A Primer on Livepeer’s Probabilistic Micropayments
Network node operators — we call them orchestrators — are what keeps the Livepeer network running. Their work is what allows Livepeer to continue to hit all-time highs when it comes to minutes of video processed each week. So it’s essential that orchestrators are amply incentivized and rewarded for their contributions.
It’s worth explaining, then, the innovative, probabilistic payments architecture Livepeer has developed for this purpose. While its design can seem counterintuitive at first, ultimately it is designed to strengthen Livepeer’s overall ecosystem and to ensure orchestrators are properly rewarded.
First the basics.
Video transcoding and other Livepeer services to streaming app developers are provided by orchestrators in exchange for fees (plus network participation rewards from Livepeer in the form of LPT tokens).
Orchestrators compete for work from these apps on the basis of the prices they charge, along with other variables such as speed, quality, geography, etc. Node operators also adjust charges according to the prevailing gas levy — the demand-driven price for executing a transaction on the Ethereum blockchain.
But there’s more to Livepeer’s payments design. In 2020, Livepeer began to use a methodology called probabilistic micropayments for orchestrator compensation. This means that instead of direct currency payments, orchestrators are compensated for the services they provide with what are essentially lottery tickets, a set number of which are destined to “win” pots of ETH.
But despite the name, probabilistic payments are a world away from scratch-and-win cards.
Broadcasters using the Livepeer network attach a “ticket” to each segment of a video they want transcoded. The final number of tickets that accompany a given stream is a product of the fees sought by the orchestrator for doing the work and the total length of the video processed. In short, each individual “winner” is awarded randomly, but probability dictates that over time orchestrators will be paid the same as if payments were made in a standard, linear way.
And this payment model offers important benefits.
Livepeer turned to probabilistic micropayments as a way to blunt the impact on orchestrators of fluctuations in gas prices and thus help keep services affordable for broadcasters. A probabilistic payment structure is also both anonymous and free from the intervention of third parties such as banks.
Another advantage of probabilistic payments relates to the Wei, the base unit of Ethereum, which is what orchestrators use to set their fees. This granular unit allows orchestrators to set their price per pixel of video processed, meaning that they can earn more for encoding high resolution streams and outputs. For example a 4K video contains four times the pixels of a standard 1080p HD output, so the orchestrators charge four times as much. With the wei-based pricing and the PM mechanic in place, orchestrators do not need to worry about submitting transactions that end up costing more than the amount they are earning.
There are times when the flow of payments to orchestrators may appear lumpy or erratic. One reason for this is that the ratio of winning tickets in a pay-out will inevitably vary somewhat. Over the longer run, however, the laws of mathematics dictate that orchestrators will end up being paid accurately for the services provided.
After all, Livepeer is designed to offer the best possible experience to video app developers as well as to the orchestrators that keep the network running. To do that, Livepeer has employed some innovative technical and economic concepts — of which an important example is the probabilistic payments architecture. And while it may not be intuitive at first glance, and other solutions may be available down the line with layer two scaling options, we are confident that it offers a solution for all of Livepeer’s participants, that scales on Ethereum today.
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