Primer on Livepeer Transcoding Fees

Orchestrators and delegators on Livepeer are compensated for their participation on the Livepeer network in two ways: inflationary rewards and transcoding fees. As network usage grows, orchestrators and delegators will begin to earn more fees from transcoding on Livepeer. 

Inflationary Rewards

New LPT (Livepeer tokens) are minted every round (5760 Ethereum blocks or 21 hours) and are evenly distributed to orchestrators and delegators proportional to amount staked. Well behaved orchestrators and their respective delegators (after the reward cut, aka commission to orchestrators is factored in) will automatically receive these rewards as long as they are active on the Livepeer network. 

The inflation rate changes, depending on the amount of LPT being staked on Livepeer. As of writing this, the current inflation rate for this round is 0.0767%, with a 68.88% participation rate. 

You will automatically receive inflationary rewards as long as your orchestrator is currently in the active set, and they call the reward transaction each round.

Transcoding Fees

Orchestrators are paid in ETH (Ethereum) by broadcasters for performing transcoding work on the network. Delegators receive a share of earned fees based on the percentage set by the orchestrator. 

As the Livepeer network grows in usage, transcoding fees earned by orchestrators will continue to grow based on their transcoding capacity, availability, and market price. 

There are a few more things to consider with earning transaction fees on Livepeer. Delegators on Livepeer should understand how orchestrators on Livepeer will receive and perform work on the network. We have highlighted these variables below. 

Technical Setup

Orchestrators that have high quality bandwidth connections, sufficient hardware, and reliable devOps practices will have a greater chance of receiving work on Livepeer. 

It is important that orchestrators are transcoding in sub real-time. Sub real-time means that the time it takes an orchestrator to transcode a video segment is less than the length of the actual video segment. This is desirable because it doesn’t add any latency to the stream. 

You can easily test if your orchestrator’s transcoding setup is functioning properly, and that you are transcoding in sub real-time by starting a broadcaster that can connect directly to your orchestrator. Learn how to test your transcoding setup here

Pricing

Transcoding work on Livepeer is priced per pixel. Orchestrators are able to set their own prices for transcoding work and broadcasters are also able to set the maximum price they are willing to pay for transcoding work. That means orchestrators will only be eligible for transcoding work if their price per pixel is lower than the maximum price set by a broadcaster. 

Orchestrators also need to make sure that they are not pricing themselves too low. Livepeer uses a probabilistic micro payment protocol for payments on the network. This means that orchestrators are essentially paid in lottery tickets. More lottery tickets are sent when the price per pixel is higher, which means that orchestrators who set a higher price will have a greater chance of receiving a winning lottery ticket for performing the same amount of work compared to orchestrators who set a lower price.

Orchestrators and delegators can track winning tickets on scout.cool or The Graph

So what should you be charging per pixel on Livepeer? Currently, the Livepeer test broadcaster is requesting the most transcoding work on the network. Its price per pixel is set at 25,000 wei, which means that orchestrators should set their price per pixel lower than 25,000 wei. 

Over time, a natural marketplace will be created as more broadcasters begin using Livepeer. Orchestrators will need to make sure they are pricing themselves competitively in order to keep earning transcoding work. Prices set by orchestrators are not easily accessible at the moment, but there is an in-progress grant proposal for an open source pricing tool. 

Selection Algorithm 

After a price is stated, a broadcaster will select a set of orchestrators to perform the transcoding work. This is done through a selection algorithm that is designed to match the best orchestrators for the job.  

The initial set of orchestrators is determined by ping times, which means that being geographically close to a broadcaster will increase the likelihood of being in the initial selection. 

Once an initial set of orchestrators is selected, work will be distributed to orchestrators based on latency scores and stake weight. If the fastest orchestrator is transcoding in sub real-time, then the fastest orchestrator will be selected. If the fastest orchestrator is not transcoding in sub real-time then: 

  • If there are orchestrators in the working set that have not been selected to perform a transcoding segment, then an orchestrator will be randomly selected based on stake weight.
  • If all orchestrators in the working set have already been selected to perform a transcoding segment, then the fastest orchestrator will be selected.

Orchestrators who perform errors will be dropped from the working set, and more orchestrators will be added if the working set becomes too small. 

Takeaways

Outside of pricing, there are three main variables that will determine an orchestrator’s ability to earn transcoding work on Livepeer. 

Stake weight – The amount of work you have the opportunity to compete for is roughly proportional to stake weight. For example, if your orchestrator has 10% of staked LPT, then you will likely earn the ability to perform 10% of the transcoding work on Livepeer.

Ping times – Geographic proximity to a broadcaster will increase the likelihood of being included in the working set. 

Latency – Having a low latency score will allow an orchestrator to continue holding on to work after it has been selected. 

Potential Earnings

Livepeer is successfully building a community of orchestrators and delegators, and educating them on how to best perform transcoding work on the network. As the network becomes more reliable, Livepeer will begin onboarding more broadcasters, and we will start to see more transaction fees being earned.

Until then, orchestrators and delegators can calculate their potential earnings by using Chainflow’s Transcoding Financial Model. Using this model, we can estimate that orchestrators and delegators on Livepeer can collectively earn over $40,000 a month in transaction fees if there are 100 streams being continuously broadcasted (1080p, 720p, and 480p) at 10,000 wei per pixel. 

Orchestrators can also use this model to estimate their total profit (including inflationary rewards) and return on investment by including operating costs. 

Conclusion 

Increased usage of the Livepeer network has the potential to dramatically change the staking ecosystem on Livepeer. Orchestrators that are earning fees while having an attractive fee cut will most likely see more delegations come their way, which will generate more inflationary rewards as well as increase the likelihood of earning more transaction fees. 

Check out the Livepeer Forum for more information, and feel free to join the conversation on Livepeer’s Discord Channel.