From messari by Mihai Grigore

Key Insights

Primer

Building decentralized video apps like Twitch or TikTok requires heavy infrastructure for live and on-demand 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.

The Livepeer network offers an open and permissionless video infrastructure marketplace for live and on-demand streaming. Livepeer’s transcoding marketplace allows anyone to contribute compute resources (e.g., GPUs) 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:

Beyond transcoding, Livepeer aims to become the go-to decentralized tech stack for developers integrating video streaming. In addition, the Livepeer community plans to introduce AI video compute capabilities to the Livepeer network in a cost-effective manner.

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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 capabilities. 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

Livepeer’s network usage can be gauged by estimating the number of minutes of video transcoded. In September 2023, 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 onchain.

While the previous methodology relied on transcoding fees earned by node operators as a proxy for usage, the updated methodology accounts for changes in usage patterns, such as the introduction of video on demand (VOD) transcoding and varying price points. As the usage metric is acknowledged as imperfect but still valuable, the previous data is retained until September 2023, when the change was implemented.

The usage of the Livepeer transcoding network increased 31% QoQ to a quarterly all-time high of over 43 million minutes of video transcoded in Q1’24. This growth was driven by the onboarding of a new live-streaming platform on Livepeer Studio. For context, Livepeer Studio is a toolkit that helps developers build decentralized video apps on top of Livepeer.

Demand for transcoding on Livepeer is set to continue increasing, as the recent Livepeer Cloud proposal aims to support outside communities to use Livepeer without needing to migrate. In this sense, Livepeer network transcoders have started preparing for the expected transcoding traffic increase. Simultaneously, the Livepeer community is preparing to accommodate the increased demand for video streaming and is positioning itself to capitalize on AI video compute capabilities.

Financials

Revenue from Transcoding Fees

Demand-side revenue comprises ETH fees accrued from transcoding services. These transcoding fees are accrued by node operators and further distributed to transcoders and delegators. Node operators with larger amounts of stake are more likely to receive more transcoding work, subsequently earning more transcoding fees.

Livepeer demand-side revenue from transcoding fees increased 22% QoQ in USD terms, down 15% QoQ in ETH terms. As usage of the Livepeer transcoding network increased 31% QoQ, the price per minute transcoded continued to drop throughout the past year from an average of $0.0028/min in Q1’23 to an average of $0.0019/min in Q1’24.

This reduction in the price of transcoding services is a consequence of competitive pricing considerations. Concretely, node operators are actively discussing how to optimize the price per pixel for video transcoding to accommodate potential demand increase for video transcoding. The motivation is to support node operators in competitively pricing their transcoding with the goal of attracting more transcoding work on the Livepeer network. With the current 20% YoY growth of the live-streaming market, Livepeer aims to continue to reduce the cost of streaming solutions for end users by up to 10x.

In addition to transcoding, Livepeer supports AI video generation using the network’s compute power (e.g., GPUs), as per Messari’s recent report. Node operators have recently started to accrue ETH fees for performing AI video generation, i.e., converting a text prompt into a new video. Livepeer stands to benefit financially from utilizing more of the underlying GPUs. Once Livepeer adds AI video generation capabilities, it will provide further demand channels for the network's compute resources while introducing revenue streams in addition to transcoding.

Staking Rewards

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.

LPT staking rewards grew 123% QoQ in USD terms. The 18% QoQ growth in LPT terms came as LPT issuance reached its highest level since the Arbitrum migration in Q1’22. This increase in LPT issuance corresponded to the staking participation rate decreasing to 43%, below the 50% equilibrium threshold. The high level of staking rewards relative to fees earned via transcoding indicates that the Livepeer node operators rely heavily on staking rewards to sustain their day-to-day operations and offer competitive transcoding prices.

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 LPT to perform work on the network. The past five quarters saw Livepeer staking participation — the percentage of the circulating LPT supply that is staked — stay below the 50% target level. Simultaneously, delegators on the Livepeer network decreased to nearly 3,700 in Q1’24, down from over 4,300 in Q1’23.

Q1’24 saw staking participation drop below 42%, the lowest level since Livepeer’s migration to Arbitrum in Q1’22. This drop in staking participation corresponded to a gradual increase in daily LPT issuance from 0.020% in January 2023 to above 0.044% by the end of March 2024. The dynamic LPT issuance in absolute terms follows the staking participation rate as below:

An explanation for the persistent drop in staking participation is the incentive decoupling between staking and transcoding. Recent research found that the top five node operators by LPT staked earned ~40-50% of staking rewards but only ~20% of all transcoding fees. Given that smaller node operators perform ~80% of the transcoding work, staking participation could be increased by making smaller node operators more attractive for delegation. Simultaneously, several forum entries (here and here) are discussing the option of moving the equilibrium level to account for the changing supply dynamics of the network.

Qualitative Analysis

Key Developments

AI Video Compute

In January 2024, Livepeer founder Doug Petkanics shared a detailed plan to introduce AI video compute capabilities to the Livepeer network. The plan explains that Livepeer is well-suited for competing on cost to perform inference jobs on users' inputs. Petkanics detailed a plan to introduce AI video computing onto the Livepeer network beyond transcoding. For instance, users would be able to generate videos from prompts, much like what can be observed in OpenAI's Sora demo videos. Simultaneously, the team plans to validate the network's cost-effectiveness.

Protocol Reward Griefing Bug Fix

Livepeer announced that a protocol bug has been patched by the security committee. The team explained that the fix addresses cases of bad actors preventing “a delegating tokenholder from accessing their rewards in a new round." The team noted that "no user funds were at risk" due to the patch and that this scenario has not been exploited on the network.

Community

Livepeer Community Node

The Livepeer Community Node is a special-purpose node on the network that uses its LPT earnings to fund the development of the Livepeer ecosystem. The funding is administered through the Livepeer Grants Program, which provides funding for public goods on the Livepeer network.

Governance

Livepeer AI Video SPE

A successful proposal requested 25,000 LPT from the treasury to fund a Special-Purpose Entity (SPE) focused on developing Livepeer's AI-based video compute capabilities. The proposal aims to provide practical means for node operators to run AI inference jobs on a mainnet sub-network. The scope includes building an MVP to demonstrate the network's cost-effectiveness and reliability in AI video generation. This initiative aims to integrate AI video compute capabilities into Livepeer's network and build a consumer app.

Livepeer Cloud SPE

A successful proposal aimed to enhance the accessibility and adoption of the Livepeer network through Livepeer Cloud. The key objectives include launching a free-to-use Livepeer Cloud Broadcaster, ensuring seamless integration with Owncast, and educating potential users on the Livepeer Broadcaster setup. The initiative received $44,500 in funding to cover the costs of public broadcaster setup, operations, Owncast integration, and metrics dashboard development.

Rewards for Network Development

A successful proposal requested 15,000 LPT from the Livepeer treasury to reward the dedicated efforts of Livepeer community members. This proposal aims to award node operators for contributing to the Livepeer network development and its ecosystem.

Closing Summary

The usage of the Livepeer network grew 31% QoQ and reached an all-time high in Q1’24, driven by the onboarding of a live-streaming platform on Livepeer Studio. Livepeer demand-side revenue from transcoding fees grew 22% QoQ in USD terms, down 15% QoQ in ETH terms. Staking rewards grew 123% QoQ in USD terms (up 18% QoQ in LPT terms), as LPT issuance in Q1’24 reached its highest level since the Arbitrum migration in Q1’22.

Beyond transcoding, Livepeer aims to build the world’s open video infrastructure and become the go-to decentralized tech stack for developers integrating video streaming and AI video compute capabilities into their apps.