Importance of Data for UX
Data and the infrastructure behind how it is accessed and managed has enabled the user experience we have come to expect from applications/websites today: feature rich, dynamic, and fast — to such a degree that it has become the lifeblood of applications, orchestrating data sources and microservices to deliver differentiated value and a frictionless experience.
The critical importance of data has compounded over the years; from being an added bonus to now a core facet of their design, applications have shifted from a monolithic architecture to a service-oriented framework enabled by APIs. The growing architectural dependence on data led to what we now know as the API economy, a term coined by Gartner in 2016, and has given way to new business models that not only leverage data but offer it as their sole product. Examples of which include Twilio and Plaid, who use a Data-as-a-Service (DaaS) model to enable access to private/proprietary data and have become a critical component of the worlds most used applications.
While data has been essential in the experience of application end-users, the models through which that data is procured has been instrumental to the experience of entrepreneurs building those applications. To explore the benefits of DaaS models, and the broader Function-as-a-Service (FaaS) movement, it is useful to first touch on the model’s parent enabler, cloud computing.
Benefits of Function-as-a-Service Models
Cloud infrastructure introduced an equalizing impact on the entrepreneurial landscape. Before the introduction of cloud computing, large corporations had a competitive advantage in their ability to leverage their balance sheets to fund on-prem servers and related IT infrastructure, thus enabling higher levels of productivity and the delivery of superior user experiences. During that time, startups lacked the capital backing for such infrastructural assets and were forced to compete on an uneven playing field.
When cloud computing became widely accessible with the launch of AWS’s S3 and EC2 in 2006, it introduced a paradigm shift, one that would level a competitive barrier for startups. At the center of this development was the replacement of a high fixed-cost capital expenditure with a variable-cost structure; this allowed startups to only pay for what they used and removed the need for specialized IT hires who, due to the talent gap, were both hard to find and expensive to retain. Most importantly, it allowed teams to focus on their strengths— on what makes their product/service uniquely valuable — while gaining the benefits of best in class infrastructure to deliver a heightened user experience.
Enter The Graph Protocol
Improvements to the user experience through data access and the benefits of off-loading infrastructure needs (as detailed above through the lens of DaaS models) are some of the core drivers behind a novel protocol called The Graph — allowing teams to be more agile and focus on their core competencies while enabling their (d)apps to leverage data to create engaging, fast, and dynamic application experiences of which users have become accustomed.
The Graph saw an infrastructural pain point amongst crypto teams and an industry-wide bottleneck for UX — the accessibility of on-chain (and decentrally stored) data. After launching in 2018 as a hosted service, The Graph has recently hit a major milestone on their roadmap with the mainnet launch of their decentralized network.
To offer quick and dynamic experiences on par with Web2 applications, teams were forced to build their own indexing servers as well as APIs to power their (d)apps. Like the days before cloud computing, this requirement became a headwind for many teams, absorbing valuable resources (time, talent, and capital) that would have been best focused on their core competencies. Like cloud computing, The Graph came to the rescue, offering an Infrastructure-as-a-Service protocol that not only alleviated this pain point but did so in a decentralized manner. It reduced downtime risk and removed the compromise of vendor lock-in that plagues the current infrastructure-as-a-service market, and in doing so retained the trust assumptions that have become critical for the future of Web3.
Protocol Overview
The Graph is already processing more than 10B queries a month from over 3400 ‘subgraphs’ (APIs) covering a diverse range of Web3 projects (such as Uniswap, Decentraland, and Aragon), powering front ends to offer frictionless application experiences. While many users may not know, most applications they use on a daily basis rely on a series of APIs to power their functionality, without which would be severely diminished (or worse cease to exist entirely). An example that is often used to illustrate this reliance is in the case of Uber, whose use of Google Maps, Twilio, and Braintree APIs for GPS, SMS notifications, and payment process (respectively) are critical to its value delivery.
In fact, the role that The Graph plays in the Web3 ecosystem became acutely apparent in June of 2020, when the hosted service suffered an outage and impacted countless DeFi and Web3 applications. This event also highlighted the importance of decentralization for their protocol if it is to be a reliable piece of Web3 infrastructure.
The protocol is made up of four core stakeholders — Subgraph Developers, Indexers, Curators, and Delegators:
- Subgraph Developers — Teams and individuals who create APIs for a targeted set of on-chain data
- Indexers — Node operators who stake GRT for the right to facilitate the indexing and query processing (via GraphQL) of on-chain data that obtain the highest signal from curators
- Curators — Stakeholders who are incentivized to assess subgraphs and signal (via a bonding curve mechanism) those that are the highest quality and most demanded
- Delegators — Individuals who delegate their stake of GRT to Indexers in order to support the security of the network, signaling the highest quality Indexers through the assessment of several performance parameters such as query fee rates, slashing history, and uptime
While all stakeholders are important, Indexers and Curators serve as the backbone to the protocols coordination engine, driving the value flywheel of lowered discovery costs, reliable access to Web3 data, and scalability.
Token Economics & Distribution
The Graph has successfully designed a decentralized DaaS protocol capable of coordinating a group of stakeholders to provide scalable, reliable, open APIs. At the center of their protocol driving this coordination is The Graph’s native token, GRT. GRT tokens are utilized by the protocol for: (1) economic security via the required staking of GRT (‘skin in the game’) by Indexers and Curators for the right to perform services, (2) paying for query fees, and (3) incentivized coordination across the following functions:
- Incentivizing Indexers to provide quality services with query fees and network rewards (from new GRT issuance) along with the risk of having their stake slashed
- Incentivizing Curators to lower the discovery cost of the highest priority subgraphs via bonding curve markets on each subgraph, entitling Curators to a portion of future query fees
- Increasing security of the network via stake delegation from Delegators who receive a proportion of the delegatee Indexer’s query fees (defined by each individual Indexer)
Staked GRT from Indexers, Curators, and Delegators are subject to a thawing period. While only Indexers can have their stake slashed, Curators and Delegators incur a deposit tax to disincentivize poor decision making. For more details on The Graph’s token economics see part-1 and part-2 of their in-depth overview.
The Graph’s public sale of its GRT token (priced at $0.03 per token) was a $12M offering to the community, representing 4% of the total token supply, and was allocated to over 4500 individuals spanning more than 90 countries. Total token supply at launch was 10B with an inflation schedule of 3% annually (subject to future governance). The sale was limited to non-US residents who passed KYC requirements.
The Graph optimized its sale for broad distribution, capping individual purchases to $1000 — $5000 USD per registrant, targeting community members who intended to participate in the network as one (or more) of the stakeholder-types (detailed above). Split into three phases over three separate days, the sale was designed as follows:
- Phase 1: During this phase prioritized registrants, as defined by their contributions to the community, were allowed to purchase up to their individual caps
- Phase 2: During this phase, all registered participants were allowed to purchase up to their individual caps
- Phase 3: This phase was not guaranteed but was reserved in case there was an excess amount left over from the first two phases, allowing individuals to purchase the remaining allocation
Future of The Graph
Initial use-cases for The Graph have been predominantly centered around less-core functions such as accessing data for reliable real-time analytics to be displayed on application front ends and dashboards. However, as the development of subgraphs accelerate, we’ll see a diverse ecosystem of data bloom, compounded by the integration of additional layer-1 blockchains, to support a new wave of unstoppable applications — applications that will be able to offer use-cases such as undercollateralized loans enabled by dynamic reputation scores, a combinatorial metric derived from user behavior data across dapps on every blockchain (that will put traditional credit scores to shame), made possible via subgraphs.
While The Graph’s starting focus has been around blockchain data and will be well-positioned as Web3 adoption grows (along with the amount of on-chain data), that focus, as mentioned by The Graph’s founder Yaniv in several interviews, is simply a means to an end. It was a strategic decision to find early product/market fit and network effects in the ‘lowest hanging fruit’ user base of existing crypto projects & hobbyists, validating the model before expanding into other types of data. That potential can be best examined through the lens of open data and its current challenges.
Open data, as defined as data that is accessible physically as well as monetarily (free or minimally extractive), has been an increasingly important topic of research. Forecasted benefits of open data include improving economic development/job creation, enabling new solutions, allowing for faster cycles of innovation, and offering more informed decisions. As open data initiatives have begun to substantiate those forecasted benefits, they have also exposed key challenges of which coordination is a leading concern. Unlike private/proprietary data, the accessibility of public data requires higher levels of coordination and lacks the monetization strategies that private data offers to incentivize its development and quality of ongoing management (accessibility).
By utilizing The Graph’s ability to incentivize coordination of functions needed to make open data accessible (affordable access, reliable usage, and lowered discovery cost of quality data), our society can access the value potential of open data. Just as The Graph unlocked the utility of on-chain data and allowed Web3 projects to operate on a more even playing field, unlocking the value of open data more broadly can lower the competitive barrier for any startup, non-profit, or SMB without the resources (time, talent, and capital) to develop/manage/curate reliable data sources needed to achieve their solution’s own potential.
To take the thought experiment a step further, we can envision the integration of encrypted computations into the protocol; allowing for a competing monetization model in which to incentivize open access to private data and to put centralized coordination (Plaid and Twilio) head to head with decentralized coordination. While far from an easy challenge, if successful, The Graph may just become a critical piece of infrastructure for coordinating accessibility (discovery, access, and ongoing management) of all types of data across the public/private continuum.
Special thanks to Spencer Noon (Partner at Variant Fund), Eva Beylin (Director at The Graph), and James Waugh (Community Manager at Near Protocol) for providing feedback on this post.
Follow me on Twitter @Zachchao
