State of Livepeer Q2 2023

Key Insights

• The usage of the Livepeer transcoding network decreased QoQ, down 20% in Q2’23. Its decline was in line with other Web3 infrastructure protocols.
• As a result of decreased usage, demand-side revenue declined 20% QoQ in USD terms (down 32% in ETH terms).
• Revenue from staking rewards remained flat QoQ in USD terms (up 26% in LPT terms).
• The Livepeer community put together a pre-proposal for an on-chain community treasury, aiming to fund public goods.
• Throughout Q2’23, Livepeer improved its video-on-demand service, reduced latency for its streaming service, and introduced token-gating for custom playback policies.

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 with 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 customizeable 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.

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Key Metrics

Performance Analysis

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 the number of minutes of video transcoded.

The usage of the Livepeer transcoding network continued to decrease QoQ, down 20% to almost 26 million minutes transcoded in Q2’23. This decline does not come as a surprise, given the overall decreased usage across other Web3 infrastructure protocols.

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 Livepeer’s usage decreased in line with other Web3 infrastructure protocols, its demand-side revenue declined 20% QoQ in USD terms (down 32% in ETH terms). To put this in perspective, Livepeer has consistently been one of the largest revenue contributors to the DePIN sector and has managed to steadily accrue 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.

Staking rewards grew 26% in LPT terms in Q2 2023. Due to the overall LPT price decrease in USD, the corresponding amount of staking rewards in USD terms remained flat relative to the previous quarter.

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.

Q2 2023 saw the Livepeer staking participation rate — the percentage of the circulating LPT supply that is staked — drop below the 50% equilibrium threshold for most of H1 2023. In April and June, the participation rate fell to 43%, the lowest participation rate since Livepeer’s migration to Arbitrum in February 2022.

This drop in staking participation led to a gradual increase in daily LPT issuance from 0.020% in January to over 0.028% in June. 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%.

Thus, the dynamic LPT issuance in absolute terms follows the pattern of successive increases and decreases in staking participation. It remains to be seen to what extent staking participation, driven by higher inflation, may gradually return to the 50% equilibrium level.

Governance: Delta Proposal

In Q2 2023, Livepeer introduced Livepeer Delta, a pre-proposal to create an on-chain community treasury. The aim of the treasury is to fund public goods such as demand-side contributions to the Livepeer project, attempting to make Livepeer more sustainable in its path to decentralization.

The pre-proposal includes plans to fund the treasury with a proportion of the current LPT inflationary emissions. The treasury will be governed by LPT tokenholders, although its funds will only be disbursed to sub-DAOs directly responsible for funding public goods initiatives for the Livepeer ecosystem. As of the end of Q2 2023, the proposal is still undergoing deliberation by the Livepeer community and has yet to take effect.

As per Messari’s analysis of various economic scenarios, the protocol would need to generate between 229% and 3,437% growth in annual demand-side revenue to compensate for diverted inflation ranging between 1% and 15% respectively. The subsequent community discussions about this pre-proposal will inform the draft of an upcoming fully-fledged Livepeer Improvement Proposal.

Qualitative Analysis

Releases

Livepeer continued to improve the protocol with new releases and updates QoQ:

• In April 2023, Livepeer released a token-gating mechanism. It enables builders to offer customized playback policies to end users, new API modifications for usage analytics, and improvements to asset ingestion pipelines.
• In May 2023, Livepeer’s releases focused on reducing latency for Livepeer’s streaming service, introduced support for WebRTC as an output protocol for live streaming, and introduced multi-participant live streaming (in closed beta) with sub-second latency.
• In June 2023, Livepeer’s releases worked to improve the Time-To-First-Frame for Video on Demand Assets and to enable video content decryption, allowing builders to create private assets.

A full list of releases can be found here.

Ecosystem and Partnerships

Livepeer continued to foster ecosystem initiatives in Q2 2023 by hosting the Livepeer Japan Community Event. It also sponsored other community events such as theAptos community event and Aragon’s DAO Global Hackathon event and partnered with ETHGlobal on the HackFS summit. The inaugural Web3 Media Broadcast Summit, hosted by Livepeer, brought together a diverse group of industry participants to discuss the future of on-chain media in an intimate, conversational setting.

Notable protocol integrations include the social media application Lenster and the DiverseHQ community platform on Lens Protocol. Both Lenster and DiverseHQ leverage Livepeer’s video transcoding and streaming services.

Closing Summary

The usage of the Livepeer transcoding network continued to decrease QoQ, down 20% in Q2’23. As a result, demand-side revenue declined 20% QoQ in USD terms (down 32% in ETH terms). Revenue from staking rewards remained flat QoQ in USD terms (up 26% in LPT terms). The increase in staking rewards in LPT terms corresponded to a gradual increase in daily LPT issuance from 0.020% in January to over 0.028% in June due to the staking participation rate dropping below 50% in H1 2023. A pre-proposal to create an on-chain treasury was put together by the community, aiming to fund public goods such as demand-side contributions to Livepeer.

The Livepeer roadmap is focused on integrating the Livepeer transcoding network further with the Web3 world. In Q2’23, Livepeer improved its video-on-demand service, reduced latency for its streaming service, and released a token-gating mechanism for custom playback policies. By supporting and embedding with the Web3 community, Livepeer has remained focused on developing the tooling and apps that ultimately drive demand to the network.

This report was commissioned by the 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 does not influence editorial decision or content. 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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