Comparing Indexers
Assessing Effective Cuts to Compare Indexers.
The raw protocol cuts that Indexers display on The Graph Network cannot be used to compare Indexers directly with each other. In practice, this could mean that there are two indexers offering both a reward and query fee cut of 80% but their Delegators earn entirely different delegation rewards.
Let’s have a look how you can use effective cut percentages to better compare and evaluate Indexers in the following guide!
Understanding Effective Cuts.
The only cuts that can be compared equally are the effective cuts, since they are basically “normalized” for Delegations, which means that they are basically the cuts applied to the delegation pool.
This is how a negative cut influences an Indexer’s profit margin:
Effective Cuts Explained with a Practical Example.
If the indexer has 20 GRT staked, and 80 GRT delegated, his total stake would be 100 GRT, and let’s assume it’s fully allocated, so the full 100 GRT are currently generating rewards.
Let’s also assume that every 1 GRT staked generates 1 GRT in our math (in practice the numbers would be much smaller, but the ratios still match up). With all these assumptions, let’s check the case where our fellow indexer has a 10% reward cut, and how that translates to effective reward cut.
Our total daily rewards generated is 100 GRT (as per assumptions), with 20 GRT generated by the indexers own stake, and 80 GRT generated by the delegated stake.
Our indexer has a 10% reward cut, which means that he gets to keep 10% of the total amount of GRT generated. Since the total rewards were 100 GRT, he keeps 10 GRT, and gives 90 GRT to the delegators (Delegation pool). The delegation pool then distributes the rewards proportionally to every delegator in the pool based on it’s amount of shares of the pool.
If we then wanted to know the actual effective cut that the indexer applied, we can proceed to calculate based on it’s description: If the effective cut represents how much the indexer is taking from what the delegated staked generated as rewards, and our delegated stake generated 80 GRT (100%), but received 90 GRT (112.5%), then the effective cut is the difference between the percentages -> 100% – 112.5% -> -12.5%
Example of a Positive Effective Cut.
Continuing on the example of effective cut, we could then check the positive effective cut scenario. Using the same scenario (20 GRT + 80 GRT):
But with 40% reward cut we can then see that:
Let’s change the first examples’ ratios.
Scenario: 10% reward cut, same as the original scenario, but indexer now has 5 GRT and the delegated stake is 95 GRT. The sum is still 100 GRT, and we assumed the same about the rewards.
With 10% reward cut we can then see that:
