Ownership: The Importance of Stake
an Essay by Athsrueas.eth | Thomas Freestone
It was 2020 and the bitcoin bull market was in full swing. All of my telegram groups were going wild - "🚀🚀🚀🚀🚀 WAGMI LFG to the moon!" - and a token I just recently learned about on Coinbase Learn and Earn had just climbed from 25c to 50c overnight. I am beyond thrilled and lock in what I think are unbelievable profits. No more than a week later I was shocked to see the price continue to spike upwards. In the coming year GRT would continue to climb to an ATH of over $2.88. I rode the emotional highs and lows until I came to the realization that I really had no idea what was going on. Why were any of these tokens rising and falling? I had won and lost large amounts of money without really knowing anything about what I was participating in. The details about a decentralized web in the videos I had watched on Coinbase that had originally interested me had become irrelevant in the face of all the rockets and the chance at ballooning my money. I had been very lucky and sold all of my crypto in the middle of what I thought was a correction that turned out to be a constant downturn, the beginning of a bear market, not because I was smart but because I needed the money for a down payment on my first house. I realized that I had almost lost a significant amount of my life savings on a bet placed on a token I knew far too little about. Not only that but I was hitching my wagon to a train without doing anything to ensure it was going to continue moving. I hadn't coded any subgraphs, nor was a really using any of the products that use The Graph. This was perhaps the best sort of wake-up call, one that I felt strongly but did not leave me with any bitterness about the project from great loss.
The Graph Price Chart | Inception - June 2022
I'm not going to speak on The Graph as an investment in a financial sense. To quote graphy, the delightful bot from The Graph's telegram: *"📢 The Graph Foundation would like to remind you to only purchase the amount of GRT you intend to use in the network. GRT is a work utility token designed to be used by Consumers, Delegators, Curators and Indexers. Thank you for helping build this important piece of Web3 infrastructure. *☺️👨🚀🌐👩🚀"
I decided that I wanted to take ownership of The Graph seriously after meeting other members of the community. I credit the leadership of the graphtronauts community for welcoming me in and showing me that there was more to the protocol and the community than just an opportunity to make money (though of course, that is present).
From John Loche's Two Treatises on Government Section 27: "Though the earth, and all inferior creatures, be common to all men, yet every man has a property in his own person: this no body has any right to but himself. The labour of his body, and the work of his hands, we may say, are properly his."
From Brandon Ramirez's AMA on reddit: "My vision for The Graph is that it empowers creators to solve humanity's most pressing problems. Many problems today are not fundamentally technological in nature, but boil down to poorly designed incentives."
The creation of The Graph is rooted in these and related ideas. The very nature of GRT as a work token speaks to the vision and incentive structure put in place to drive ownership of The Graph into the hands of people who are builders. It is the network, the community, the work that is done in our cities to bring people together and coordinate our thoughts that should be invested in. I know of no other Crypto project that is so aligned in this vision of what this new sort of organization should be. I define ownership this way: Being present in your work and taking responsibility for your decisions such that the resulting product has characteristics intentionally placed there.
When the founders created The Graph particular attention was given to the incentive structure. Everything from the messaging from the early team, the protocol code itself, and using a crypto token over a traditional company with stock leads to the encouragement of stake in the ideas of The Graph. To use the protocol you need to have GRT. This is by design and despite several suggestions or calls to allow for alternatives in the billing system the requirement to spend GRT remains. Customers of The Graph have stake in the protocol in the form of a billing account. Stake is probably most obvious to the other participants. Not only do indexers hold a stake in the traditional sense, they also participate in the protocol in such a way that their GRT is at stake. With the next version of The Graph this security system of staking is to be expanded to more participants including delegators.
From left to right: Jannis Pohlmann, Brandon Ramirez, and Yaniv Tal.
Stake is the fundamental feature of the protocol that provides security in the form of an economic disincentive to provide false data. In the future, all data services built on The Graph will utilize this stake system, likely on an individual query or service basis. Each piece of information retrieved on The Graph is planned to have a stake associated with it to contribute to the verification of the authenticity of the information. With all of these together every participant in the network has a vested interest in the improvement, longevity, accessibility, and overall value of the network because all rewards and query fees are paid in GRT. The same can be said for GRT grants given out by the protocol. Again having GRT naturally incentivizes the holder to contribute to the protocol. When one takes full responsibility for one's work, when that work is aligned to a purpose, and when the rewards of the work are tied to the outcomes of the work the trend is towards sustained and concerted progress towards the aim. Even features that at the outset seem like downsides such as the inflation of the token through rewards have a plethora of benefits outside of the stated purpose of supporting indexers. Not least is that as the token is inflated wallets that simply hold the token and do not participate or meaningfully contribute in order to earn more GRT will see diminishing returns while wallets that continuously receive GRT due to contributions to the network and community enjoy magnified returns. This directly incentivizes participation beyond even the natural incentive.
Aligned incentives change the game from swimming upstream to working with the current.
In the current climate of disinterested workers who see little connection between their effort and the rewards of their effort a community like The Graph is even more powerful. Most jobs don't offer stock options or any other form of incentive that is tied to the success of the business. These jobs exist, of course, but for the average person (whose median income tops out at $30,000 annually and drops off significantly from there outside of the United States) the idea that your work might meaningfully contribute to the success of an endeavor *and that you will share in the rewards *is essentially unheard of. Protocols like The Graph don't even need to be altruistic to offer a significant paradigm shift and opportunity for the entire world.
It is impossible to predict outcomes, but that doesn't remove the importance of trying to understand how behaviors and decisions now could impact outcomes in the future. My initial experience with The Graph exemplifies the dangers of a short-term mentality. Caught up in the "get rich quick" frenzy, I prioritized immediate profits over understanding the project's true value. This lack of long-term vision led me to make decisions based on emotions rather than informed analysis. The larger problem was that many people had fallen into the same trap as me, collectively driving the price of the token far above what was reasonable. This unsustainable price interfered with the utility of the token, more broadly the frenzy of activity that occurs during any price run clogs up the public blockchain and is frustrating for those who are wanting to use the network for more practical purposes.
The Graph's value increases as more users and developers participate. By taking a long view, stakeholders are more likely to contribute to the network's growth through building applications, indexing data, and curating high-quality information. The network effect further multiplies all of this, ultimately benefiting everyone with stake. The developers who use The Graph such as Graph Ops are participants with stake themselves who are motivated by profit, despite that Graph Ops provides essential support to budding indexers because they are invested in the success of the network as a whole. In the graphstronauts we like a saying "We rise by lifting others" and this mentality is common in The Graph community. The Graph is offering real benefits to everyone in the form of a more efficient and verifiable backend for all sorts of applications. Reportedly Livepeer is providing a better service at less cost than many cloud services can provide, for example Twich has not been profitable for some time with Amazon propping it up simply to have skin in the game. The decentralized web has many advantages over the centralized one at least in theory now. There are many user experience features that are lacking and truly full stack decentralized solutions do not exist for many of the products modern users of the internet enjoy. Despite these challenges The Graph and Ethereum stand firm in driving towards the vision of a better way and everyone will benefit. I'm excited to be participating.
The Graph presents a compelling alternative to the current landscape of online interaction. By prioritizing long-term incentives and fostering a community built on ownership, The Graph lays the groundwork for a more collaborative and sustainable digital future. As users become stakeholders, a virtuous cycle is created. Contributors are incentivized to build valuable applications and curate high-quality data, ultimately benefiting everyone invested in the network. I am looking toward a future when we make the token invisible and get to a place where the incentive to build and work collaboratively to solve our problems is obvious. Create such abundance of benefit that you can be generous without restraint.