If you would like to view the full recording of the live State of Livepeer Q2 call, you can find it on our YouTube channel. You can also read the full Quarterly Report by Mihai Grigore and Stephanie Dunbar here.
Participants:
- Mihai Grigore – Messari Sr. Research Analyst
- Stephanie Dunbar – Messari Research Analyst
- Mike Kremer – Messari Data Engineer
- Doug Petkanics – Livepeer CEO & Co-founder
Doug Petkanics (00:00): Input into this network to be transcoded and converted into different formats. Looking at this chart on the screen you see that the number of minutes has grown every single quarter since Messari started tracking back in early 2021 from 4.9 million in Q1’21 to 13.1 million in Q2’21 to 21.5 million in Q3’21 to 29.6 million in Q4’21. The last two quarters (Q1’22 & Q2’22) have been flat around 33 million minutes. I’d love to see more growth than that of course as would any project except I think it’s interesting to note that across the entire Crypto and Web3 ecosystem in a quarter where everything was down by all measures from token prices to market caps to total value locks to trading volumes to all sorts of things. When you actually look at utility-based networks that provide utilities like live streaming or data indexing or querying or storage, you actually see that those metrics are not down. Demand remained pretty consistent and I think that’s a really good signal. That these utility networks can be valued and decoupled from speculative crypto financial metrics. So you know we’re excited that we’ve seen 33 million minutes of video encoded last quarter and this quarter, the source of this is applications that are building video into their products, things that look like Twitch so social apps and creator economy apps continue to be the main source of this traffic. We have apps where musicians used to stream their concerts, where artists stream their creations to their community. Many of these are traditional Web2 streaming apps that don’t necessarily make use of a lot of the new and exciting Web3 primitives. One thing that’s been really exciting this quarter is the growth in, kind of, true Web3 native streaming applications. These are apps that are connected to blockchains apps where users can monetize via blockchain based primitives like NFTs and tokens, these sorts of unique things. The number of applications in that space is growing tremendously, although none of them have broken out to the mainstream yet and don’t contribute immensely to this minutes count. It seems like a huge growing market, that Livepeer is really well positioned to be the leader in. I think we will see a lot of growth and minutes derived from that probably two three quarters out from now so that’s been pretty exciting.
Stephanie Dunbar (02:32): Exciting for us to get to use Huddle01, which is a Web3 based app that we’re using to chat today. Different from Crowdcast last quarter so super exciting to do that. I think that’s a really good example of different kinds of apps that we’re going to see emerge over time.
Doug Petkanics (02:50): Yeah exactly you should have mentioned that straight up front where we’re conducting this call using one of these web3 native video platforms they’re integrated with Livepeer for streaming. They have these web3 features where you can connect your wallet and use your NFT based profile pic as your avatar and you can do all sorts of token gating so you can access these streams and whatnot. So you can store your video on decentralized storage, it’s just the beginning but it’s great to see these platforms becoming mature and I think Huddle01 has you know powered over 10,000 video conferences just like this so they’re growing, that’s been exciting.
Mihai Grigore (03:29): Indeed and thank you so much Doug for providing us with some context on the usage of Lifepeer and Web3 infrastructure. Now if we transition from usage towards revenue, this is a bit in line with the overall market downturn, so we’ve
noticed this quarter that the revenue from transcoding fees for node operators has decreased in ETH terms by 15% and if we translate this to dollar terms it’s a whopping 59%. So our question is, “what is the reaction of the node operator community about this or whether they actually rely much more on staking rewards to fund their operations?’
Doug Petkanics (04:23): Yeah good question, you know, the node operators that make up the Livepeer network are really the beating heart of Livepeer’s community. There’s a hundred of them that kind of have slots on the network but there’s many hundreds more that join public pools and contribute their compute and bandwidth to encode video on Livepeer. So just like anyone who’s spending their time and their money and their effort to participate in crypto networks over the last quarter, I’m sure it hasn’t been quite as rosy and you know everything was in good times like it was at the peak of the bull market. I mean you see that
reflected in stats, like the fees that operators earn which are paid in ETH are down in dollar terms because that ETH is worth less than it would have been when it was at an all-time high. On the other hand the price that node operators charge for video encoding is set by the node operators on an open marketplace and it’s a competitive marketplace so you see these node operators actually competing to win work on the network and theoretically this is market forces at work. When using Livepeer network becomes cost-effective for developers that should help stimulate demand make it more attractive relative to cloud providers where you see prices basically staying the same or increasing with inflation. So over time I think as the network matures there’s more sources of revenue, you’ll see the prices basically find their market equilibrium, if you will and that’s the power of crypto networks. It’s also worth referencing something that you were alluding to in your question, so node operators are paid in ETH for the video encoding work that they actually do. They also earn inflationary Livepeer token rewards every single round. That’s part of the power of crypto networks is you can use these inflationary rewards to help bootstrap these networks before there’s a lot of demand side usage and to offset the price they need to charge to users in order to break even on their encoding. The rewards actually were up I think 7% in LPT Terms, as you indicate here on this chart, still down in dollar terms because of declining crypto asset prices generally but what this means is our node operators are actually building up their ownership in the network earning more of the Livepeer network on this quarter than they were previously and the majority of the the value that they’re earning still continues to be these LPT rewards. Just like in the Bitcoin network the majority of minor revenue was BTC block rewards relative to fees in the early days, you see a similar mechanic at play here. So like I said node operators are kind of the beating heart of our community, the core of what makes this network go and they’re really seeing this opportunity to grow their ownership in the Livepeer network and earn these rewards which I think has been working quite profitably for many of them, especially since we upgraded to the Arbitrum network six months ago.
Stephanie Dunbar (07:38): Yeah, so just to touch a little bit more on staking and staking rewards, so you know there’s the 100 node operators that are the beating heart of the network and then we have stakers so anyone like you or I can delegate LPT towards node operators, which effectively increases their chance of getting noticed on the network and helps route stake to the most effective nodes by selecting the node operators that are performing the best. Something that we noticed this quarter was that 80% of delegated stake was with the top 16 node operators, so just wanted to touch on that a little bit, talking about distribution of stake, maybe what are some practical ways that you know stake can be distributed across the network or if there’s more behind the scenes from that number that we can chat about.
Doug Petkanics (08:31): Yeah good question Stephanie. So obviously decentralization of ownership and stake is critically important. You mentioned this is delegated stake I think it’s worth highlighting what that means for a second, it doesn’t mean that 16 operators themselves possess 80% of the Livepeer token, it means that thousands of different token holders have staked across all of our node operators and thousands of them are staked towards these top 16%. So they’ve made the decision to put a large amount of their stake
on some of these higher performing larger node operators and whether that’s a good decision or not, I think is debatable. So that leads to the question: What can the Livepeer network do in order to decentralize this stake further and ensure that you know all hundred slots are operated efficiently by node operators all around the world that are providing density to the network? To kind of answer that question you know I’d really like to fall back on what powers all of these cryptoeconomic incentives, so what’s the incentive to move stake off of one of these top node operators towards maybe another operator with a smaller amount of stake. We released a new protocol explorer just a month or so ago and a lot of the attention went into this question. So when you land on the explorer, straight away you’re kind of greeted with all the network statistics around fees and network usage and staking participation, but when you scroll down to this second table, “The Orchestrators Table”, this shows the the Livepeer operators, they’re called orchestrators, and by default you can actually sort by how much stake they have or how much yield you would get if you staked towards these tokens in terms of your expected annual return. So right now I think that this is sorted by stake and so you’ll see you see 10 of the top node operators with hundreds of thousands of LPT staked towards them and when you look over at that column to the left, the yield column, you see that if you stake 150 LPT towards one of these nodes then in the last 90 days it shows that the expected annual yield on your staking would have been in this 20% range for most of them. So good kind of yield relative to crypto but what gets interesting now, sort by yield instead of sorting by stake and here you see there’s node operators that if you had staked towards them in the last 90 days you’d be earning 27%, 28%, 31%, 35% up to 44% yield. When you look at how much LPT is staked towards them currently these are not in that top 16 set that represent most of the stake. They have 100 LPT stake towards them, 2000 LPT stakes towards them, and your yields and returns are actually much higher. Why is that? It’s because these nodes are sharing back a greater percentage of their rewards every day and they’re sharing a greater percentage of the fees that they earn and if you happen to be a large amount of stake on these nodes they’re sharing back a large portion of that fee that would largely go to you and that influences your yield. I mentioned falling back on crypto-economic incentives if every token holder landed on this page and said “Hey how do I grow my ownership in the network? How do I get the best return on my participation?” You would actually begin to decentralize stake throughout the network far more than it is right now and I have high confidence that people do respond to incentives if they’re presenting with a good user experience and a good interface for doing so and I think the launch of this updated explorer is a good step. So over the coming months or years you should see this stake distribution hopefully level out and the result of that will be this global dense network of coverage and high performing node operators who are providing great video encoding services to Livepeer network and performing really well generating great returns for those who are staking towards them.
Stephanie Dunbar (13:00): Looks great, yeah the new explorer looks wonderful.
Mihai Grigore (13:02): So perhaps staying on the supply side of the network and transitioning from orchestrators to transcoders. I have one forward-looking question with respect to GPU compute power and there’s some fresh news about ethereum this quarter
hopefully the merge will happen and there’s going to be the transition from PoW to PoS
which might also mean that there’s going to be some oversupply of GPU computing power
available on the market. Of course this is music to your ears for Livepeer and other decentralized web3 infrastructure projects and the question is, whether there is any plan for Livepeer to attract some of that outstanding GPU capacity on the market?
Doug Petkanics (13:57): Yeah absolutely. So one of the great benefits of Livepeer is that as GPU miners are mining GPU coins like ethereum for example, there happens to be video encoding chips on these GPUs that can’t hash cryptocurrencies they just sit there on
the GPU doing nothing and so Livepeer enables these miners to join the Livepeer network to encode video without disrupting their mining or doing it to a minimal extent. That’s theoretically a great no-brainer value proposition that has brought a lot of people to the network but the mining rewards have just been a great kind of primary business model for the GPU miners especially during the bull market over the years. So even this passive income hasn’t been quite as much of an incentive to onboard the majority of the major miners for example but now all of a sudden you have all of these millions of GPUs out there in the
world deployed, already paid off and working in business models that are now going to be looking for revenue opportunities. We have calls with these miners all the time they’re looking to get into cloud computing, they’re looking to get into AI, they’re looking to get into rendering and they’re super interested in you know providing these GPUs for video transcoding services and other forms of video compute because these are typically very high value tasks in a traditional cloud environment. So I think this is a great opportunity to raise the awareness of Livepeer amongst GPU operators, have them join the network, participate in improving its efficiency, improving its global coverage. At the same time I think it’s worth pointing out the Livepeer network is not supply constrained right now. Our network of node operators in the pools do an amazing job of providing coverage all around the world there’s a couple regions where we could use more coverage in, for sure, but it’s really been sort of
demand constrained in terms of bringing out more work, more fees, more applications that build to scale on the network. So I think it’s a great opportunity. I don’t think it’s the make or break that makes Livepeer really successful in the next couple of quarters but for those of you with GPUs and extra compute capacity Livepeer is a good source of potential revenue for you.
Mihai Grigore (16:16): How easy is it to actually translate from being an ethereum miner
and to get into Livepeer video mining?
Doug Petkanics (16:29): That’s a good question. I would say an ethereum miner could join a Livepeer transcoding pool and it would be a similar type experience, right, because they would just basically be kind of running a binary that hooks up their GPUs to a transcoding pool and this is a pretty passive experience. You earn a bit of passive revenue as the pool performs some transcoding on the network and and pays out rewards there’s certainly some security questions that the pool operators have in terms of how they secure that work with their miners and how cost competitive that’ll be to people who run their own orchestrators themselves and we’ll see how that plays out in the open market. If you want to run an orchestrator on the Livepeer network that is very comparable to running a validator on PoS networks. So it’s a little more, the requirements are a little higher you kind of need to be protocol aware you might need to be running 24/7, these sorts of things it’s not quite the dumb work of throw hash power at a compute problem. So it becomes a little bit like running a validator and a mining pool at the same time and that’s you know the commitment that a lot of our node operators have made and they’ve done a great job of building
up a knowledge base supporting one another and helping power this network.
Stephanie Dunbar (17:55): Nice, so kind of bridges into my next question about the node operator limit, right now it’s a hundred node operators and I know that last quarter there or there’s been talks and especially last quarter of potentially increasing that limit. I know it’s something that didn’t happen this quarter and just wondering where does the network stand right now? Are there some if the node operator limit were to increase and perhaps you know more people could join with those GPU miners or otherwise does that present risks and you know why it hasn’t happened yet. I would love to hear a little bit more about that.
Doug Petkanics (18:35): Sure so this is just a parameter on the network that anyone could make a proposal to change via governance and I think if it was a priority for the community to increase that number it wouldn’t take a significant amount of effort. There’s a little bit of an economic trade-off broadcasters would need a higher deposit in order to secure their work across this whole network. One thing that you saw as we migrated to Arbitrum, these slots kind of reopened up. The majority of orchestrators migrated right away but a bunch of slots remained open and even now you see, to get into this top 100 doesn’t take a large amount of Livepeer Token. I don’t have the number in front of me but probably less than 100 Livepeer Token and you can be one of these active orchestrator slots. So what you see is the network’s actually doing a good job of providing this global coverage anyone that wants to access it has the opportunity to and many who don’t want to acquire Livepeer
Token or get over this barrier of running an orchestrator just join a transcoding pool essentially. So again you can have hundreds of these operators behind each orchestrator slot so it’s not just really limited to only 100 participants. So it’s just, I’ll allude to I think some future questions about the roadmap and other kinds of video or technical features that maybe we had talked about in the past that didn’t necessarily get shipped this quarter. It all has to do with prioritizing what I was talking about before was focusing on demand and focusing on driving more usage to the network as a higher priority than expanding out supply side to thousands of nodes around the world that wouldn’t necessarily have any increasing amount of work to do or optimizing the performance of some internal video feature doesn’t deliver nearly as much impact as a product feature that can onboard new applications to the network and a large scale of usage. So I think we’ll shift and talk about some of the kind of demand side work and updates that have been prioritized ahead of this I would say the community can certainly expand this beyond 100 when ready but as far as the list of items that will kind of make Livepeer successful in the next couple of quarters it
might not be at the top of the list.
Mihai Grigore (20:52): We certainly see an oversupply within several Web3 infrastructure projects and we were wondering what will actually drive the next generation of demand. Related to that what are your plans with respect to the product-market fit of
of Livepeer?
Doug Petkanics (21:16): Yeah that’s been a huge part of what we’ve been working on really hard for the last quarter and continue to focus on certainly for the rest of the year. Something really exciting has happened in the last 6 to 9 months. When we started Livepeer 5 years ago we were building to be this Web3 centralized video platform but in those first couple of years we would show up to developer events and hackathons and whatnot and no one was building Web3 video apps or social apps or metaverse apps or these sorts of things yet, they were still building smart contracts and tokens and financial primitives and crowdfunding applications and stablecoins and this financial infrastructure. In the last 6 to 9 months we’ve seen the emergence of these more consumer-oriented categories like Web3 social like creator economy monetization through NTs like metaverses gaming has had huge adoption of blockchain-centric technologies and so now all of a sudden you have hundreds of apps emerging that need video and want video in ways that interoperate and connect with Web3 and blockchain primitives. So really you know our big opportunity we’ve been excited about for years is now here which is to be the video platform of Web3 connected applications and of course social apps are going to leverage video, of course gaming apps are going to want to enable streaming, of course metaverse where people consume content is going to to leverage video. So really we’ve been productising to focus on capturing this Web3 opportunity and it kind of culminated with this milestone recently where we rebranded our storefront our entry point if you will used to be at Livepeer.com now it’s at Livepeer.studio which is really Web3 focused and it talks about Web3 centric features, it shows Web3 centric use cases. It helps developers that are building blockchain connected applications and leverage video know that Livepeer is for them. That’s really exciting we’re seeing a ton of growth in the number of apps and I think what will follow as some of these break out to the mainstream is a large growth in a number of minutes as well.
Stephanie Dunbar (23:35): Yeah, we noticed that Livepeer attended a ton of hackathons or sorry funded a ton of hackathons, general funding programs from a nice grants program of $250,000 a quarter so we saw you know a lot of growth within Livepeers development Github and things like that. Both from some hackathons and also other partnerships and things like that and I’d love to hear like a little bit more, sorry, I’ll back it up a bit. You talked about some of the use cases but I’m curious so there’s 100 building in the first quarter, sorry,
the first half of this year and I would love to know how many more do you expect building on Livepeer, let’s say, by the end of the year and within the next five years how many apps do you see within the Web3 space leveraging Livepeer for their video transcoding services?
Doug Petkanics (24:27): Yeah it’s a good question. I mean this is an early nascent market like we said we still haven’t seen a lot of social apps that have actually broken out or media apps that have broken out to the mainstream crossover. So there hasn’t been that Axie Infinity moment or that Cryptokitties moment when it comes to you know social or metaverse yet. Just some kind of numbers that we throw around internally like you said these this number 100 hacks essentially have been built on my period across hackathons, there’s plenty
more applications that have registered API keys for Livepeer.studio and started developing or have gone live. We’re looking to see over 500 developers registered and experimenting
with Livepeer like this quarter and certainly we want to be on a path to growth and and grow well beyond that, beyond that next quarter. I think not all of those translate into
kind of referenceable showcaseable inspirational applications but what I think you
probably want to see is, you want to see, hundreds of applications that have teams building behind them are sustainable, are actually funded or have a DAO or a community that are on the sustainable mission. Then from that you’re really looking for a couple breakout applications, a couple applications that scale, serve as great examples and I don’t know if this year we’ll be on to kind of TikTok scale applications from Web3 but I’m pretty confident that you know the next TikTok scale applications will emerge with blockchain
connected primitives because the you know economic relationships between, the creators, the users, and the platforms themselves are just so much more compelling than what you see in these ad supported kind of traditional website models.
Mihai Grigore (26:24): So out of these applications we’ve actually seen Huddle01 graduating with success. As a matter of fact we’re holding our video call with Huddle01 so the question would be, what other applications do you see at the moment that are going to surpass this incubator stage and eventually gain some product-market fit?
Doug Petkanics (26:53): Yeah really good question. I mean I’ll name a few that we’ve seen across our community across different categories, right. So I think Web3 social is really early but you’re seeing kind of the building blocks and a lot of experimentation happened recently so we’ve had this tight collaboration with this new protocol out of the Aave team called Lens protocol which serves as kind of the primitives for non-chain social graph and post publishing follow mechanics. We’ve participated in a series of events and hackathons with them. We’ve seen a new app emerge recently launched last week called Lenstube, lenstube.xyz. It’s sort of a YouTube like experience built connected to these on-chain primitives on Livepeer. You’re seeing Twitter, Facebook style social graph experiences from things like Lenster and Iris app which will be expanding with video related features soon as well so I think these serve as great examples and I hope they iterate and experiment and find their breakout fit. I don’t think that in social the killer scalable app is just going to be a clone of YouTube or Twitch or Twitter. I think it’s gonna require some new interesting interaction models and primitive just like TikTok sort of disrupted Instagram and Snapchat with their disruptive format. I think all these experiments lay the groundwork and inspire people and allow them to iterate. I’m so excited about those in the social in the creator economy there’s an app called beem.xyz who’s been a leader in this sort of film Web3 movement so it’s a great publishing platform for filmmakers to release their content, connect directly with their fans, monetize built on Livepeer. We’ve seen an app called Hudlin which is a similar example and a good experience. We’ve seen a bunch of music focused apps from Lot Radio and Sub.tech. So excited about the creator economy. Then there’s a couple of categories which I don’t know if they’ll ever drive the most usage for Livepeer but there are incredible kind of awareness and marketing and really important for Web3, which I would say is like Web3 events and so conferences, meetups, DAO community calls, these sorts of things leverage Livepeer to to stream their video and you see apps like streaming.tv which powered a bunch of the streams from ethereum’s dev connect, an upcoming Devcon conference. You see Beam actually being used to power global hackathon live streams and whatnot and so this will be an important category that brings kind of a lot of attention. Although these events are
kind of short-lived it’s just a couple hours of video so it may pale in comparison to these larger social apps that generate a lot of minutes.
Stephanie Dunbar (29:44): Definitely a lot to be excited about. I’m also excited about just being able to have Web3 primitives mixed into some of the more traditional things like just the fact that with Huddle01 today we can log in with Metamask or just come as a guest user. It’s a much different experience than having to create an account, go through that whole flow so really excited to see all the different, unique things that can come about. Also I wanted to ask, shifting gears a little bit, to some of the future things that Livepeer can offer. I know you spoke at the Livepeer community summit talking about the future of the network that you know right now we’re focused on the video broadcasting stack but moving forward Livepeer you know we have a network of nodes that can work together quite effectively move into other things like you know general compute or also content delivery. I would love to hear you talk a little bit about how you see the network expanding to go you know past video transcoding and take on other things.
Doug Petkanics (30:47): Yeah good question. I should be careful when I talk about this stuff because every quarter people are like oh you talked about general compute, talked about
content delivery, when’s that coming and all these things are at various stages of alphas or betas the codes open source you know they’re running with with a pilot and you can play with them but as far as kind of productizing them for at scale on the Livepeer network you know definitely future work to be done. You take a step back and you talk about the mindset shift so transcoding this concept that not a lot of consumers are aware of or care about necessarily but it’s really important. It’s how you take a high quality video and make sure that everyone on the internet regardless of their device type or connection speed can watch it and that’s really been the core functionality of the Livepeer network and node operators from day one and since the initial whitepaper but it’s just a fraction of what makes video work on the internet overall. It’s just a fraction of what the Livepeer software can do. Livepeer as a project has this great suite of software, this great media server called MistServer and it’s combined with the Livepeer network into a product called Catalyst, which really enables developers to build any sort of video workflow and application. It’s in it’s in use in things like content delivery network (CDNs) and it’s running on you know hardware and embedded devices on military equipment and these sorts of things and when I think about the future I think about Livepeer as being the world’s open video infrastructure and not just a
transcoding network. Content delivery is one of the most important things and one of the things that can really benefit from peer-to-peer. So you know we’ve mentioned this in the past. We’ve certainly always had research and proof of concept in terms of how you can leverage a peer-to-peer network to help deliver content, take load off of CDNs and create things that are more self-supported or censorship resistant. I don’t want to put a specific quarter on it but I want to say that I think the Livepeer network can play a key role in enabling developers to do content delivery without having to just rely on Amazon or Akamai to do it
for them. I think that brings a lot of benefits for the world. You alluded to these other forms of video focused compute beyond just transcoding so doing content detection and scene detection and face recognition and these sorts of things that can power different use cases the network’s super well suited to do those the you know the hardware and infrastructure is already deployed. We already have pilots running for this sort of scene detection capability. It’s great. I think that finding that product-market fit for being the video infrastructure of Web3 empowering streaming video on demand, uploading NFT minting for video will probably come first and then these will be additional capabilities that become available to those developers as opposed to those capabilities front and center being the the key functionality or the difference maker for onboarding Livepeer demand. So they’re all exciting potential when you look out 10 years. This should be like I said, the world’s open video infrastructure across all layers of video stack but first and foremost let’s make sure we can power streaming and video upload really effectively for Web3 centric users.
Michael Kremer (34:18): Speaking more to that I’d love to kind of hop in here and ask about some of the challenges and tech developments and some of the things that Livepeer has done to essentially build this network that’s capable of even transcoding, right, and kind of the background here being honestly I was reading through Livepeer docs and GitHubs and it was just cool. I had seen you guys develop this really like clever expansion of payment streaming so you can minimize gas usage, so in a broad question building on top of blockchain which is traditionally seen as a very inefficient compute network how did Livepeer approach these problems towards building a network that can actually deliver and transcode across and some of the problems you guys ran into, how did you solve some of them?
Doug Petkanics (35:09): Yeah that’s a big question. It’s been a long road building for over five years here, solving a bunch of different problems right. I think one of the key recognitions pretty early on is that it is table sticks in a video live streaming use case that things have to be reliable, they have to be fast. You have to be able to trust that work is done correctly. So you kind of can’t compromise on these primitives and as a result you know it’s pretty clear no video can ever touch a blockchain. You talk about why you need to use a blockchain, you use it in order to coordinate this global network of node operators to provide the economic incentives and security to ensure that they’re doing the work correctly and to settle payments globally and permissionlessly from machine to machine. So all that stuff can be really effective but none of that needs to get in the way of the real-time video streaming workflow which occurs off-chain so these nodes discover one another and a user runs a broadcast node and just looks on-chain to discover all the the nodes around them that can do their transcoding but then negotiates with them and test them off-chain. You know that process in a peer-to-peer context has to be you know as fast, as reliable, as cost effective as it would be if you were just using a cloud service and luckily due to the kind of marketplace dynamics and what these node operators charge it can be highly cost effective. Therefore because it’s an order of magnitude more cost effective it actually can be more reliable because you can afford these redundancies. You can afford to hire multiple node operators to provide backups or to compete to perform your work in sub real-time so your stream doesn’t get disrupted. The net result needs to be that we have to be industry grade reliable so the kind of company that provides products around Livepeer network Livepeer Inc. runs a status page where you see the reliability of the network, at least using a hosted gateway service. It’s really important that that be as reliable as anything in the industry.
Michael Kremer (37:23): I would love to kind of dig into your philosophy a little bit for what happens on-chain versus off-chain. This is like a very common problem as we start to build out these more interactive applications, these more GameFi like social net stuff. Some projects feel like they do too much on-chain and that holds him back in a sense and then other projects do probably a little too much off-chain you know and you’re like are we compromising the overall vision. So I would just love to hear you know do you guys mostly
you know optimize for reliability, optimize your scale or if there’s some overall philosophical balance that you guys find? How does the team think about that balance between on-chain and off-chain?
Doug Petkanics (38:06): I mean what does a blockchain give you, what is its superpower, it’s trust, right. It’s trust and means you can use these networks trustlessly because you can trust in the blockchain to be kind of the enforcement layer that backs up what this network is representing it can do. So payments for example get settled on-chain that makes a lot of sense that allows this permissionless global access regardless of your currency, your access to banking et cetera to be able to use this network or to run on this network because you know that the blockchain will settle the payments that you’re owed to you effectively. We had to do a lot of work in order to scale that payment solution using something called probabilistic micro payments but that’s a great use of the blockchain. The other thing is you want to trust the decentralization of this network, you want to trust the incentives in this network are controlled by the network itself and not by any single party that’s going to rug you on whim. So the core incentive protocol is encoded on chain you know that if you stake your token you run a node you operate effectively that you’re going to earn rewards according to the token distribution schedule which has been playing out over over years and years and that whole economic system is on-chain and observable by all the participants in a fair way. Similarly you want the security and the penalization for cheating or acting maliciously against this network enforced by the by the blockchain, so that’s another great thing to fall back and rely on the the blockchain for and the last thing has been the governance so again all the token holders are the ones who govern and control this network and have the ability to upgrade it to change parameters etc and having that play out in an on-chain process is something that was actually introduced on our roadmap to decentralization along the way. There’s a couple more steps to go there but currently anyone with the token has the ability to make proposals, to vote on proposals that get executed by a security committee along the way and that should be automated in time as well. So I think it’s really that the blockchain gives you trust, it gives you permissionless access, it gives you global coordination and that’s what you should use it for and as long as you get those then then everything else can be handled more efficiently off-chain.
Michael Kremer (40:49): I think that’s a really positive distinction to make and it shows a good understanding of what the chain is good for and how to use it in that way and even pushing on that concept a little further I was again reading through Livepeer docs and I had seen that Livepeer essentially works on a fee market for pixels and a minute train coding. Very similar to ETH high demand you know that ETH price of a minute transcoded goes up, demand comes down, and Livepeer organization, if I have it correct, kind of organizes the infrastructure that helps all of the network participants communicate such that they can come to this kind of market equilibrium and I thought that was like a very positive way to interact with the network such that it it makes things smoother. If the Livepeer organization was to disappear they could come to this consensus on their own, build this out on their own and operate on their own. So how does Livepeer, it seems you guys have found a very healthy balance, how do you think about being the champion of the Livepeer protocol from the perspective of Livepeer organization versus you know some other protocols where they might be a little too centralized and too in control, how do you guys as an organization find that balance?
Doug Petkanics (42:07): Yeah that’s a good and tricky question, right. The ultimate vision, the end state is that there’s so many different and self-incentivized actors and participants in this ecosystem that have a stake in its success that no one party you know has the ability to
have so much control or influence or drive the network. One thing we found in Livepeer relative to other projects is the subject matter that’s tightly connected to our mission being this you know the world’s open video infrastructure is very technical and it’s very niche and specific relative to what I would say overlaps with your typical crypto economic enthusiast or crypto protocol enthusiast and so the ability for someone who believes in this mission and is excited about the project and the applications building on top, the ability for them to actually participate at a technical level to develop a solid video streaming infrastructure is a little bit
limited and so they’ve actually placed a lot of trust and empowerment in the core team that you know to date has developed a lot of the video centric software we take our role as a core team kind of as a steward of this network, very seriously in terms of like the responsibility and weight that falls on us in order to do right by the community and just have this mindset of we want we all want the project to succeed and fulfill its potential. So yeah I think there’s a lot of good things that we’ve done in terms of distributing the ownership in the network very early days through the merkle mine and through this ongoing inflationary token funding the network is I think 95% of the nodes are run by independent operators maybe even more, the company probably just runs a couple nodes. So that’s great but at the same time we have this kind of leadership responsibility in terms of a lot of raw video development, video capability enhancement along the way. One thing I wish that our community prioritized to step up to more is actually in governance because they have the ability to evolve the protocol to run experiments when it comes beyond the scope of video for things like public goods funding and adjusting economic incentives to help with the demand side or to help support you know supply side operators. These sorts of things and I really want these sorts of updates to come from you know active self-incentivized community members rather than just the core team dictating you know big potential changes to the network. I think we have a great community that spends a ton of time on the technical aspects of node operation, I think this is a logical next step as well.
Mihai Grigore (44:58): So speaking of ways to support the community, what are the plans to implement a DAO structure?
Doug Petkanics (45:10): Yeah so what’s interesting is DAO means a lot of different things to a lot of people. You could say that from day one Livepeer was a DAO in the sense that the ownership of this network was well distributed and we all coordinate around internet-based tools like Discord and whatnot to push this project forward together in an open source way. I think this step of decentralizing the governance and opening up this proposal framework and this ability for people to evolve the governance independently was a big step towards this future. One thing that is not at all in motion yet is the concept that most DAOs manage a treasury and many projects have treasuries that either are just reserved and it’s not clear how they’ll be distributed or they’re just centrally distributed by a foundation or they’ve actually moved to DAOs managing that treasury. This concept in Livepeer doesn’t exist at all; there’s no pool of tokens that are sitting somewhere waiting to be managed. Instead Livepeer funds things through what’s called inflation funding, which is actually done through the staking itself, any node operator can advertise a reward, cut a percentage of the rewards they get to keep. We’ve seen many efforts get funded by node operators saying hey i’m working on X,Y or Z. I have a reward cut of 20% I intend to use these rewards to fund this thing I’m working towards and people will stake towards them and every single
round will earn some token as long as they’re fulfilling their end of the bargain and continuing to deliver that value to the community. So you get this ongoing daily drip of funding towards projects instead of communities voting to manage a treasury. Two caveats here I think it’s worth getting into because it could inspire some participation. One is there’s a community node, it’s one of these nodes that is run by a bunch of community members that run a grants program and anyone can apply for these grants for funding. The grants get allocated by a committee of people on that node but I think that committee is very open to expanding itself towards a DAO like model of governance and I think that’s a great opportunity to run a smaller experiment, where there is this pool of token that’s
managed by community members in a DAO-like manner. Then the second angle, again this
would be a big radical change, but I think it’s very possible is that through governance our community itself could propose, hey, a portion of the inflation reward should go into a treasury and that treasury should be managed by the Livepeer DAO and token holders in some way would have governance power. You could get into all sorts of debates, should it be one token one vote or should it be based on you know reputation and actions you’ve taken in the network so far like if you’ve run a node or you’ve translated video or you’ve been a delegator and I think that’s a big design space, I think it’s really exciting, I would love to see people in the community push on that because I think it’s really powerful for the sustainability of the project.
Mihai Grigore (48:14): This has been tremendously insightful Doug. We would like to thank you a lot for all the answers and all the thoughts around Livepeer, to wrap up for our audience we plan to have another quarterly report in Q3 2022. You can read Messari reports at Messari.io Research and also follow us on Twitter at Messari Crypto and perhaps Doug from your side. Where can people find you the easiest?
Mihai Grigore (48:57): Yeah sure thing, thanks Mihai, Stephanie, Mike this was great. You can find us at Livepeer.org if you’re a builder you can check out Livepeer.studio. Follow us on Twitter at Livepeer as well for all the news and updates. It’s great to do these quarterly calls. I know this past quarter has been bumpy in the crypto markets for many and people have felt some pain in their wallets as a result which affects everyone but we’re really optimistic about the growing amount of development and usage that’s coming to these utility networks. Like I said, I think in the coming quarters we’re going to see breakout mainstream successes enabled by Web3 in ways that the whole world feels the impact and appreciates, so definitely an exciting time to be building!
Mihai Grigore (49:44): Thank you so much and looking forward to speaking again next quarter.
Stephanie Dunbar (49:49): Yeah thanks so much.
