Inflation Focused LIP Discussion Thread

[dob]

This is a discussion thread for a candidate parameter change LIP related to inflation in the Livepeer Network.

Background

Inflation on the Livepeer network is adjusted dynamically each round. The protocol targets a certain percentage of the overall supply of LPT staked (50%), and if participation is below that amount, inflation ticks up incentivizing more people to stake through greater rewards. If it’s above that amount, inflation ticks down, ensuring the network isn’t issuing more LPT than necessary. Since the migration to Arbitrum a couple years ago, the participation rate has hovered in the 40-50% range, which has lead to steadily increasing inflation rate on the network.

In annual terms, inflation currently sits at about 25.6%, and since this is distributed to the 44% of stake on the network, the rewards for staking LPT is currently 58% annually. Over 23,000 LPT are available to be claimed by orchestrators and delegators at the moment.

In a purely theoretical sense, there are very few drawbacks to this. Those who are powering the network are increasing their ownership of the network at a faster and faster rate. And those who are sitting on the sidelines and not participating, are seeing their stake in the network diluted. However in practical terms, there are a few negatives that have been pointed out.

Namely, this is a significant amount of perceived value that is being issued out into the market, there are risks of negative perception, those operating on the network (or those who are staking but are not necessarily helping to power a global video and AI infrastructure) may be being “overpaid”, relative to the amount of work that is actually coming in to the network in fees. Without diving too far into speculative details, it presents risk to the perception of LPT, and therefore to the project itself, should inflation rate run away indefinitely.

The disaster scenario is a death-spiral type effect, where so much inflationary LPT is hitting the market, leading to very little perceived value in the token, and therefore less interest/belief in the project, less participation, and onwards down the line. There is so much positive substance behind this project, network, and ecosystem, that we wouldn’t be doing the project justice by allowing that scenario to occur.

The first two steps towards a solution

For discussion, and future LIPs, I’d like to suggest a simple starting point solution.

1. In the short term, we vote on a parameter change proposal that changes two params: targetBondingRate and inflationChange. This would have the effect of getting inflation trending downwards from its current rate, instead of increasing every day as it has.
2. When the inflation rate comes into an acceptable range, likely in a 9-15 month timeframe, we consider a protocol upgrade LIP that introduces two new parameters: inflationCeiling and inflationFloor. This would bound inflation within a range that the community deems healthy and acceptable, without worrying about runaway inflation or inflation hitting zero. It’s hard to say what the ideal range is, but let’s assume it’s somewhere between 2%-10% annual inflation, based upon what we observe in other healthy, fee generating, stake based ecosystems.

In the future, as fees tick up and become a bigger part of orchestrator and delegator income, we can also consider more dramatic changes to the participation incentives in the network. Or even alternative economic models than what Livepeer has been operating under for years. But this proposal aims for a quick and understandable solution that gets things moving in the right direction, without disrupting the expected economic assumptions under which people are participating in the network.

Initial values, proposed values, and impact

What are the current values of targetBondingRate and inflationChange, and what should the newly proposed values be?

• targetBondingRate is currently 50% - represented onchain as 500000000.
• inflationChange is currently 500. This has the impact of of adjusting the inflation rate each day in one direction or another by 500/1000000000, or .0000005. A small change each day, but it adds up over time significantly.

Part of the purpose of this discussion thread is to capture input and suggestions as to what these values should be adjusted to. But I’ll share some candidates and some modeling so that people can observe the impacts and play around with the values to see what happens for themselves.

As for targetBondingRate, we should think about setting it to 33%. This is:

• Below the current participation rate of 44% so inflation would start to trend down rather than up.
• Represents an understandable target #, of 1/3rd of LPT staked and participating at any given moment - with the rest available for participation in onramps/offramps, DeFi integrations, and liquidity venues.
• Is justifiable in terms of security provided to the network based on perceived market cap of LPT. When the 50% target was set initially, the market cap was under $10M USD, with the justification that $5M of value at risk would be enough to secure streaming use cases. Given the current market caps, 33% of that value seems to be enough to secure streaming and AI workflows for users of the network.

As for inflationChange, there is a whole range of possible values above 500 that this could be set to, depending upon how quickly we want to feel the effects of reduced inflation. I’d consider 1000 to be a reasonable candidate value, represented by 2x the current level. View this chart to see the impact of leaving it where it is (1x), doubling it (2x), or tripling it to 1500 (3x). You can see the dates in the future that the network would hit these thresholds of 10%, 5%, and 0% annual inflation, and how many LPT would be in circulation at that time. There are currently 37.9M LPT in circulation.

This chart was pulled from an imperfect spreadsheet that assumes inflation rate rises until the proposal passes, and then drops indefinitely. You can view the sheet here, modeling doubling (2x) the inflationChange value, and assuming about 33% of newly issued LPT unbonds each round.

You can see that if we do not change this parameter at all (first row), then it will take about 2 years for the annual inflation to trickle down to 10%. Whereas if we double the rate of change, it will take about 1 year to hit that milestone, and another 4 months beyond that to hit 5%. Tripling it has the dramatic effect of trending inflation towards zero in only a little over a year’s time.

The time to consider enacting a further proposal to introduce a ceiling and floor, if that is of interest to the community, would be the time period between hitting 10% and then 0%.

One nice thing about the impact of this potential change is that it will only be felt gradually over time. The day following the proposal there will be almost the same exact # of LPT minted and distributed as the day before. The model shows about 24,600 LPT being issued/day at that theoretical point. 1 month later, it will still be issuing over 24K LPT/day. It will take 5 months before the issuance falls below 20K LPT/day. So there is little risk of this being immediately disruptive to any network participants, or their assumptions of income within the next 6-12 months.

Finally, don’t forget that inflation is distributed only to those who stake. So if you assume a 44% participation rate is maintained, a 10% inflation rate still equates to a 22.7% annual gain relative to stake - a fairly nice incentive that should help continue bootstrapping the hardware on the GPU network for AI and video transcoding.

Counter Arguments or Alternative Paths

There are a number of valid questions or concerns that have come up around this in the past. Let me get ahead of some of the obvious ones in Q&A format.

The network is overpaying to node operators who aren’t transcoding. Don’t we need to fix the whole incentive and participation model, rather than just change a couple inflation parameters?

This has been discussed frequently, and certainly has some merit. Many proposed solutions run into challenges however around identifying “real” vs “fake” work intended to game the rewards systems. It’s also been recognized that non-performing-nodes aren’t really harming the network significantly, and would themselves be better off as delegators supporting other active nodes. Dramatic changes to the economic model would likely require major protocol upgrades - essentially a Livepeer 3.0. That’s certainly possible, but I think it should be addressed outside the small scope of this proposal - potentially via public goods funding via a protocol R&D SPE.

What about less issuance through a change to the inflation curve?

There’s an interesting case going on in Solana right now, where they feel the inflation is overpaying the network operators, and are proposing an updated issuance formula. I actually like that formula and think it’s reasonable. But it would present an “overnight shock” to the Livepeer ecosystem - where rewards would dramatically fall immediately as the proposal was implemented. We can of course discuss and consider whether a dramatic change is welcome, but I like the idea of a very gradual change over time without any jarring impact that violates anyone’s assumptions.

Why is Livepeer changing the rewards on us?

It’s important to point out that a change like this can only occur through the years-old LIP process which outlines community governance of the Livepeer protocol. It will be discussed, proposed, and voted on by the tokenholders. Only if it passes will it take effect. Bitcoin has set a standard in the space for immutability, which is important in the case of something trying to be “global money” - people need to trust that the economic policy won’t change. But Livepeer isn’t trying to be global money. It’s trying to be the world’s open video infrastructure - and the governance process is set up to enable flexible iteration of the protocol in service of this mission.

What happens if inflation hits 0%?

I suggest that the community consider adding an inflationFloor parameter prior to this happening, so that they can determine the lowest acceptable inflation value. Perhaps 2%? That would be enacted in a different LIP, perhaps 6-12 months out.

What happens if participation rate drops below the new target?

This is a good question. If participation rate drops below the new target (33% suggested as a candidate), inflation would continue to rise once again. Either the community would determine this is ok, and all that very high reward would be distributed to those powering the network until participation rate rises again - or it might disprove the target participation rate experiment all together. The latter would lead us to consider adopting a more predictable inflation decline over time, such as the Solana example mentioned above, or used within other networks.

What’s next?

Please share any and all feedback here in the thread. We can discuss in an upcoming water cooler chat. And when it feels like all voices have been heard, we can move to an LIP process which includes the draft, last call, and proposal phases.

[Karolak]

This is a solid temporary solution.

The purpose of token emissions in Proof of Stake (PoS) networks is to attract stakers and validators to secure the network. But excessive issuance is costly because it imposes frictions on the network and crowds out SOL usage in DeFi.
Therefore, the most efficient amount of token issuance is the lowest rate necessary to secure the network.

I think this is the biggest disadvantage of the current inflation rate. It makes allocating LPT in LP and other defi products unprofitable and the token loses some of its use cases.

However, once ETH revenue increases, I’d like to see an additional parameter—a percentage-based tax on each ETH payout directed into the treasury. This could eventually allow us to phase out inflationary rewards, making the treasury more sustainable. There’s no need to reinvent the wheel—let’s adopt a proven model that already works.
This is a very good proposition, I am for dramatic change. Livepeer needs dramatic improvement in DEFI usecase.

SIMD-0228: Market-Based Emission Mechanism

On a related note, the treasury itself needs restructuring. I recommend looking at how Cow DAO manages theirs: Karpatkey Cow DAO Report. Their approach is diversified—they provide liquidity to pools, participate in passive income protocols like Aave, and allocate a portion of their revenue to the treasury. The rest is used for buybacks of their native token, strengthening its price and redistributing revenue to holders.

Right now, the treasury is losing significant potential income by sitting idle. For example, 700K LPT could easily be converted into $14M invested in MakerDAO at a 12.5% yield, generating enough revenue to cover at least three additional developer salaries. It would also help solve liquidity issues on DEXes. The opportunity cost is simply too high to ignore.

To maximize the treasury’s potential, Livepeer should adopt the following strategies:

1. Active Treasury Management – Partnering with an experienced treasury management team, similar to Cow DAO’s collaboration with Karpatkey, would enable better asset diversification, yield generation, and risk management.
2. Liquidity Provision – Allocating a portion of the treasury to provide liquidity on decentralized exchanges (DEXs) would enhance token accessibility, stabilize markets, and generate revenue through trading fees.
3. Revenue Generation – Investing idle funds in stable, yield-generating protocols (e.g., lending platforms or liquidity pools) could create passive income streams to fund development and operations.
4. Risk Management – Implementing a structured risk management framework with clear asset allocation strategies, diversification measures, and ongoing investment monitoring is crucial to mitigate potential losses.

By adopting these approaches, Livepeer can transform its treasury into a sustainable, revenue-generating asset—ensuring long-term stability and growth while reducing reliance on inflationary rewards.

[obodur]

Hi Doug,

I think fixing those inflation parameters to arbitrary and favorable-for-now values could set the network up for a possible re-change in the future, which would render the whole effort pointless and make it lose credibility. It’s not fine to make arbitrary changes to just make them serve the way it is needed for current conditions. Those parameters should dynamically depend on something. Maybe on market-cap, maybe on total revenue, or something else that is an indication of revenue conditions. At the end of the day, inflation should just be enough to sustain operators. Delegators, in theory, are delegating to earn Ether fees from the network (dividends) and so inflation rewards should only go to orchestrators; and be just enough to make them continue their operation if fees are not enough.
So;

1. Could maybe someone calculate the average operating expenses of an operator?
2. And then calculate how much more is needed for them when you subtract the average Ether earnings?

Also, I understand ether and lpt prices are volatile, so inflation parameters would be made highly dynamic taking those into account as well. In fact let’s scratch those targetBondingRate and inflationChange parameters altogether and have the number of daily printed lpt be calculated individually for each round depending on fees of that round in dollars. It’d be equal to (fees in dollars-avg.expenses in dollars)/avg.lpt price over that round.

As a delegator, I’m willing to give up inflationary rewards and just be okay with Ether fees (which is basically 0 - but that’s not the point) because this would at least make the idea of Livepeer defendable in theory. Otherwise this project is looking more and more like a well-intentioned but failed project simply because there is not enough demand but that it is printing money to keep itself going.

Thank you.

[stronk]

It’s challenging to incentivize participation while avoiding excessive inflation.
My thoughts on this:

• I am in favour of a 2-3x of the inflationChange parameter.

  I like the current curve which adjusts gradually. A sudden increase/decrease in participation already results in the inflation pie being cut in more/fewer pieces noticeably. But the resulting equilibrium could move faster towards the desired participation rate.

• I would prefer the participation target to be re-evaluated separately from the goal of reducing token inflation.

  I don’t like the idea of changing the target participation rate as a measure to limit inflation, but it might be time to re-evaluate the target participation rate anyway.

  BTW I am not sure what % of tokens are currently inaccessible due to how LPT was airdropped, although due to the compounding effect of staking those amounts might already be negligible by now?

  It is tough to get a sense of where exactly all those unstaked LPT are, which is important context to decide on a sensible participation percentage. Are they in exchanges still on L1? Providing liquidity? Just sitting idle in wallets?

  If 50% is decided to be the desired rate and inflation is not an incentive enough in itself, I would rather see other measures to limit inflation and look for other solutions to reach this participation percentage.

• I am in favour of a hard cap on inflation.

  Staking yield is high enough, yet it is not enough to increase network participation further. I’d rather see inflation capped at a sensible value, using the inflationChange parameter to gradually move down to the inflationCeiling, while a Delegator SPE focusses on token visibility or reducing barriers for Delegators.

[sbond]

Increasing only inflationChange, but not targetBondingRate would only cause inflation to increase faster, defeating the purpose of this proposal.

I am in favor of this as a whole, as it seems beneficial to the network long-term. Inflation floor/ceiling parameters seem like a great idea.

[stronk]

Increasing only inflationChange, but not targetBondingRate would only cause inflation to increase faster, defeating the purpose of this proposal.

It would indeed, and personally I wouldn’t vote in favour any proposal that accelerates inflation in any way.

We both want a lower inflation rate, just disagree on the timing and order of things.
I am only arguing that the targetBondingRate is set to a certain value for a reason. I wouldn’t want to lower it now, only to raise it again later on when the ceiling is implemented or when we decide inflation is low enough again.

---

If I am reading the Minter contract correctly, implementing an inflationCeiling should be relatively straightforward: add the inflationCeiling variable + getter/setter/constructor and modify this function to decrease towards the ceiling (iff above it).
But there is always extra stuff that goes along with modifying smart contracts. Could someone speak on what kind of timeframe or major barriers we would be looking at?

[dob]

Thanks for the feedback. There’re a number of different points brought up, so I’ll try to clarify a few things first…

• It’s come up in the watercooler and in some of the posts here that reducing the 33% target participation seems potentially A) too drastic, and B) too arbitrary. It has been mentioned that the target rate should be based on something a little more meaningful, which is fair. We’ll take a look at the average participation rates over a period of time as a consideration.

• Inflation is definitely incentivizing participation and increasing the participation rate, although it may have been counteracted by a few large unbonds. Since the turn of the year the p-rate has gone up from 40% to almost 45% - not exclusively from inflation, but inflation has definitely been a contributor. So even though it takes awhile, and has needed inflation rate to go high, it IS having an effect of increasing the p-rate.

If I am reading the Minter contract correctly, implementing an inflationCeiling should be relatively straightforward: add the inflationCeiling variable + getter/setter/constructor and modify this function to decrease towards the ceiling (iff above it).

Do you happen to have a candidate function that would

• Reduce the inflation rate towards the ceiling gradually rather than with a sudden shock to the system?
• Still take participation rate into account to incentivize the target? (Otherwise the target participation is just a useless vanity target, with no impact in the protocol incentives). Is your idea that the p-rate incentives would still exist ONLY when within the Ceiling and Floor range, otherwise it would use a different curve just to trickle downwards gradually?

It’s long been a call to the grants or research community to suggest a different curve than the linear increase/decrease - so it’s very possible, but no one has proposed one yet.

Could someone speak on what kind of timeframe or major barriers we would be looking at?

The protocol is pretty brittle at the moment, with lots of complex state management, bug fixes, etc over the years. The smaller the scope of the change, the more easy it can be validated via the test suite and simulation, and less need for audits and complex analysis.

I think the scope of change your suggesting is relatively straightforward and tractable, but the heavy lift would be the implementors convincing the community with enough confidence that they’ve tested/simulated the impacts and are convinced there’s no side effects. This is the sort of reason we need the protocol security SPE so that there are actually dedicated resources and experts on this. The Livepeer ecosystem has some of the expertise, but they’re largely prioritized on demand generation at the moment, so let’s use treasury funding to train up more people to focus on this.

---

Lastly, a quick response to @obodur’s comment about “the project just printing money to keep itself going.”

A) The whole point of this thread is to consider ways to limit inflation to reduce that and shift towards fees as a greater % of rewards. (And of course generating demand is a key priority and key to that whole effort).

B) Remember that the Livepeer tokeneconomics are not just “printing more money.” LPT isn’t money. Think of it as a years-long initial token distribution mechanic where the network ownership gets distributed to those who are showing up to do work and help the project accomplish its mission of being an open video infrastructure - whether that’s through node operation, staking, development through grants or treasury, primary capital contribution, etc. Right now that redistribution is happening faster.

Agree that the participation rate being based on something is a great concept. Fees are trivial to fake. “Real” work is impossible to detect vs gamed fake work. There are different economic models Livepeer can consider, and I welcome that research and discussion in other threads or on other work tracks. But I do want to remind everyone about practicality, and addressing one issue at a time with efficient solutions that help move the project forward - rather than disappearing for years on a brand new Livepeer 3.0 experiment that tries to address everything all at once.

[Jose_StableLab]

Thanks for raising this topic @dob. We agree addressing LPT inflation sooner than later will be positive for Livepeer’s economy and community sentiment. GovWorks is happy to support the transition of the consensuated measure (if any) into an LIP Proposal to go onchain for Protocol adjustment.

[obodur]

Hi…
Lpt is money in the sense that it’s keeping the network going with the price quotes that it offers to clients. The whole logic is that people are pooling their money into lpt (like crowdfunding) so that the orchestrators can charge much less than traditional compute clouds. “90% cheaper” is only possible because lpt is subsidizing orchestrators. -Lpt as money- is crucial and is the very core of this whole operation.
That’s why I think it should be inflated in a way that it’s just enough for operators to be able to break-even (plus a profit margin for them maybe). I think the entire tokenomics of Livepeer should be rewritten for the sake of not inflating Lpt unnecessarily; the sooner the better; otherwise this is not sustainable at all. If people just gave up pooling their dollars into lpt, this whole thing could collapse. (This is unlike most other crypto projects where tokens are just about ownership and voting power. Whereas Livepeer’s token is money too, feeding operators.)

---

On 2nd thought… Maybe lpt doesn’t need to subsidize Os. Maybe Ether fees are enough as they are right now. Maybe let’s just simulate a 0% inflation on Lpt and see if Os can break even with Ether fees even after they max their cuts to 100%.
For transcoding and for AI jobs. I’d go for that.
Can we at least simulate that situation?

[jjassonn69]

@obodur

the orchestrators can charge much less than traditional compute clouds. “90% cheaper” is only possible because lpt is subsidizing orchestrators. -Lpt as money- is crucial and is the very core of this whole operation.

This understanding in inherently flawed as its not the protocol that decides if an orchestrator is profitable and should be subsidised, orchestrators can charge less than traditional compute clouds because they are more efficient not because they are subsidised. Most of the inflationary rewards goto the delegators that hold the share of network tokens. They decide if they want to support an orchestrator by subsidising them by taking a cut from their part of the inflationary reward.

[obodur]

I can’t imagine that a total of 500 Gpus could ever be more efficient than AWS, Jason. I used to think like you too. “Oh Os don’t pay rent, they don’t have overhead costs like that and that’s why they can charge less.” I’m not an orchestrator but I imagine that’s not exactly the case. Aws has thousands of gpus. They paid much less than you to buy them from Nvidia directly in the first place. How can you possibly charge less than AWS? How could it ever be possible? It’s because something else is helping to cover your costs and that’s lpt. People buying the token and collectively driving its price to a certain level makes it possible. People are crowdfunding so that Livepeer can be a cheaper alternative to cloud. And this is a great thing. It’s the best idea but we just need to protect Lpt so it’s not unnecessarily inflated. And by that I mean, more than what operators need as help to cover costs.

[jjassonn69]

I understand your point, but its not about having a large numbers that makes it efficient. Imagine what goes into running AWS service, the man power, corporate management, advertising, brand recognition so on and on. Everything is priced into the service. But with orchestrators its very lean, you run gpus and get paid. Most of your costs are from electic bill, maintenance of the system and initial purchase. Orchestrator dont earn big bucks they run very lean.

There are orchestrator that have very small reward cut or even 0. How do you think they manage? Its a free market, the more efficient you are, more you can reduce your reward cut and attract more delegation which incase rewards delegators with more share of inflation for owing a share of the network. The delegators can choose to forgo some of the inflationary reward if they deem that the orchestrator who is also a active member of the community has contributed in more meaningful way than just running an orchestator.

I hope this clears some misunderstanding. I understand that its easier to think that inflationary rewards are subsidising the orchetrators when you see orchestrators with reward cut on upwards of 30. In the initial phase of the network that was maybe the case but as the network has matured to some state that is factually incorrect.

Finally I agree with your point that we shouldn’t inflate away the LPT then whats strictly necessary to run the network optimally for all participants, orchestrators, delegators and consumers.

[cult_leader_en]

I think @dob proposal makes sense. I think the 3x deflationary rate is the best approach. I am not sure slowly ticking down inflation will have any major benefits.

[stronk]

Do you happen to have a candidate function that would

• Reduce the inflation rate towards the ceiling gradually rather than with a sudden shock to the system?
• Still take participation rate into account to incentivize the target? (Otherwise the target participation is just a useless vanity target, with no impact in the protocol incentives). Is your idea that the p-rate incentives would still exist ONLY when within the Ceiling and Floor range, otherwise it would use a different curve just to trickle downwards gradually?

The idea is indeed that ‘the p-rate incentives would still exist ONLY when within the Ceiling and Floor range’:

• Inflation would be bounded within the floor and ceiling, ensuring a smooth transition if the floor or ceiling changes:
  • If the inflation rate is above the ceiling, it will always decrease based on the inflationChange (just as if the p-rate > target p-rate).
  • If the inflation rate is below the floor, it will always increase based on the inflationChange (just as if the p-rate < target p-rate).
• Otherwise just follow the regular logic to adjust based on the target p-rate, while respecting the floor and ceiling.

I made a draft PR to outline how an implementation like this would look like.

[dob]

Thanks. This proposal does seem like a reasonable candidate. One of the main differences is that it would require the code changes (you’ve already started), with comprehensive testing and review to ensure no negative impacts or mistakes, relative to the parameter change only proposal. If we did want to move forward, we’d also have to suggest candidate floor and ceiling values for the inflation param.

What do you think about?

inflationCeiling = 250,000
inflationFloor = 50,000

Which corresponds to approximately 2%-10% annual inflation range? These params can be moved via community governance at any time. Though I’d imagine the proposed initial values will be pretty sticky for awhile and have a big impact and people’s eagerness to accept. Without a long expose, the max bound is reflected as a little bit beyond what you see in your typical fee-generating DePIN network, of around 7.5%, in order to give some room for addiitonal incentivization when below the participation rate. This would equate to greater than 20-25% annual increase in network ownership for a delegator when below the target participation rate.

[gringojerry]

Hi there,

I want to provide some insight on the whole inflation discussion from someone who has been running an orchestrator for the last 3 years, who is not involved in the management and development of the project & who is not very “emotionally attached” to Livepeer. Think of me as a “Livepeer normie”.

IMO, the real problem is not the inflation increasing. The inflation increase is the result of two other issues:

• delegators leaving (from 4.2k when Livepeer migrated to L2 to 3k now)
• transcoding fees are low due to lack of transcoding demand.

@obodur

“Oh Os don’t pay rent, they don’t have overhead costs like that and that’s why they can charge less.” I’m not an orchestrator but I imagine that’s not exactly the case.

@jjassonn69

But with orchestrators its very lean, you run gpus and get paid. Most of your costs are from electic bill, maintenance of the system and initial purchase. Orchestrator dont earn big bucks they run very lean.

Using your GPUs at home is not enough for running a transcoder. I started with running a orchestrator and transcoder at home. I barely had usage. The most of my usage was when the “big orchestrators” did not have enough capacity. In some months, fees were not enough to cover the electricity costs, so i had to sell off some LPT produced from staking.

The only way you can get enough work to produce fees is by being located close enough to locations where test streams / broadcasters are from, which means renting out resources and running the orchestrators and transcoders on remote machines. Yes, more fees are produced, but you have higher running costs. More people move their stake to your orchestrator due to having better performance, so you produce more LPT from rewards.

@jjassonn69

There are orchestrator that have very small reward cut or even 0. How do you think they manage?

Through multiple ways:

• I’m 100% sure that there are cases of one person having multiple orchestrators. There is a person or organization who has about 10 orchestrators, most of them running with 0% reward cut and 90% fee cut and each orch having under or around 4000 LPT staked. The orchestrators might run on the same machines, to reduce costs. Having more small orchestrators might produce more fees than one bigger orch and/or the person has an orchestrator which has a very high reward cut. Sell the LPT produced by the orchestrator with the high reward cut to pay the running costs

• Running with 0% reward cut and a very low fee cut, get enough work to produce fees to get in the top 10 orchestrators. Support the running costs of your orchestrators and transcoders out of your own pocket. Once you have a high amount of LPT delegated to your account, increase the reward cut percentage. Most delegators won’t notice at first the reward cut increase, so they won’t migrate straight away to other orchestrators. Sell off the LPT produced after the cut increase to cover the running costs covered out of pocket and for profit. A prime example of this is kilout.eth, who has been ping-pong-ing with the reward cut, most recently 5 days ago, when it was changed from 0% to 50%!!!.

• Sell some LPT produced to cover the running costs (i.e. what most people are doing).

Currently, the fees produced by my orchestrator only cover about 20% of my monthly running costs. Setting my fee cut to 100% will cover less than half of the costs. So the only solution for me is to sell off some LPT produced through staking. And yes, I am selling slightly more LPT than needed to cover the running costs (if the price is high enough), for some small profit. The higher the LPT value, the less I need to sell.

So yes, “the project is just printing itself money to keep going”.

If I’m wrong, please share some detailed examples on how to run an orchestrator-transcoder efficiently. Real world examples, from the top players, as I’ve tried the idyllic approach of “just run it on your personal GPUs, just like mining” with little success.

@dob

Which corresponds to approximately 2%-10% annual inflation range?

Dropping the inflation rate quickly and by a great amount, from 60% to 10-15-20%, will result in delegators cashing out, which will lead to orchestrators selling off more LPT to cover running costs. And the spiral continues.

What can be done alongside implementing the inflation ceilling and floor?
Here are some suggestions:

1. Approach all major centralized exchanges and add support for depositing and withdrawing LPT directly on L2, ASAP.

Imagine you just found out about Livepeer. You want to buy some LPT and delegate it, because you found out that the yield is very high. Most likely, you will buy it from a CEX, withdraw it to L1, bridge it to L2.
Buying and delegating is not that bad, undelegating and selling is worse. You wait 7 rounds for your LPT to unstake (fair enough, no complaints here). You can sell it on a DEX, but the fees are higher than a CEX and, most, importantly, there is not enough liquidity on any DEX for buying or selling a high amount of LPT. So you need to bridge the LPT to L1, wait another 7 days, then deposit it to a CEX where you can sell it.

Make it easier for most people to aquire and stake LPT and to unstake and sell LPT. The easier it is to buy and stake LPT, the better for the ecosystem and the participation rate.

2. Add option to pay for transcoding fees in LPT, incentivize broadcasters to do so (or penalize broadcasters who don’t).

So LPT is being sold to pay for orchestrator running costs. Why not balance that out with some buys, to bump up the price of LPT. Provide to the broadcasters the possibility of paying for transcoding fees with LPT. Leave the option for ETH fees too, but add an overhead to it (the broadcaster should support the exchange fee + some extra LPT should be bought, more details at point 3).
As a broadcaster, I would go for the cheaper option. And given that I now have multiple ways of procurring LPT (as I can buy it from Binance and withdraw it directly to L2), it’s as easy as using ETH for fees.

3. Put the treasury to work.

Add the LPT from the treasury to the participation rate.
Add the LPT from the treasury to DEX liquidity pools.
If transcoding fees can be payed in both LPT and ETH, add a comission for ETH fees, use the comission to buy LPT, then stake it, add it to the treasury, or burn it. The comission can be implemented both broadcaster side or orchestrator side (percentage of fees withdrawn).

4. Add hard cap to minted LPT

Staking rewards can be received only until reaching set amout of circulating LPT, for example 100 million. Replace the participation rate with an “issuing rate” which now would be 38%. As more LPT is minted, inflation should decrease as it nears the max circulating LPT. The only way to increase the inflation rate is to burn LPT.

5. Hunt for more clients / increase demand of transcoding and AI jobs.

This is simple enough, more fees produced will lead to less LPT reward sells for monthly costs and profit.

[stronk]

Yeah, changing the Minter contract is not a short term thing, although it doesn’t have to be mutually exclusive with parameter only changes.

I think those inflation ranges sound fair. It’s quite a difference from current inflation levels, but personally I lean toward lower inflation and (hopefully) more initiatives from SPEs to boost participation or reduce staking barriers. That feels like a more effective way to distribute LPT than relying solely on inflation, while still providing quite a bit of return for stakers.

[awma]

Hello Livepeer community!

Chris Hobcroft drew my attention to this discussion. Recently, my research team and I have been looking into similar incentive/demand controller mechanisms (Ethereum EIP-1559 basefee, EthSwarm price oracle) and I believe we may be able to contribute to the conversation here.

(Little background: I’m a mathematician working on mechanism design and economic modelling in DePIN projects with a small group of collaborators. We’ve been doing a lot of work with the EthSwarm project. I can provide links to some of our previous output if there’s interest.)

As a newcomer to the Livepeer ecosystem my opinion may not count for much, but I did have some immediate thoughts on the discussion that the community may find helpful:

1. As @stronk suggested, separate the issues of tweaking participation rate and limiting issuance. According to @dob’s original article on the issuance mechanism, the participation rate target was introduced as a principled approach to issuance control. But now the community is concerned about runaway issuance for reasons that are not “downstream of” the participation rate, in the sense that if the issuance controller were defined differently, participation rate might not have entered this discussion at all. Therefore, to modify the target as a response to runaway inflation is to abandon the founding assumption that issuance should derive from participation rate.
2. Given that the actual concern here is that issuance is getting too high, a more direct and easy to understand measure is to cap issuance directly. Making adjustments to the cap later on after a more thorough investigation wouldn’t be a big problem — in DeFi, regular parameter updates are the norm, and this matter is financial in nature.
3. Any measure to change the issuance rate mechanism parameters will induce an immediate revision of expectations about future issuance, and hence immediate repricing of bonded LPT vis-à-vis liquid LPT. If the community wants to act quickly, they should at least first try to estimate the size of this shock (unbonding event + likely LPT/USD price volatility) and decide whether that size is acceptable.

If there’s community interest in pursuing further research to develop a more principled approach to this matter, we can help with conducting that project. But taking action to control inflation in the immediate future needn’t be blocked on it.

[obodur]

Minting lpt and distributing it to operators to cover costs should have been for a limited amount of time until adoption and until fees were finally enough for self-sustainability. It’s been 8 years though. I don’t think this is gonna work out. I’ll come back as a delegator when Eth fees are enough to sustain the network.

Let me explain from a different angle. I had half a million dollars invested in this over 3 years. For the last 1 year, I’ve been a delegator. I made maayyybe $500 in Eth… The rest of my earnings came from minted Lpt. True, I knowingly picked Os that maxed their Eth cut in order to get as many Lpt as possible but even if I had picked an O with 0% Eth cut, I’d have gotten no more than $5000 in Eth against half a million dollars! This is obviously not acceptable. It’s not sustainable. Livepeer needs more demand and it needs it fast. It’s been 8 years already.

Now, obviously this is a business for orchestrators and livepeer studio. Of course, they’d continue to do what they have been doing. But for delegators, it’s a waste of opportunity cost. That said, we have all been counting on Lpt price to increase but part of the problem why that’s not gonna happen is high inflation, but then again without that inflation operators cannot continue.

[Virous77]

As a long term investor and supporter of Livepeer i think lowering Livepeer inflation rate below 10% is critical for the long-term health of both the network and its participants. High inflation leading to excessive token dilution, weakening incentives for long-term holders and reducing the overall stability of the ecosystem

Stronger Token Value: Excessive inflation puts downward pressure on price, discouraging investment and long-term staking. A controlled rate supports a healthier market.

Network Security & Participation: A reasonable inflation rate encourages organic staking without forcing inflation-driven participation, leading to a more secure and decentralized network.

Alignment with Broader Crypto Standards: Many successful protocols (Ethereum post-merge, Cosmos with dynamic inflation control) have optimized their issuance models to ensure sustainability. Livepeer should follow suit to remain competitive.

A lower, predictable inflation rate will instill confidence among delegators, investors, and the broader community—ensuring Livepeer’s long-term success.