Choosing Profitable Indexers — Graph Delegation Tutorial
In the following in-depth tutorial, we will discuss everything you need to know about selecting high-quality indexers on the graph network. Both newcomers and experienced members of the Graph community will benefit from this tutorial series. Once we have covered the basics, we take a deep dive into the various strategies you can apply when it comes to selecting and comparing indexers. Even more so, we will discuss the most helpful tools you can use in order to meet intelligent delegation decisions.
Let’s jump right into it.
In order to delegate, you will first have to choose an indexer from the network page of the Graph protocol. But what is this site all about? Let’s have a look at what you can learn from the network page.
First of all, the network page shows you the most important stats about the network. Such as the total token supply, the amount of GRT that is presently staked and the amount of indexing rewards that have been earned so far.
If you scroll down, you can see a huge list of all the available indexers you can choose from.
Description of the most important metrics
Let’s have a look at the most important metrics you can use to gain a quick overview of the indexers.
Fee and Reward cut Percentages
First of all there is the fee and reward cut percentages. When scrolling through the list of indexers, you will notice that the percentages vary to a great degree.
Basically, the percentage tells you how much of the rewards earned with your delegation are kept by the indexer. An indexer with a fee cut of 20% keeps a total of 20% for themselves. This means that if your dedicated stake earns a total of 100 GRT within a week of staking, the 20% indexer will keep a total of 20 GRT for themselves.
As a general rule of thumb, indexers with a fee cut of 100% are not interested in taking delegations from delegators. Consequently, you should not delegate to these indexers.
Stake owned and delegated
Next, let’s have a look what the metrics stake owned and stake delegated mean.
Within the stake owned column you can see how many GRT are deposited by the indexer as collateral to prevent malicious behavior. Should an indexer behave in a harmful way, a percentage of his owned stake will be deducted as punishment. The higher the collateral, the more is at risk for the indexer.
In the next column, stake delegated you can see the amount of GRT that is delegated to one particular indexer. In the image, you can see that 238 million GRT are delegated to the very first indexer in the list. This means that community members think that this is a highly trustworthy and profitable indexer and have subsequently delegated a large amount of GRT with this indexer. We will see in the following why this analysis could be superficial.
What is important for you to analyze is whether or not the stake owned by an indexer is smaller than the stake delegated to this indexer. If the stake owned is actually smaller then the indexer is overdelegated. This means that the amount of GRT delegated to this indexer is higher than the stake owned by the indexer. The following is important to note:
If an indexer is overdelegated, your staking rewards are diluted.
This means that it could be more profitable to delegate to an indexer that is not yet overdelegated but has similar stats. More on this later.
Query fees and indexer rewards
Third and last, you can find two columns with stats about the generated revenue of an indexer.
The query fees and the indexer rewards show you how many GRT an indexer has earned so far. These two columns are important if you want to evaluate the activity level of one particular indexer. When doing so, it is important to keep in mind that there may be indexers with attractive rewards cut percentages that are not active for a variety of reasons. Having a look at the earned rewards of the indexer in these two columns with help you to assess how successful the indexer has been in the past.
Congrats! You now have a good overview of the network page of the Graph protocol.
Let’s dig a little deeper. The networks page is useful to gain a quick overview of the available indexers. But in order to meet an intelligent delegation decision, we need some more tools that allow an in-depth analysis of indexers.
Recommended Tools to evaluate indexers
The very first tool I would like to present to you is the website graphlets.io.
If you want to have a quick look at the indexers with the highest historic ROI, then have a look at this site. By sorting indexers according to their past returns, you can quickly gain a feeling about how profitable delegating to a particular indexer could be.
Let’s assume you did your due diligence on the networks page of the Graph protocol and think that the following indexer could be interesting for you:
By coping this indexers ETH address and pasting it into graphlets.io, you can quickly see, that this particular indexer hasn’t made a profit for it’s delegators despite running for 18 days. It’s historic ROI is 0.00%.
That is curious because more than 1.5 million GRT have been delegated to this indexer despite a fee and rewards cuts percentage of 100%. This means that all delegators that have delegated with this indexer are not earning any returns on their dedication. It could be, that this indexer has lured delegators in by offering a low rewards cut percentage and changed it or that this indexer simply does not want to attract delegators. Whatever may be the case, it’s important to stay away from indexers like this.
Here’s a high five for conducting your very first due diligence!
And for having avoided a costly delegation mistake!
As I have already mentioned earlier on, it is also important to evaluate whether or not an indexer is overdelegated. So let’s jump into the next column on the graphlets.io website called “Indexers”. Here you can find a variety of other statistics about all the available indexers. One particularly helpful statistic is the delegation ratio. The higher the ratio the more overdelegated an indexer is.
Let’s assume you went back to the networks page of Graph protocol and came to the conclusion that you think the following indexer could be interesting because of the low fee/reward cut of 15.25%:
So let’s jump back to the graphlets.io website to have a close look at the delegation ratio of this indexer. You may have already noticed that the owned/delegated ratio of 2.0M GRT to 33.9M GRT was a little odd and the graphlets website just confirmed your suspicion! This indexer has a delegation ratio of 17.14, the highest on the entire network. If you choose to delegate to this indexer, your staking rewards will be massively diluted because there are already so many delegators that have chosen this indexer.
Strike! You’ve just learned to avoid another type of indexer
But let’s say you have found an interesting indexer and would like to learn more about this particular indexer. Let’s jump into the next tool I would like to show you:
The oracleminer.com website allows you to gain useful insights on the indexer of your choice. Simply replace the 0x-address in the URL bar with the ETH address of the indexer of your choice.
For example, let’s have a look at Staking Facilities that is presently ranked on the third-place on the network page of the Graph protocol. When you visit the website link above, you will see the following stats:
This website is useful for learning more about how much of the available stake is presently allocated by the indexer. In the example above, more than 100% of the available stake is allocated. This is positive as it means that this indexer is using the entirety of the available stake to earn rewards.
Be sure to avoid indexers that are not allocating their available stake like this indexer:
The third website I would like to show you is thegraph.live. It is comparable to the graphlets.io website but it also offers the functionality of seeing the remaining staking capacity of an indexer. All indexers are capped at their individual maximum capacity. The maximum capacity is calculated based on the amount of GRT they have staked.
If they have reached the maximum capacity, an indexer is not able to accept your delegation. These indexers are highlighted in red on the website. Be sure to avoid these as well.
That’s it for the basics!
Let’s dig a little deeper into the nitty-gritty of evaluating and comparing delegators.
Using delegation reward calculators
There are two excellent spreadsheets you can use to percolate your potential delegating rewards.
The first one by Davaymne calculates your potential daily reward with one particular indexer. All you need to do is fill in the amount of GRT you wish to delegate and the indexers’ stats. I have highlighted the fields you need to fill in purple:
Let’s say, you want to delegate 5000 GRT. According to this calculator, you would earn 5 GRT during each epoch. One epoch equals one day. Here is the link to the spreadsheet.
The second calculator does basically the same but it also takes into consideration the yearly/daily inflation and the total amount of GRT that is being staked on the network.
Here is the link. These two calculators are great for calculating potential rewards with one indexer.
But how do you compare the various indexers with each other?
The available calculators were lacking the functionality of comparing indexers with each other. That’s why I used these calculators as a foundation that a built my own indexer comparison on top.
All you need to do is insert the amount of GRT you want to delegate, the spreadsheet does the rest:
By switching to the reward calculator tab, You can now see an in-depth comparison of all the available indexers. The spreadsheet shows you if an indexer is overdelegated and how many days it will take you to break even (because of the delegation tax of 0.5%).
Previously, it was not possible to compare indexers with this granular position. Thanks to the new spreadsheet, this is now possible. By using the spreadsheet, delegators can now more easily meet delegation decisions. Here is the link. Please note that the calculator is not yet finalized and up to date. I’m in talks with Martin from the Graph team about this. The figures in the calculator are a week old.
If you have any further questions, don’t hesitate to ask in the comments section below!