How Livepeer is Building the Video Infrastructure for the Decentralized Internet

This report is the third in a series of reports about the projects and tokens within the DATA Economy Index.


Livepeer started as a protocol to provide infrastructure for transcoding video livestreams. They make it cheap and easy to build video-based products without requiring your own massive global infrastructure or using expensive cloud services. Livepeer’s video transcoding services experienced have seen 50% quarter over quarter growth throughout 2021. They are now researching other video processing services like automated content detection for categorization or copyright infringement.

What is Video Transcoding?

Video accounts for nearly 80% of all internet traffic. Video codecs allow videos to be easily compressed, making them cheaper to transport around the internet, and transformed into formats that are compatible with all the devices receiving the video. There are many types of video codecs that have been invented and widely used since the early 1970s. Because all codecs can transform videos to standard formats, there is interoperability between different types of algorithms. Each has its own tradeoffs in video quality, computing resources required, speed, and data compression.

Whether you know it or not, you use transcoding everyday.  When you watch a livestream on Instagram, Twitch, Youtube, or any other social media app, the platform is transcoding in the background to make sure the video recorded by one user is viewable by everyone else no matter what device they are using. You have probably even helped the transcoders do their job better without knowing it. If your video was loading slowly and pixelated so you changed the quality settings of a video, you were changing the settings of how the video was transcoded for you. Transcoding makes content creation more accessible and enjoyable across platforms with no additional work needed by the actual creator.

Building Web3 Video Infrastructure

Livepeer creates an open protocol for creating and utilizing transcoding and streaming services. By making it easier to provide these services Livepeer creates an open market that anyone can join with competitive prices, allowing consumers to avoid being locked into a specific service provider. This also allows consumers to easily switch between Livepeer nodes on the protocol for better pricing, a feat that requires significant re-engineering when switching centralized cloud services. Similar services like AWS Live Streaming and Google Cloud Transcoder offered by Web2 companies have much higher price points. Livepeer’s lower pricing comes in part from the fact that Livepeer makes use of underutilized/under monetized hardware that is already deployed. One way they have accomplished this is by optimizing Livepeer nodes for GPUs.

AWS transcoding prices per minute:

Livepeer transcoding prices per minute:

Livepeer's prices are >30% cheaper than AWS for transcoding depending on quality. Important to note these are prices that Livepeer.com is charging. Livepeer Inc (creator of Livepeer protocol) operates Livepeer.com which acts as a gateway to the Livepeer network and makes it easier for developers to use the Livepeer network. Other Liverpeer nodes can charge different prices.

On top of simple video transcoding, Livepeer nodes will eventually provide other valuable audio-visual processing services such as automated content detection, live transcriptions, and computer vision. A competitive marketplace and bundling multiple video services together makes Livepeer more cost effective and easier to scale for broadcasters than centralized cloud infrastructure.  By directly incentivizing lower latency through the LPT staking algorithm, Livepeer’s decentralized network acts as a de facto edge-compute network. This lets transcoding happen closer to broadcasters uploading content and users downloading it making Livepeer’s service even more competitive against centralized cloud services.  With so many features available at such cost effective pricing Livepeer is disrupting the $70 billion streaming industry that has boomed since COVID-19 began such as the newly launched PlayDJ live concert app in April 2020. The streaming industry is expected to reach $800 billion by 2027 so including the multiple other services like machine learning automation being added, Livepeer is poised to dominate multiple trillion dollar industries.

"Livepeer economics and ideology meet the explosive new creator-driven streaming market very well. Creators who are looking to monetize their time, entertain, and form strong economic relationships with their viewers are flocking to vertical specific streaming platforms outside of the ad-supported big tech platforms" - Livepeer Roadmap

So how does live streaming with Livepeer actually work? Apps, called Broadcasters, using Livepeer protocol sends videos from users to be transcoded by Orchestrators. Broadcasters can choose any Orchestrator from the marketplace. Orchestrators manage and distribute work to individual transcoding servers. Most Orchestrators use their own Transcoder to complete jobs. Some Orchestrators such as livepool.io operate a public pool, similar to mining pools in PoW chains like Bitcoin and Ethereum, which allows Transcoders to connect and earn ETH without having to run an Orchestrator and connect to the Livepeer protocol themselves. While easier, joining a pool is less profitable than running your own Orchestrator, even once factoring in that Orchestrators have to run Ethereum full nodes, because Orchestrators take a cut of all pool fees from Transcoders.

One benefit of Livepeer’s open marketplace model is that it brings cheaper pricing for Broadcasters by allowing underutilized computing resources. To this end, Filecoin and Livepeer have started a co-mining program to enable a stronger and more stable network for both protocols by letting miners earn fees from storing on Filecoin and transcoding on Livepeer at the same time. Since Filcoin and Livepeer mining utilize different parts of GPU the co-mining program makes running nodes for both networks more profitable for miners and improves performance for nodes that utilize both networks in their operations (e.g. storing Livepeer videos onto Filecoin) These type of synergistic integrations show the benefits of utilizing decentralized infrastructure and play a big part in making them more competitive, and eventually better, than centralized infrastructure in terms of pricing, performance, and usability.

Combining this Filecoin integration with other decentralized tech, Livepeer could help establish alternatives to popular apps such as Brave Browser to disrupt Google’s Youtube. Using a cloud provider like Amazon costs about $3 per stream hour. Due to such high infrastructure costs startups without a proper business model are forced to sell user data, turn into adware, or shut down completely. Livepeer provides a viable alternative for these startups that gives them time to build a successful business while keeping users and their data safe.

Tokenomics

Protocol fees are paid in ETH by Broadcasters for transcoding services provided while staking rewards are paid by the protocol directly to incentivize nodes in early stages before fees become sustainable. LPT stakers earn a share of protocol fees in ETH  and incentive rewards in LPT from the Orchestrator they stake to. This split is set by each Orchestrator so stakers have an open market to choose from based on total revenue earned by the Orchestrator and what percentage they will receive. Because of this, it is always more profitable to run your own node and provide services on the Livepeer network than to delegate to another Orchestrator.

Livepeer Orchestrators are allocated work according to the amount of LPT they have staked — their own and delegators' — as well as their latency and quality of service. So the more tokens an Orchestrator has staked, the higher their economic bandwidth and the more ETH fees and LPT inflation rewards they can earn.

Staking Rewards

Stakers earn rewards in proportion to the total amount staked in the protocol. The inflation rate is dependent on the total amount of LPT being staked. A lower staking rate means higher inflation to dilute token holders that aren't participating in the network. Higher staking rate means lower inflation rewards because the network is already at capacity and doesn't need to incentivize more staking.

Protocol Fees

Fees paid by Broadcasters are denominated in Wei per pixel. Orchestrators set their price per pixel of video processed, meaning that they can earn more for transcoding high resolution streams and outputs. Livepeer uses a probabilistic offchain micropayment stream with periodic on-chain settlement to route money from Broadcasters to Orchestrators . This is an adaption of the payment channel concept that allows for scalable one-to-many micropayments.

Offering prices competitive with the biggest centralized cloud providers in the world, Orchestrators could reach billions of dollars in revenue per year as the Livepeer network becomes adopted and service offerings expand. Average weekly fees paid for the Livepeer protocol grew 200x over the year from $58 in the second week of January 2021 to $11,800 by the first week of January 2022.

(source: web3index.org)

Governance

As of the LIP-25 update, the Livepeer network is in a semi-decentralized governance state. The core protocol and contracts are partially regulated by smart contracts and token voting but the core Livepeer team still has complete admin control to execute changes and make emergency updates that bypass the governance system. The new governance contract is intended to make it easier for control to be passed over to fully on-chain voting systems and remove the Livepeer team's admin control. There is already a non-binding voting system in place to gauge community support for different LIP proposals. This non-binding voting system will likely be plugged into the governance contract to eventually turn them into binding votes. The Livepeer team is looking at a multitude of different voting structures such as conviction voting, quadratic voting, and futarchies.

This progressive decentralization is a critical part to the long term success of the Livepeer network and the value accrual to the LPT token itself. While being used as a work token is the main use case and value driver for LPT, its value is derived from the Livepeer network itself. Ensuring node operators and video streamers are stakeholders in stewarding the protocol, enables a credibly neutral platform that they can depend and develop on in the future without the need for the original Livepeer Inc. founders.

Livepeer Project Links:



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We are cultivating a more open, secure, and equitable internet where everyone, including robots, are equals when facing opportunities in Web3. Through our research, we curate innovation to bring the data economy into the mainstream.

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The Data Economy Index is a digital asset index capturing the growth of data-centric Web3 protocols.

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Kiba Gateaux

Kiba Gateaux

Founder of the DATA Economy Index