The Graph (GRT) Investment Analysis and Review

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The Graph (GRT) is a decentralized indexing protocol that provides developers with a query language to easily retrieve and analyze blockchain data. It operates on several major networks, including Ethereum, Polygon, and Avalanche. The Graph is used by developers building decentralized applications on blockchain platforms to efficiently access and query blockchain data for various purposes.

Key Fundamental Data

Daily Active Users (DAU): The Graph currently records roughly 600 daily active users, a significant decline from earlier in the year when DAU figures were around or above 10,000. However, despite this drop in DAU, The Graph’s overall engagement remains strong. According to Messari’s Q2 ‘24 report, The Graph handled over 2.9 billion queries—an 84% increase from 1.6 billion in Q1 ‘24. This substantial jump in query volume suggests a growing level of user engagement across the network.

Fees and Revenues: The Graph generates revenue primarily through two streams: indexing rewards (supply-side) and query fees (demand-side) paid by users who query data from the protocol. According to Messari, supply-side revenue decreased by 7% from the previous quarter, totaling nearly $17.6 million in Q2 2024. On the other hand, demand-side revenue saw a significant increase of 160%, reaching an all-time high of $113,000 in the same quarter.

Market Cap: GRT currently has a market cap of $1.3 billion, reflecting a 40% increase from a year ago. However, since March 2024, its market cap has seen a significant decline of 69%. Despite this drop, GRT remains far ahead of competitors like Covalent, which has a market cap of $68 million.

Market Analysis

Who are they targeting? Is this market large and growing?

The Graph is targeting developers and teams building decentralized applications on blockchain platforms. These developers need efficient access to blockchain data for various purposes, such as creating dapps, monitoring smart contracts, and analyzing on-chain activity.

The market for decentralized indexing and querying solutions is relatively new and emerging, but it is expected to grow significantly as more projects and applications are built on blockchains. The Graph is currently the leading protocol in this space, with a first-mover advantage and a large network of projects utilizing its services.

Problem that it solves

When building dapps on blockchains, it is often inefficient to access on-chain data. The Graph solves this problem by providing a decentralized indexing protocol that gives developers a powerful query language. This enables them to effortlessly retrieve and analyze blockchain data, reducing the time and resources spent on building and maintaining their own data servers and indexing infrastructure. Ultimately, this allows developers to ship products faster and focus on the core aspects of dapp development.

Customers

The primary users of The Graph protocol are developers and teams building decentralized applications on blockchain platforms. They use The Graph to efficiently access and query blockchain data for various purposes.

Value creation

The Graph eliminates the need for developers to construct and manage their own data servers and indexing infrastructure, thereby reducing operational costs and allowing resources to be redirected toward core development tasks. (Ship products faster.)

Market structure

While the market for decentralized indexing and querying solutions is relatively new, The Graph has established itself as the leader in this space. It has a first-mover advantage and a strong network of partners and projects utilizing its services.

The Graph’s closest competitor is Covalent, which provides a similar service but on a smaller scale. Covalent has a market cap of $68 million, compared to The Graph’s $1.3 billion.

Market size

The potential market for The Graph is significant, particularly as it continues to expand its services to include more blockchain networks. The Graph currently reports serving over 75,000 projects and handling more than 1.2 trillion queries. (However, this number seems wildly overstated, compared to Daily Active Users above.) Still, the demand for data indexing and querying services like those provided by The Graph is expected to rise.

Regulatory risks

As a pioneer and leader in its space, The Graph is highly susceptible to regulatory scrutiny. Being headquartered in the U.S. further adds to this risk, as the country is yet to establish a clear regulatory framework for cryptocurrencies and blockchain technologies.

However, The Graph’s decentralized nature and focus on providing infrastructure for Web3 development may offer some protection against unfavorable regulations.