone, searching through that data is too time-consuming and even makes it impossible to build dapps without excessive amount of lags. Thus they built The Graph, a data indexing protocol for Ethereum and IPFS. GRT is an ERC-20 token on Ethereum with an initial supply of 10 billion and market cap of more than $3 billion.

How DApps Work

Before we dig deeper in The Graph’s technical details, we first must know how dapps work in general. A dapp is made up from a series of smart contracts and once the contracts are created, they cannot be changed. Smart contracts are designed to do a specific action or transaction when certain conditions are met. Most dapps are built on Ethereum blockchain and this is one of the main reasons why Ethereum is currently sitting at the second rank of market capitalization, the first place being occupied by Bitcoin. 

Building a dapp on Ethereum blockchain needs three components: Data that is on Ethereum blockchain, data that is off the Ethereum blockchain and a place to store the data users generate. An example of off-chain data is the price. Real world data must be fed into Ethereum blockchain which is mainly done by decentralized oracles like Chainlink or Band Protocol. In terms of storage, there are projects like Filecoin which offer decentralized storage. However, most data generated by dapps on Ethereum is stored on the Ethereum blockchain without the need for a specific protocol. 

Finding specific datas on Ethereum blockchain could take hours or days for the dapp, making it impossible to get new information as fast and without any lags. The Graph was designed to solve this issue by making it easy for developers to quickly find both simple and complex data for their dapps' needs. In simpler terms, The Graph acts like a bridge between the blockchain and the dapp and connects these together. 

The Technicals Behind The Graph

The Graph works similar to a marketplace for specific data on Ethereum. Each dataset of this marketplace is called a subgraph and they can be seen using The Graph’s explorer. Each subgraph describes a specific smart contract within a dapp, which is similar to using highlighters in a book. A copy of every subgraph is stored on the decentralized data storage layer on Filecoin called IPFS. A developer can easily find the data they need using The Graph’s explorer. When a developer requests data, nodes on The Graph AKA indexers search through relevant subgraphs to find that information. With a curation signal, indexers choose which subgraphs to pull the data from. Curation signals are provided by curators who develop subgraphs and evaluate them for their quality. However, there needs to be some sort of economic incentives for this process to work properly. As such, anyone searching for data using The Graph’s explorer must pay indexers query fees which are set by the indexers themselves, and payable in either ETH or DAI. Indexers are also rewarded GRT tokens for inflationary indexing. To make sure that indexers do not overcharge the developers, delegators stake GRT to let The Graph which is later used by indexers to fetch data for developers. Delegators earn a percentage of query fees and indexing rewards for this service. Indexers on the network have to stake GRT token for the network to make sure they are doing their job properly. If an indexer provides false data or does a poor job of indexing, a portion of their stake can be slashed. Also, to ensure curators are leading indexers to the highest quality data, they must stake GRT token on a subgraph bonding curve which is the curational signal used by indexers. The bonding curve gives incentive to curators to be the first to stake in a new subgraph they believe has the highest quality of information. Curators earn a cut of query fees paid to the indexers, so this is crucial. Curators who staked the earliest on a subgraph being queried will earn more of the query fees allocated to the curators thanks to the bonding curve. Although curators will not get punished for bad behavior like indexers, they are hit with a withdrawal tax if they move their stake off a subgraph. This is to make sure that they commit to a network and to find the highest quality subgraphs since choosing a low quality subgraph means no querying fees and lots of withdrawal taxes. Indexers, delegators and curators also earn rewards from the rebate pool which issues GRT to participants who contribute the most to the graph network. Any GRT staked by indexers, delegators and curators are subject to a 20-day unlock called the thawing period. 

Financial Analysis

GRT is an ERC-20 token on Ethereum with an initial supply of 10 billion and market cap of more than $3 billion. It has an inflation rate of 3% per year, which is used to pay indexing rewards to indexers. Also, 1% of all query fees are spent on burning GRT. The withdrawal tax charged to curators is also burned, and the same process goes for any unclaimed reward from the rebate pool distributed to network participants. 

During The Graph’s ICO back in October 2020, only 4% of the initial supply of 10 billion were sold, and each individual investor in the ICO had an investment cap of $5000. Overall, 400 million GRT tokens were sold for 3 cents each during the ICO.

GRT is tradable on very liquid markets like Binance and Coinbase, and has a liquidity score of 61%. Its curent market cap ranking is #49 and during the past 5 months, its popularity was risen by 13% on Telegram, 26% on Reddit and 44% on Twitter.

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