Livepeer is a video infrastructure network that enables developers to access capabilities, such as video transcoding, which are necessary to create live streaming applications with high reliability and affordable pricing, at scale. The Livepeer Token (LPT) is an Ethereum ERC-20 token issued by the network to provide security, route work, and incentivize active participation in the various roles required for the network to operate.
For an introduction to Livepeer at a high level, check out this great visual primer. For a full overview of the details behind these incentives, view The Livepeer Whitepaper and the Streamflow Scaling Update Paper, which also touch on many areas related to delivering a high quality video infrastructure, beyond just the token based economic incentives. This post lays out a condensed version of the economic incentives behind LPT and Livepeer network participation.
An economic summary of Livepeer and LPT
- Users stake LPT in order to secure the video transcoding work performed on the Livepeer network.
- Users who stake LPT earn inflationary LPT rewards from the protocol, and network fees paid in ETH from the video applications that use the network.
- Users who run Livepeer nodes and hardware infrastructure are called Orchestrators, and they perform valuable video encoding work.
- Users who wish to delegate their stake towards an Orchestrator to do the work on their behalf are called Delegators.
- Each round (day) the protocol mints new inflationary LPT according to the InflationRate. This is roughly distributed proportionally to users who stake. Except Orchestrators declare a RewardCut %, which is the % of their delegators’ rewards that they keep as a commission for running the infrastructure.
- Fees that are earned by an Orchestrator get distributed to Delegators in proportion to stake as well, except for the FeeCut that the Orchestrator declares.
- Typically you see FeeCuts approaching 90%, meaning that the Orchestrator keeps most of the fees for doing the work. But you see RewardCuts much closer to zero, meaning that LPT rewards get distributed proportionally.
Orchestrator’s compete on these values, the fees that they earn, and reliability to attract Delegators.
- The opportunity to compete for work is divided out in rough proportion to the amount of stake on an Orchestrator — hence the more stake, the more security against the work performed, and the more access to potential fees. Note: Geography, reliability, and performance are also inputs into the work distribution so it’s not purely based on stake/security.
- If an Orchestrator deliberately mis-encodes a video and fails blockchain-enforced verification, then they and their delegators can be slashed. Note: Slash amounts, verification functions, and delegator slashing are subject to governance and protocol iteration.
- Inflationary LPT is not distributed to those who do not stake on the network. These holders are being diluted via their non-participation. Inflationary LPT can be viewed as an ongoing token distribution which increases access to future work amongst those who are actively participating and contributing value to the network.
- The InflationRate increases or decreases each day by InflationChange, depending on whether fewer or more than ParticipationTarget % of tokens are staked on the network. See this post for more details.
- At the time of publication, ballpark values related to inflation are that the InflationRate is approximately 12%, resulting in an approximate 20% yield to stakers because the inflation is distributed across only 58% of the network that is staked. Because the ParticipationTarget is set to 50%, and the participation rate is higher than that, the InflationRate is falling by the InflationChange of 0.00005%/day.
- If a user wishes to unstake, they have to wait for the UnbondingPeriod number of days before they can withdraw. This value is currently set to 7 rounds (days). This creates longer term alignment amongst those who participate in the network. If they cause harm to the network, they can not access their LPT to exit in a short timeframe. Instead, all stakers are most aligned and incentivized to make the network highly useful for video transcoding.
- LPT stakers also have the ability to participate in the decentralized governance process to update the protocol code and parameters. Anyone can pay a 100 LPT fee to submit a proposal, and if it adheres to the Livepeer Improvement Proposal process, and passes a stake-weighted on-chain vote which meets quorum, an update will be made to the protocol or governance process.
Here is a view of the Stakingrewards.com LPT staking calculator at the time of publication, showing the rewards, yield, and network share increase from staking 100 LPT:
The economic incentives on the network are designed to encourage participation, long term alignment, and secure quality of service for the world’s open video infrastructure. To date, they’ve bootstrapped an initial supply side network of 50+ orchestrators and thousands of GPUs avaialble to transcode video, which have grown their network ownership through inflationary LPT, and began to earn thousands of dollars worth of ETH which have been paid into the network via fees. It is still early days, but the fees continue to rise each week as mainstream video applications begin to adopt Livepeer as their infrastructure.
The balance between rewards and fees will shift over time as usage on the network rises and the network effects set in. And the community can use the open, decentralized governance mechanism to come to consensus on modifications to these incentives along the way if it’s determined that is what is required to enable a scalable video infrastructure. Unlike Bitcoin, where a goal may be predictable economic policy, in Livepeer the goal is the disruptive utility of the underlying network.