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This paper presents GeoGrid, a geographical location service overlay network system, for providing scalable location-based services to a large and growing number of mobile users. GeoGrid is designed as a decentralized and geographical location aware overlay network and provides system-level facilities and optimizations for balancing load in the presence of node heterogeneity, dynamically moving hot-spots (location queries), and unpredictable rate of node join, departure and failure. GeoGrid uses geographical mapping of nodes to regions and geographical proximity based routing to take advantage of the similarity between physical and network proximity. Furthermore, GeoGrid exploits multiple opportunities for dynamic workload adaptation in the presence of static hotspot queries and moving hotspot queries. Its dynamic load balancing algorithms can efficiently utilize the heterogeneous capacities of end systems and balance both the location query workload and the routing workload. Our initial prototype development and experimental study demonstrate that GeoGrid can effectively reduce the workload imbalance by an order of magnitude.