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Web3Tokenomics

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

Stephanie Dunbar, Mihai Grigore, Tulip KingNov 15, 2022 ⋅ 10 min read

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.

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Stephanie Dunbar
sunnydece

Stephanie graduated with a BSc in Psychology and began her career in startup operations and consultancy. Prior to joining Messari, she specialized in crypto technical communications. She was an early member of Messari's Diligence Team with ownership over product design, project management, and research quality. She produced and oversaw professional cryptoasset due diligence reports and helped scale the team to 20+ members. On the Enterprise Research team, Stephanie is best known for her work on validator decentralization, scaling, and the modular blockchain landscape.

Mihai Grigore
tech_metrics

Mihai is Director of Research at Messari. Mihai leads Protocol Research, covering base layers, mid-layer infrastructure, DeFi, and consumer apps. Prior to joining Messari, Mihai was a tech entrepreneur and worked in AI at UBS and Swiss Re in Zurich. His background is in computer science and math. Mihai holds a PhD in information systems from ETH Zurich, Switzerland

Tulip King
0xTulipKing

The Tulip King is a full time data engineer and a part time degen. His primary interest in crypto is in creating tools that empower the individual. Outside of crypto he loves to be outside and listen to music.

Mentioned Assets
Outline
  • Key Insights
  • Fee Market Design at the Base Layer
  • Fee Market Design at the App Layer
  • The Livepeer GPU Compute Network
  • Initial Implementation of the Livepeer Fee Market & Transaction Flow
  • Evolution of the Livepeer Fee Market
  • Takeaways for Service-Oriented Networks
  • Conclusion
Authors
Stephanie Dunbar
Stephanie graduated with a BSc in Psychology and began her career in startup operations and consultancy. Prior to joining Messari, she specialized in crypto technical communications. She was an early member of Messari's Diligence Team with ownership over product design, project management, and research quality. She produced and oversaw professional cryptoasset due diligence reports and helped scale the team to 20+ members. On the Enterprise Research team, Stephanie is best known for her work on validator decentralization, scaling, and the modular blockchain landscape.
Mihai Grigore
Mihai is Director of Research at Messari. Mihai leads Protocol Research, covering base layers, mid-layer infrastructure, DeFi, and consumer apps. Prior to joining Messari, Mihai was a tech entrepreneur and worked in AI at UBS and Swiss Re in Zurich. His background is in computer science and math. Mihai holds a PhD in information systems from ETH Zurich, Switzerland
Tulip King
The Tulip King is a full time data engineer and a part time degen. His primary interest in crypto is in creating tools that empower the individual. Outside of crypto he loves to be outside and listen to music.
Mentioned Assets