The usage of the Livepeer transcoding network went up 13% QoQ in Q3’23, in line with the overall increased demand for decentralized compute.
Livepeer demand-side revenue increased 34% QoQ in USD terms (up 43% in ETH terms).
Revenue from staking rewards went up 33% QoQ in USD terms (up 25% in LPT terms), as LPT issuance rate reached the highest level since the Arbitrum migration in February 2022.
The introduction of the Livepeer Innovators DAO aims to retroactively provide grants to builders on the Livepeer network as well as to support ongoing development efforts.
Primer on Livepeer
Building decentralized video apps like Twitch or TikTok requires heavy infrastructure for video streaming. Based on a user’s bandwidth and device, video content needs to be processed — i.e., transcoded — into viewable formats. While cloud providers like AWS, Google, or Microsoft are commonplace solutions for video transcoding services, they incur high costs.
Livepeer offers an open and permissionless transcoding marketplace — allowing anyone to contribute compute resources and to compete on price. The network is designed to reduce transcoding costs for end users by up to 10x.
Within Livepeer’s decentralized transcoding network, there are three key participants:
Node operators — called "Orchestrators" — route transcoding jobs. The amount of work a node operator can perform is proportional to how many Livepeer native tokens (LPT) it stakes. Node operators earn ETH fees and newly minted LPT rewards.
Transcoders provide compute resources for node operators and deliver transcoded video content. In return, they earn ETH fees.
Delegators stake LPT towards effective node operators to help secure the Livepeer network. Staking is rewarded with a portion of both ETH fees and newly minted LPT rewards.
Beyond transcoding, Livepeer offers a customizable streaming layer on top of decentralized storage networks, e.g., IPFS and Arweave. Simultaneously, Livepeer aims to become the go-to decentralized technology stack for developers integrating video streaming into their apps.
Demand for Livepeer services comes from apps and developers in need of video transcoding and live streaming. For example, decentralized social media (DeSoc) apps, traditional Web2 apps (like TikTok or Twitch), or music streaming apps (like Spotify or SoundCloud) require streaming infrastructure to broadcast content.
Network Usage
Livepeer’s network usage can be gauged by estimating the number of minutes of video transcoded. On September 14, Livepeer announced a change in the methodology for estimating its usage. This change in methodology aims to address the current challenges in estimating the number of transcoded minutes on the Livepeer network, given that this metric is not directly observable on-chain. The previous methodology relied on fees earned by node operators for video transcoding as a proxy for usage. To provide a more accurate estimate of the transcoded minutes, the updated methodology as of September 20 accounts for changes in usage patterns, such as the introduction of VOD transcoding and varying price points. As the usage metric is acknowledged as imperfect but still valuable, the previous data is retained until September 19.
The usage of the Livepeer transcoding network increased 13% QoQ in Q3 2023 after two consecutive quarters of declines. This increase in usage is in line with the overall increased demand for decentralized compute. Simultaneously, symbiotic collaborations such as video transcoding using Storj may have positively impacted Livepeer usage.
Network Revenue
Livepeer's network revenue consists of demand-side and supply-side revenue.
Demand-side revenue comprises ETH fees accrued from transcoding services. Node operators with larger amounts of stake are more likely to receive more transcoding work, which, in turn, results in them earning more transcoding fees.
Supply-side revenue consists of revenue from:
LPT staking rewards (accrued by node operators and delegators), which yields inflationary issuance of the token.
ETH fees for transcoding services (accrued by node operators and transcoders).
The latter doesn’t include ETH fees distributed to delegators, since delegators don’t actively participate in the supply of transcoding services.
Demand-Side Revenue from Transcoding
Fees from transcoding services are paid to node operators in ETH and are further distributed to transcoders and delegators.
As a result of increased usage, Livepeer’s demand-side revenue increased 34% QoQ in USD terms (up 43% in ETH terms). To put this in perspective, Livepeer has been one of the largest revenue contributors to the DePIN sector on a consistent basis and has managed to accrue steady demand-side revenue throughout the past quarters.
Staking Reward Revenue
The Livepeer network distributes staking rewards in LPT to node operators and delegators. To provide transcoding services on the Livepeer network, node operators must stake LPT. A node operator’s stake weight comprises their own tokens and those delegated towards them.
Revenue from staking rewards went up 33% QoQ in USD terms (up 25% in LPT terms). This increase corresponded with a steady increase in the issuance of LPT rewards. It was corroborated by the staking participation rate remaining below the 50% equilibrium threshold, as discussed below.
Staking Participation
The LPT token follows the Stake-for-Access (SFA) model, also known as a work token model. That is, Livepeer requires its node operators to stake the native token (LPT) to perform work on the network.
So far in 2023, the Livepeer staking participation rate — the percentage of the circulating LPT supply that is staked — has stayed below the 50% equilibrium threshold. This drop in staking participation led to a gradual increase in daily LPT issuance from 0.020% in January to above 0.033% in September. The fluctuations of the staking participation rate should not be regarded as an anomaly but as a feature. Livepeer ensures that participation stays balanced around the predetermined target rate of 50% by dynamically issuing LPT staking rewards as follows:
When the participation rate falls below 50% in a given round, LPT issuance increases by 0.00005%.
Conversely, when the participation rate passes 50%, inflationary issuance decreases by 0.00005%.
The dynamic LPT issuance in absolute terms follows the pattern of successive increases and decreases in staking participation. While Q2 2023 saw the lowest participation rate (43%) since Livepeer’s migration to Arbitrum in February 2022, Q3 brought a steady, but moderate increase to 45%. It remains to be seen to what extent the staking participation is set to gradually return to the 50% equilibrium level over the next quarters. Simultaneously, there is a series of forum conversations (here and here) on the opportunity to move the equilibrium level to account for the changing supply dynamics of the Livepeer network.
Qualitative Analysis
Releases
Go Livepeer
Go Livepeer V0.6.0 was released on August 8, 2023. This release introduces a configurable blocklist, enabling Broadcasters to include or exclude specific Orchestrator addresses based on their needs. For example, Broadcasters focusing on video-on-demand may prioritize pricing over performance, or those operating their own Orchestrators might opt to only include their addresses. The blocklist lays the foundation for an open marketplace for selection configurations, anticipating various configurations tailored to distinct use cases. Another significant change would be allowing only active Orchestrators to handle traffic and redeem tickets.
Governance
Livepeer Innovators DAO
Livepeer Innovators DAO aims to retroactively provide grants to builders on the Livepeer network as well as to support ongoing development efforts. Details of the objectives, governance structure, and grant distribution process are outlined in this litepaper, as a continuation of the Livepeer Delta Pre-Proposal.
The Livepeer Innovators DAO is made possible by the Livepeer Delta proposal, which will be put to community vote in early October. If it passes, a protocol treasury will be introduced. It will give stakeholders the ability to direct funding towards public goods that are required for the success of the ecosystem as a whole. This is a key step in the decentralization of the Livepeer network, and it introduces a new utility for LPT. In addition to the allocating and securing work on the Livepeer network, LPT will be used in governance over the sustainable funding mechanisms that power the ecosystem.
Closing Summary
The usage of the Livepeer transcoding network went up 13% QoQ in Q3’23, in line with the overall increased demand for decentralized compute. Livepeer demand-side revenue increased 34% QoQ in USD terms (up 43% in ETH terms). Revenue from staking rewards went up 33% QoQ in USD terms (up 25% in LPT terms), as LPT issuance rate reached the highest level since the Arbitrum migration in February 2022. Moreover, the Livepeer Innovators DAO will work to retroactively provide grants to builders on the Livepeer network as well as to support ongoing development efforts.
While the Livepeer roadmap has been focused on building and scaling video infrastructure, the technology is ready for the Web2 video broadcasting industry to adopt Livepeer. Simultaneously, by embedding with and supporting the Web3 community, Livepeer is focused on developing the tooling and apps to ultimately drive Web3 demand to the network.
This report was commissioned by Livepeer, Inc. All content was produced independently by the author(s) and does not necessarily reflect the opinions of Messari, Inc. or the organization that requested the report. The commissioning organization may have input on the content of the report, but Messari maintains editorial control over the final report to retain data accuracy and objectivity. Author(s) may hold cryptocurrencies named in this report. This report is meant for informational purposes only. It is not meant to serve as investment advice. You should conduct your own research and consult an independent financial, tax, or legal advisor before making any investment decisions. Past performance of any asset is not indicative of future results. Please see our Terms of Service for more information.
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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
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
