We interviewed the team at Staking Facilities, an Indexer at The Graph, to better understand what Indexers do and how their work relates to the larger ecosystem.
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In order to stake (i.e., “delegate”) GRT with The Graph, individuals are required to select which Indexer(s) they want to delegate their GRT with. At the writing of this article, there are 157 active Indexers available at The Graph for Delegators to choose from.
According to The Graph, “Indexers are node operators in The Graph Network that stake Graph Tokens (GRT) in order to provide indexing and query processing services. Indexers earn query fees and indexing rewards for their services. They also earn from a Rebate Pool that is shared with all network contributors proportional to their work, following the Cobbs-Douglas Rebate Function.” As node operators, Indexers work closely with Curators.
When a Delegator stakes GRT with a particular Indexer, they are eligible to earn a share of that particular Indexer’s rewards earnings, which accrue as the Indexer earns GRT for their indexing and query services. Each Indexer on The Graph determines their own rewards policy, identified as rewards parameters.
GRTiQ: How would you describe the role of an Indexer in The Graph’s ecosystem? For example, what are the one or two things Delegators need to understand about Indexers and what they do?
Staking Facilities: Together with Curators and Delegators, Indexers make up the supply-side of the open, decentralized, and permissionless data marketplace powered by The Graph. Indexers are the node operators of the network. They operate secure and performant hardware necessary for The Graph network to run on. Furthermore, Indexers provide indexing and query processing services for subgraphs that are signaled to them by Curators. Indexers do so by monitoring the respective blockchain, extracting and loading data according to the subgraph definition, and finally serving the data as a GraphQL API. The Indexers’ services are needed so that blockchain data becomes queriable and ultimately more usable for any applications building on top of them or looking to leverage the data. By delegating their GRT to Indexers, Delegators economically back the respective Indexers and, hence, contribute to the security of the network.
GRTiQ: How would you describe the work activities of an Indexer?
Staking Facilities: There are numerous modules to control and aspects to consider within the Graph Indexer ‘stack’, as well as the general infrastructure and skills required to host it. Indexers need to manage and monitor the node(s), control the agent and allocation behavior, pay attention to logs and monitoring, analyze and create cost models, as well as control/load-balance the Graph services, which act as endpoints for the query network. In addition, we also need to manage our ETH nodes, which provide the contract and chain data, which are required for current subgraphs to be indexed. As The Graph begins to expand across more blockchains, the effort required on this side alone will only expand exponentially with the introduction of more chains. The rest of the stack will also require more attention in order to manage increasing demand from the consumer side. Outside of the technical efforts, it’s also important to engage within the community, listen to the concerns of (all!) stakeholders, and take part in discussions. We should all strive to do our part in defining which directions The Graph heads in, for the betterment of the network.
GRTiQ: We’ve started to notice that some Indexers on The Graph are over-delegated. What does that mean?
Staking Facilities: Each Indexer has a maximum capacity, which is defined by the ‘Delegation Ratio’, currently 16. Any delegations that take an Indexer above capacity will not contribute to the accrual of rewards, but the Indexer’s rewards are still shared across their entire Delegator pool, even when over capacity.
From a Delegator’s perspective – this provides an increasingly less efficient return on their delegation, as the higher above capacity their Indexer is, the stronger the dilution effect becomes.
GRTiQ: How does an Indexer index a subgraph? For example, do they have to stake their own GRT?
Staking Facilities: The beauty of an open, permissionless system such as The Graph is that basically anyone can define, create, and deploy a subgraph to the network. Once that is done, Indexers use the Graph agent to define rules of how he/she is going to index the subgraph. The Indexer can choose how to spread his allocations across all the subgraphs he/she is indexing. The size of the allocations should be based on some consideration of how much signal Curators are providing to it. While no new code has to be written for an allocation, Indexers do have to perform these actions via CLI commands. Once more subgraphs move over from the hosted service, Indexers will need to choose which strategies they scale up their operations with, e.g. only index on select subgraphs, automatically index subgraphs that meet certain requirements (via the agent features), or custom automation implementations.
GRTiQ: What happens after an Indexer indexes a subgraph? Do Indexers have to notify someone or make an announcement?
Staking Facilities: Once the subgraph is indexed, it is ready to be used by anyone. Indexers do not necessarily notify anyone, they basically provide the means to access the data. For developers/projects, it is even possible to run their own indexing node so that the data is immediately available before it gets decentralized across more. Going forward, it could prove to be highly valuable for subgraph developers and the Indexer community to communicate through a main medium such as discord or The Graph forum. This way, if a subgraph is updated or changed, Indexers could be notified and quickly switch to the new version so that it is indexed pretty much right away. Another good resource to look for subgraphs is The Graph explorer.
GRTiQ: Is it expensive to be an Indexer? For example, how much GRT is required to Index?
Staking Facilities: Indexers need to provide professional infrastructure – either bare metal hardware (which we use) or cloud instances. The infrastructure will need to be capable of serving an increasing amount of query traffic and power the means of indexing the data that you’ll be providing, which can be very computationally demanding.
Furthermore, you need access to an Ethereum archival node. For that, you can either run your own node (or multiple, which we recommend for redundancy and failover purposes), or you can pay for access to an endpoint from one of many providers, which will likely prove to be more expensive in the long run.
Additionally, there is the economic requirement of staking at least 100,000 GRT to spin up an Indexer. The biggest cost factor, however, is manpower. To run systems like this, you need to hire (or be!) experienced in all aspects of systems administration and operations. Indexer ops also need to be engaged and educate themselves on the huge unique scope of Graph node management itself. Human resources that a) know how to securely operate and scale this level of infrastructure and b) know the ins and outs of The Graphs’ complex economics, are rare and valuable unicorns.
GRTiQ: Do we have this right? Indexers split Query Fees with Curators, who signal subgraphs, and then split Indexing Rewards to Delegators?
Staking Facilities: Almost – we split both, Indexing Rewards and Query Fees with our Delegators. However, 10% of Query Fees are paid to Curators beforehand. We then take a cut of indexing rewards as well as query fees from all the subgraphs we index and pass the rest on to our Delegators. These then share the rewards and fees proportional to the share of GRT they delegated to us.
Curators directly stake their GRT by depositing them into the subgraphs’ bonding curve (a process called ‘signaling’). Curators earn query fees from all the subgraphs they signal irrespective of which particular Indexer serves the queries at any given point in time. This Twitter post by Stake Machine, a fellow Indexer, provides a nice overview of rewards and fees.
GRTiQ: How would you describe the relationship between Indexers and Curators? For example, how do Indexers determine which Curators to work with?
Staking Facilities: We haven’t had a chance to see this play out in the wild, yet. However, we do believe that Curators are most likely going to provide a kind of hive-mind effect on signal behavior. There might be a few players that are more committed and maybe even work as a curator full-time, but this does not necessarily mean that their voice is the only one that counts. Indexers may not necessarily differentiate based upon who signaled, but much rather upon how strong the signal is. So we believe that Indexers will most likely look at Curators and their actions, as a group, rather than individually, at least initially.
GRTiQ: How would you describe the importance of a committed and educated Delegator Community to The Graph and, more specifically, to Indexers?
Staking Facilities: Given the fact that Indexers, Curators, and Delegators are in a sort of symbiotic relationship, it is quite important that any party of this relationship is well educated and committed so that synergies can be achieved. Delegators need to be able to differentiate between ‘good’ (secure & performant) and ‘bad’ indexers so that ‘good’ ones can proliferate and the whole network can thrive. Delegators should also look at many different metrics when choosing an Indexer. They can foster decentralization by spreading their GRT to different, highly performant, and engaged Indexers.
Committed and well-educated Delegators are essentially responsible for their own kind of curation – signaling towards a strong set of Indexers. Which hopefully results in a more secure, more performant, and more valuable network. This is by all means not an easy task, as there are many different things to consider and lots of information needs to be processed in order to make solid choices.
Going forward, we would love to see some sort of Indexer reputation system to be put in place for Delegators to include in their decision-making process. Initiatives like GRTiQ are also a great resource for the Delegator community.
GRTiQ: The Graph is often discussed in the context of Web 3.0. How would you describe Web 3?
Staking Facilities: Web3 is the next evolution of the internet. First, we had the ‘read-only’ Web1 with static websites and limited usability. Then we saw the emergence of the ‘read-and-write’ Web2 (the current internet), in which we saw user-generated content, social networks, and e-commerce. Due to the client-server architecture of Web2, we witnessed privacy issues, data breaches, and the rise of powerful platform monopolies with an ever-increasing discrepancy between value-creation (through the networking of humans, machines, and information) and value-capture (by intermediaries/platform operators that control the infrastructure). Cryptography and game theory, used in blockchain networks, allow for an alternative to the current architecture of the internet. One that is powered and secured through decentralized infrastructure. Blockchain technology provides a “clearinghouse” and settlement layer to the internet, overcomes single points of failure, allows for digitally-native assets, as well as collaboration and coordination on a global scale. The Graph is going to help a lot of products and services move away from the centralized Web2 to the decentralized Web3.
GRTiQ: When you think about the future of The Graph, what do you envision?
Staking Facilities: With the diffusion of Web3 accelerating by the day, more users are entering the industry. Building products and services that cater to their needs, leverage the benefits of blockchain technology, and at the same time offer the seamless UX we are used to from Web2, is a challenging task for developers and entrepreneurs. With The Graph now providing a decentralized indexing and query layer, they can focus on building the actual products and services without having to worry about the overhead of making blockchain data available and usable. This accelerates the building process of Web3 products and services, which in turn attracts new users, additional capital as well as talents. We see The Graph as an accelerator for the diffusion of Web3 and envision a future in which The Graph plays a crucial role in building out a natively digital and decentralized economic system that is more just and accessible to all.
GRTiQ: What are sort of challenges does The Graph face that the Delegator Community should be aware of?
Staking Facilities: Given the unique offering of the network as well as the overall industry, several challenges need to be addressed/dealt with in the months and years ahead. We might see Graph competitors entering the space, regulators challenging the business model of different stakeholders of the network, or technical risks such as bugs and exploits unfolding.
GRTiQ: What’s the next big thing the Delegator Community should be watching for regarding The Graph?
Staking Facilities: An on-going event for the next few months will be the transition of subgraphs from the hosted service to the decentralized network. Indexers will then need to more carefully choose which subgraphs they allocate to, and how much GRT they allocate, in order to most efficiently serve the networks’ queries. This is where the role of Curators will become increasingly important. This ultimately affects the profitability of the Indexer and his/her delegators and marks an important process for the whole network. Furthermore, the integration of several other layer-1 protocols such as Solana or Polkadot is going to be interesting for any kind of stakeholder of The Graph network. The integrations will massively expand the overall Graph community and different ecosystems will get more exposure to each other.
GRTiQ: Lastly, are there any common misunderstandings about The Graph and/or Indexers you would like to address?
Staking Facilities: Currently, one can sometimes observe a sort of tribalism between Indexers and Delegators, usually stemming from certain challenges each group faces. However, it’s important to remember that The Graph is young, improving every day and working through these many challenges.
For The Graph’s ecosystem to thrive and proliferate, the different stakeholders need to have a symbiotic, beneficial relationship and also be understanding and considerate of the perspectives of each group.
Let’s all work together for The Graph to reach its full potential!
Staking Facilities is based in Munich, Germany. The company’s mission is to “develop industry standards for convenient staking with compelling project selection while retaining outstanding security standards.” Staking Facilities has written a very popular guide for individuals who want to know how to Delegate GRT with The Graph, titled “The Graph Delegator CheatSheet.” You can view Staking Facilities’ Indexer information for The Graph here.
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DISCLOSURE: GRTIQ is not affiliated, associated, authorized, endorsed by, or in any other way connected with The Graph, or any of its subsidiaries or affiliates. This material has been prepared for information purposes only, and it is not intended to provide, and should not be relied upon for, tax, legal, financial, or investment advice. The content for this material is developed from sources believed to be providing accurate information. The Graph token holders should do their own research regarding individual Indexers and the risks, including objectives, charges, and expenses, associated with the purchase of GRT or the delegation of GRT.