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At Bitcoin Market Journal, we invest in crypto tokens as if they were stocks. While there are important differences between the two, we analyze crypto “companies” like traditional companies, and diversify our investments with a mix of both.
Key Takeaways:
- The Graph helps developers get easy access to blockchain data. Its early entry into this specialized space has given it a significant first-mover advantage.
- Demand-side revenue for The Graph has seen a substantial increase, growing by 160% to an all-time high of $113,000 in Q2 ‘24, according to Messari.
- The Graph’s usage has also experienced remarkable growth, with query volume hitting an all-time high of over 2.9 billion queries in Q2 ‘24.
- There is currently no significant competition for The Graph; however, there is still potential for new entrants to challenge its position.
In 2017, three software developers—Yaniv Tal, Jannis Pohlmann, and Brandon Ramirez—found themselves united by a common frustration: accessing data from blockchain networks was incredibly challenging.
They recognized the potential of blockchain technology but found it difficult to extract meaningful information from it. This shared experience sparked the idea for a groundbreaking project called “The Graph.”
They envisioned building a bridge between the vast world of blockchain data and the developers who needed it to create applications. They wanted to simplify the process of querying blockchain data, making it more accessible and efficient.
Initially focused on Ethereum, The Graph quickly gained traction and expanded its reach to other blockchains like Polygon, Avalanche, and Binance Smart Chain. Each new integration brought them closer to a unified platform to pull any data from any blockchain.
A pivotal moment arrived in December 2020 when The Graph launched its mainnet. This achievement marked a turning point, as they successfully decentralized both the indexing and querying processes—something many thought would be impossible.
This launch drew considerable attention from the crypto community, attracting over $69 million in funding through various rounds. Beyond the money, they learned that their vision was not only useful but essential for the blockchain ecosystem.
Today, The Graph is a cornerstone of blockchain infrastructure. It powers countless applications by simplifying access to decentralized data. What began as a solution to their own challenges has evolved into a vital resource for developers looking to innovate in the Web3 space.
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?
Problem that it solves: When building dapps on blockchains, it is often inefficient to access on-chain data. The Graph is a decentralized indexing protocol that gives developers a powerful query language, enabling them to effortlessly retrieve and analyze blockchain data.
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.
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.
Our analysts rated GRT a 3.8 out of 5 for market analysis.
Competitive Advantage
How big is the company moat? Can they defend against competitors?
Technology/blockchain platform: The Graph is built on established blockchain networks including Ethereum, Polygon, and Avalanche.
Lead time advantage: The Graph holds a first-mover advantage and has established itself as the leading decentralized protocol for indexing and querying blockchain data.
Contacts and networks: The Graph's network appears to be well-developed, having landed partnerships with reputable projects such as Chainlink.
Our analysts rated GRT a 4.3 out of 5 for competitive advantage.
Management Team
Does the team have the experience, intelligence, and integrity to make the company great?
Entrepreneurial team: The Graph was created by experienced software engineers Yaniv Tal, Brandon Ramirez, and Jannis Pohlmann, with The Graph being their most successful venture to date.
Industry/technical experience: The Graph has a solid and experienced blockchain team responsible for building and maintaining the protocol. The team comprises different groups, each with a wealth of technical experience.
Integrity: The team has not been involved in controversies and has maintained a clean slate.
Our analysts rated GRT a 3.7 out of 5 for the management team.
Token Mechanics
Is the token design favorable to long-term investors?
Is a token necessary? GRT serves as the utility token for The Graph, where network participants earn GRT, and consumers spend GRT to pay for services.
Value added: GRT does not necessarily introduce a new type of value, as it operates similarly to other utility tokens.
Decentralized: The Graph is primarily governed by the Graph Council, consisting of stakeholders in the network, while the community also has a say in some decisions through The Graph Advocates DAO.
Token supply: GRT has an initial supply of 10 billion tokens, with a yearly inflation rate of 3%.
Public exchange: GRT is listed on major crypto exchanges such as Binance, Coinbase and KuCoin.
MVP: The Graph has been up and running since its mainnet launch in 2020.
Our analysts rated GRT a 3.7 out of 5 for token mechanics.
User Adoption
How easy will it be for the company to grow users?
Technical Difficulty: While The Graph is highly technical, it is specifically tailored to its developer audience. The project has been attracting new customers by maintaining reliability and expanding support for additional blockchain networks, currently spanning over 40 networks.
Halo Effect: The Graph is backed by institutional investors such as Tiger Global Management and Cynegetic Investment Management who have raised over $60 million for the project.
Buzz: The Graph generates a decent amount of buzz on social media, with 337k followers on Twitter and 24k members on its subreddit.
Our analysts rated GRT a 3.5 out of 5 for buzz.
Potential Risks
What risk factors might cause intelligent investors to stay away?
Team: The Graph’s team is transparent and well-known for its technical experience. They’ve also maintained integrity by avoiding controversies.
Financial: The Graph has raised over $69 million in funding, with the latest funding round taking place in 2022. Additionally, around 2 million GRT tokens were allocated to The Graph Foundation. However, The Graph does not publish its financial reports publicly, making it difficult to find detailed information regarding the diversification of their holdings.
Regulatory: The regulatory risks facing The Graph are significant, due to its positioning as a leader in decentralizing blockchain indexing and querying. Being headquartered in the U.S., which lacks a clear regulatory framework for crypto, adds to its risk.
Smart Contract: The Graph's smart contracts have undergone regular public audits by reputable security firms like OpenZeppelin and CertiK. It also operates a bug bounty program offering up to $2.5 million for identifying vulnerabilities.
Traction: While DAU has seen a notable decline, The Graph still maintains strong overall engagement through consistent network usage and query handling. On the other hand, the project’s social media presence is above average, with room for improvement.
Behavioral: Investors are likely drawn to The Graph because of its tangible utility in providing decentralized indexing and querying solutions for developers, as well as its solid fundamentals and potential for future growth and adoption within the blockchain ecosystem.
Our analysts rated GRT a 2.3 out of 5 for risk (Note that for this section lower = better).
Investor Takeaway
BULL CASE: The Graph's first-mover advantage in the decentralized data indexing space uniquely positions it to benefit from the industry's growth. With a reputed 75k projects utilizing The Graph network, it has traction. This is further supported by a significant rise in demand-side revenue in 2024, reflecting growing market demand.
BEAR CASE: Despite its strengths, The Graph faces some challenges. For one, its market cap has experienced a notable drop in 2024, highlighting the high volatility in the market. Additionally, while there is currently no significant competition in the decentralized data indexing space, the possibility of new entrants challenging The Graph’s position remains a potential risk.
Overall, our analysts rated GRT a 3.8 out of 5, based on its first-mover advantage and widespread adoption.
This analysis is to help make you a better-informed investor; it is not financial advice. The future may look different than the past. All investing involves risk; see our investing approach for how we manage risk through diversification. Never invest more than you’re willing to lose, and see losses as learning.