This guide will explain how to be an effective delegator in the Graph Network, and earn a good return on your delegated stake. A Delegator must use their best judgement to choose Indexers that will do a good job, and provide them with a healthy return, otherwise they could earn very low rewards.
Please note this guide will not go over steps such as setting up Metamask properly, as that information is widely available on the internet. There are three sections in this guide:
- The risks of delegating tokens in The Graph Network
- How to calculate expected returns as a delegator
- A Video guide showing the steps to delegate in the Graph Network UI
Risks of Delegating Tokens in the Graph Network
Listed below are the main risks of being a delegator in the protocol.
The Delegation Fee
It is important to understand that every time you delegate, you will be charged 0.5%. This means if you are delegating 1000 GRT, you will automatically burn 5 GRT.
This means that to be safe, a Delegator should calculate what their return will be by delegating to an Indexer. For example, a Delegator might calculate how many days it will take before they have earned back the 0.5% deposit tax on their delegation.
The Delegation Unbonding Period
Whenever a Delegator wants to undelegate, their tokens are subject to a 28 day unbonding period. This means they cannot transfer their tokens, or earn any rewards for 28 days.
One thing to consider as well is choosing an Indexer wisely. If you choose an Indexer who was not trustworthy, or not doing a good job, you will want to undelegate, which means you will be losing a lot of opportunity to earn rewards, which can be just as bad as burning GRT.!(upload://mOOsizzC62od9ETepai9cLA7A9A.png)
Note the 0.5% fee in the Delegation UI, as well as the 28 day unbonding period.
Choosing a trustworthy Indexer with a fair reward payout for delegators
This is an important part to understand. First let's discuss three very important values, which are the Delegation Parameters.
- Indexing Reward Cut - The indexing reward cut is the portion of the rewards that the indexer will keep for themselves. That means, if it is set to 100%, as a delegator you will get 0 indexing rewards. If you see 80% in the UI, that means as a delegator, you will receive 20%. An important note - in the beginning of the network, Indexing Rewards will account for the majority of the rewards. !(upload://yK0CO2Ae10HbC9092fAvcDcDszt.jpeg) The top indexer is giving delegators 90% of the rewards. The middle one is giving delegators 20%. The bottom one is giving indexers ~83%.
- Query Fee Cut - This works exactly like the Indexing Reward Cut. However, this is specifically for returns on the query fees the Indexer collects. It should be noted that at the start of the network, returns from query fees will be very small compared to the indexing reward. It is recommended to pay attention to the network to determine when the query fees in the network will start to be more significant.
Parameters Cooldown - This value can be seen in the photo
above, one indexer has 13d 2h 37m left until they can change their
Query Fee Cut and Indexing Reward Cut. This is
important, as it indicates how long indexers are locked in to
sharing rewards with delegators for. Here are a few examples of
how it works:
- Set to 0 days - This means that the Indexer can change their Indexing Reward Cut and Query Fee Cut whenever they want. This means they can set it to 10% to attract many delegators, and then once they have maxed out their delegation capacity, they could switch to 100% and keep all the rewards for themselves. The delegators would be stuck earning no rewards, and would have to undelegate, and wait another 28 days to get rewards. This is why it is important to trust the Indexer you delegate to.
- Set to 30 days - This means that the Indexer cannot change their Indexing Reward Cut or Query Fee Cut for 30 days. Which is reassuring to a delegator, it means they are guaranteed to get the amount of rewards stated.
As you can see, there is a lot of thought that must go into choosing the right Indexer. This is why we highly recommend you explore The Graph Discord to determine who the Indexers are with the best social reputation, and technical reputation, to reward delegators on a consistent basis. Many of the Indexers are very active in Discord, and will be happy to answer your questions. Many of them have been Indexing for months in the testnet, and are doing their best to help delegators earn a good return, as it improves the health and success of the network.
Calculating Delegators expected return
A Delegator has to consider a lot of factors when determining the return. These are explained below:
- For a less technical Delegator, they should look at the Indexers total past rewards earned, which can be found in The Graph Network UI. They should consider how long the Indexer has been Indexing as well. You can then make a best guess as to what you would expect their profits to be in the future.
- Then the Delegator should get a sense for the Indexers they are considering to delegate to, and determine if they have a good reputation. The easiest place to check is in The Graph Discord. Here you can even DM Indexers directly, and ask them about how they run their Indexing node.
- A more technical Delegator can look at the Subgraphs that the Indexer is Indexing, and their stake, and do the math to determine what the rewards earned by this indexer will be with the current status of the network. It is possible a new Indexer with a small amount of rewards chooses the right subgraphs, and offers a better return than a more experienced Indexer with more stake
- A technical Delegator can also look at the Query Fees, and determine how efficient the Indexer is with claiming Query Fee Rebates, which are rewarded using the Cobbs Douglas Formula.
- A technical Delegator can also look at the Indexers ability to use the Delegated tokens available to them. If an indexer is not allocating all the tokens available, they are not earning the maximum profit they could be for themselves or their Delegators.
- Right now in the network an Indexer can choose to close an allocation and collect rewards anytime between 1 and 28 days. So it is possible that an Indexer has a lot of rewards they have not collected yet, and thus, their total rewards are low. This should be taken into consideration in the early days.
Considering the Query Fee cut and Indexing Fee Cut
As described in the above sections, you should choose an Indexer that is transparent and honest about setting their Query Fee Cut and Indexing Fee Cuts. A Delegator should also look at the Parameters Cooldown time to see how much of a time buffer they have. After that is done, it is fairly simple to calculate the amount of rewards the delegators are getting. The formula is:!(upload://goKAfPGBriczELddtS4r4f2w1VH.png)
Considering the Indexers Delegation Pool
Another thing a Delegator has to consider is what proportion of the Delegation Pool they own. All delegation rewards are shared evenly, with a simple rebalancing of the pool determined by the amount the Delegator has deposited into the pool. This gives the delegator a share of the pool:!(upload://mZoFEVeA8jcyEdmNAvZjTPk71yj.png)
Using this formula, we can see that it is actually possible for an indexer who is offering only 20% to delegators, to actually be giving delegators an even better reward than an Indexer who is giving 90% to delegators. An example follows:
Indexer 1 offers 20% to delegators. They have 29,000,000 of their
own stake and 1,000,000 Delegated stake
- Indexer 1 earns 10,000 GRT in rewards, so 2000 GRT is rewarded to Delegators
- Therefore, every 1000 delegated tokens earns 2 GRT
Indexer 2 offers 90% to delegators. They have 3,000,000 of their
own stake and 27,000,000 Delegated staked
- Indexer 1 earns 10,000 GRT in rewards, so 9000 GRT is rewarded to Delegators
- Therefore, every 1000 Delegated tokens earns 1 GRT
A delegator can therefore do the math to determine that the Indexer offering 20% to delegators, is offering a better return.
Considering the Delegation Capacity
Another thing to consider is the delegation capacity. Currently the Delegation Ratio is set to 16. This means that if an Indexer has staked 1,000,000 GRT, their Delegation Capacity is 16,000,000 GRT of Delegated tokens that they can use in the protocol. Any delegated tokens over this amount will dilute all the Delegator rewards.
Imagine an Indexer has 100,000,000 GRT delegated to them, and their capacity is only 16,000,000 GRT. This means effectively, 84,000,000 GRT tokens are not being used to earn tokens. And all the Delegators, and the Indexer, are earning way less rewards that they could be.
Therefore a delegator should always consider the Delegation Capacity of an Indexer, and factor it into their decision making.
Video Guide for the Network UI
This guide provides a full review of this document, and how to consider everything in this document while interacting with the UI.