Design Matters: The Case for Fee Markets in Decentralized Service Networks

Key Insights

• As user demand grows, conventional fee market designs in decentralized networks start to show their limitations.
• Fee market mechanisms need to optimize costs for both end users and operators.
• The Livepeer fee market is a good example of efficient service-based fee market design. Livepeer’s fee setting and probabilistic payment structure set it apart from most decentralized service networks.
• Other service-oriented networks can look to Livepeer’s journey when faced with increased usage, scaling challenges, and when developing new protocols.

Imagine being able to negotiate the cost of compute with AWS or agreeing on the cost of live video transcoding with Google App Engine. Be it transaction processing, data querying, or rendering, decentralized networks aim to offer cost-effective commodity goods and services to end users.

Abundant supply relative to demand usually leads to lower prices. By democratizing their supply, decentralized networks take the path of reducing costs for end users; although results ultimately vary based on system design. How do decentralized networks price the commodities they offer? This report explores fee market design with a focus on Web3 service-oriented projects like the Livepeer network.