Key Insights
In the third quarter of 2024, the Livepeer network saw a 4% quarter-over-quarter rise in video transcoding usage, coinciding with a 20% increase in demand-side transcoding fees. The introduction of the Livepeer AI Subnet, aimed at enhancing AI-driven video processing, is anticipated to boost demand further and open new revenue channels. In this quarter, fees generated from Livepeer AI constituted nearly 24% of total transcoding fees.
Primer
Developing decentralized video applications similar to platforms like Twitch or TikTok necessitates a robust infrastructure for live and on-demand video streaming. Video content must be transcoded—adapted into formats suitable for varying bandwidths and devices—to ensure seamless viewing experiences. While traditional cloud service providers such as AWS, Google, and Microsoft offer video transcoding, their services come with significant costs. Livepeer addresses this need by providing an open and permissionless video infrastructure marketplace, allowing users to contribute computing power and compete on pricing. This innovative approach can cut transcoding costs for users by up to 90%.
Within the decentralized transcoding ecosystem of Livepeer, three primary roles exist: Node operators, known as “Orchestrators,” manage the routing of transcoding tasks and earn rewards based on their staked Livepeer tokens (LPT). Service nodes, or “Transcoders,” supply the necessary compute resources for these tasks, while Delegators stake their LPT to support effective node operators, earning rewards in the process. Additionally, Livepeer has launched an AI Subnet designed to facilitate advanced video generation functions ranging from text-to-image to image-to-video, catering to sectors like entertainment and gaming. Recently, the LPT token has been incorporated into the Grayscale Decentralized AI Fund, which focuses on decentralized AI protocols.
Key Metrics
The demand for Livepeer’s services is driven by applications and developers requiring video transcoding, live streaming, and video generation capabilities. This includes decentralized social media applications and traditional platforms such as TikTok, Twitch, and music streaming services like Spotify.
The network’s usage can be assessed by the number of minutes of video transcoded. In September 2023, Livepeer updated its methodology for estimating network usage to reflect more accurately the shifts in usage patterns, including video-on-demand services and varying price points. Although this new approach acknowledges the limitations of the usage metric, it retains historical data up until the change was implemented. The transcoding network experienced a 4% increase in usage quarter-over-quarter, with nearly 32 million minutes of video processed in Q3 2024, compared to just over 31 million in the previous quarter. A notable mention is Fishtank, an interactive streaming platform that utilized Livepeer Studio’s decentralized streaming, achieving one million viewers and $3 million in revenue in August 2024. This highlights the potential for affordable, high-quality streaming solutions for niche content creators.
At the same time, Livepeer is beginning to leverage its AI video processing capabilities, introducing the AI Subnet to support decentralized media generation tools.
Financials
Demand-side fees for transcoding are paid in ETH and are collected by node operators, who then distribute these fees to transcoders and delegators. Node operators with larger stakes are positioned to receive more transcoding work, thus earning higher fees. In Q3 2024, demand-side fees from transcoding surged by 20% in USD terms, correlating with increased usage. As the live-streaming market continues to grow 20% annually, Livepeer aims to further decrease streaming costs for users.
With the launch of the AI Subnet, Livepeer has started to facilitate AI video generation utilizing the network’s compute power. This initiative marks a significant expansion beyond traditional transcoding services. In Q3 2024, node operators began earning ETH fees from AI video generation, generating nearly $15,000, which accounted for 24% of the total transcoding fees in that quarter. The AI Subnet is expected to enhance demand for the network’s computing resources and provide additional revenue opportunities.
Staking rewards within the Livepeer network, distributed in LPT to node operators and delegators, saw a 13% downturn in USD terms, largely due to a 17% decrease in LPT’s price. However, LPT’s annualized daily issuance rose by 12% and reached 20.7% in Q3 2024, despite staking participation remaining below the ideal 50% equilibrium level.
Staking Participation
The LPT token utilizes a Stake-for-Access (SFA) model, requiring node operators to stake LPT to perform tasks on the network. Over the last seven quarters, staking participation—representing the percentage of circulating LPT that is staked—has consistently fallen below the 50% target. Additionally, the number of delegators on the Livepeer network dropped to roughly 3,400 in Q3 2024 from over 4,300 in Q1 2023. Daily LPT issuance has gradually increased from 0.02% in January 2023 to surpass 0.05% by the end of September 2024. Although the staking participation rate approached 48% in Q3 2024, it still lags behind the 50% equilibrium threshold.
When participation dips below 50%, LPT issuance rises by 0.00005%, while it decreases by the same rate when it exceeds 50%. The reason for the sustained low staking participation appears to be an incentive disconnect between staking and transcoding rewards. Research indicates that top node operators by LPT staked earn approximately 40-50% of staking rewards but only around 20% of total transcoding fees. Following the introduction of the AI Subnet, staking participation has begun to rise, and it remains to be seen if it will reach the target of 50% in the coming quarters.
Qualitative Analysis
Key advancements in Livepeer’s AI integration during Q3 2024 included the launch of the AI Subnet, which broadens the network’s AI video capabilities. This infrastructure enables node operators to earn fees from AI inference tasks, creating new revenue opportunities within the ecosystem. Currently, 27 AI node operators are engaged in processing various AI tasks, including text-to-image and image-to-video. Over the quarter, the AI Subnet’s features expanded to include speech-to-text capabilities via Whisper and support for Stable Diffusion 3, enhancing the quality and versatility of the generated content.
Key Events
Livepeer’s collaboration with FlipGuard, a participant in the AI Video Startup Program, resulted in the development of the Gen tool, enabling users to create custom images in chat interfaces. This tool allows for real-time visual expression of moods and ideas, showcasing practical applications of Livepeer’s AI technology to improve user engagement across digital platforms.
Another significant achievement in Q3 2024 was the partnership between Livepeer Studio and Fishtank, leading to one million viewers and $3 million in revenue. This success is largely attributed to the collaboration with Livepeer Studio, which highlights the effectiveness and market potential of Livepeer’s decentralized video infrastructure. The open-source platform offered by Livepeer Studio has helped Fishtank reduce operational expenses compared to conventional cloud services, fostering an environment conducive to niche content creators in the interactive live space.
Additionally, the launch of the Ample Protocol—a decentralized application designed to assist creators in managing and monetizing their digital assets—marks another expansion of Livepeer’s ecosystem. This platform enables creators to control their on-chain intellectual property and NFTs, integrating with Livepeer Studio for enhanced content hosting and monetization.
Key Governance
In August 2024, Livepeer introduced several successful treasury proposals aimed at enhancing its capabilities: The Livepeer LLM SPE aims to integrate Large Language Model (LLM) functionalities into the network, extending its AI capabilities beyond video. This proposal intends to oversee development and provide quarterly progress reports. The Live Pioneers Wave 2 initiative targets the expansion of content availability in eight new languages, alongside educational resources and support for onboarding long-term delegators. The Livepeer.Cloud SPE is allocating $153,000 to fund an AI Job Tester and a Livepeer Explorer AI Performance Leaderboard, which will showcase the top-performing Orchestrators operating on the AI subnet.
The AI Video Startup Program, financed through Livepeer’s Grants Program, supports startups focused on decentralized AI video technologies and applications, offering selected participants up to $20,000 in grants, infrastructure credits, and mentorship from the Livepeer team.
Closing Summary
In the third quarter of 2024, usage of video transcoding on the Livepeer network grew by 4% quarter-over-quarter, aligning with a 20% rise in demand-side transcoding fees. The success of Fishtank, an interactive streaming platform that utilized Livepeer Studio, led to one million viewers and $3 million in revenue, demonstrating the effectiveness of affordable, high-quality streaming solutions for niche content creators in the digital entertainment sector.
Moreover, the introduction of the Livepeer AI Subnet for capabilities such as text-to-image and text-to-video processing caters to the needs of the entertainment, social media, and gaming industries. With AI fees representing almost 24% of the total transcoding fees in Q3 2024, the Livepeer AI Subnet is poised to further stimulate demand and generate additional revenue streams. Additionally, Livepeer’s contributions to the creator economy through initiatives like the Ample Protocol and the Gen tool for AI-driven content generation signify its expanding role in this dynamic ecosystem.
