Network Economics Update - 7/4/18 - Ethereum Gas Market Edition


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The Livepeer network is currently in round 1024 which is the 63rd round since the launch of the network on May 1st 2018 which was round 961. Below are the latest observations on the state of the Livepeer network economy:

Parameter Value Notes
Total LPT Supply 10,144,010 The total supply of LPT
Total LPT Generated 144,010 The amount of inflationary LPT that has been generated by calls to reward() by transcoders and distributed towards those who stake and delegate their token. This amount is in addition to to the initial supply of 10,000,000 LPT at network launch which is being slowly released over a 36 month period via the MerkleMine and vesting grants
Total LPT Staked 263,451 The amount of LPT that is currently staked
Participation Rate 2.60% The percentage of all LPT that is being staked. The target rate is 50% which should take at least 12-18 months to approach due to the slow release of LPT in the MerkleMine
Inflation 0.0329% The current per round inflation rate. Every round that the participation rate is below 50%, the inflation rate will increase by .0003%
Current Mintable Tokens 3336 The amount of LPT that can be minted this round and distributed towards those who contribute work on the network by staking and delegating tokens

Gas Markets and Network Fees
The big event effecting the Livepeer network this week is actually external to Livepeer and is effecting the entire Ethereum ecosystem - due to increased demand on the Ethereum network, gas prices to get transactions included quickly have increased dramatically to 65x-350x the prices seen just days previously.

The number one contributing factor to this increase in demand is an exchange which is using an on-chain voting mechanism to determine what tokens to list next. They are counting votes by the number of transactions issued that transfer a specific token, and therefore supporters of those tokens are incentivized to spam the network at high cost in order to gain financially.

While it’s easy to criticize the exchange for their mechanism design and behavior, the fee markets are working as they’re supposed to, and as long as there are incentives for users to pay high fees in order to facilitate their blockchain based use case (speculating, voting, gambling, exchange, resource allocation, etc), this will continue to be an issue at times of peak demand.

How does this affect Livepeer?
Well, just like all other protocols running on Ethereum, Livepeer was more expensive to use during the last few days than it was previously. Bond() transactions that formerly would have cost 0.0005 ETH cost 0.02 ETH today, and could be as high as .15 ETH at peak if anyone had been willing to pay that much to get a fast confirmation. Initializing rounds, which formerly cost .003 ETH, yesterday cost 0.113 ETH (or $50 USD). Needless to say, these costs result in different economic calculations for users when deciding how active to be in participation within the Livepeer protocol?

Do you bond your token immediately in response to a changing network condition such as a transcoder reward cut change, or do you wait until gas prices return to a lower level so that executing that transaction is cheaper and you save on gas? These are the sorts of tradeoffs that users will be considering, and sure enough, the # of txns was down over the last couple days as users wait out more cost-effective times to participate.

The Path Forward
The good news is that the Ethereum scaling roadmap aims to address this via layer 1 solutions, such as sharding and the switch to Casper PoS. In fact this week Livepeer.tv broadcasted a sharding summit featuring Ethereum core researchers presenting incredible progress on these fronts.

And additional layer 2 solutions will allow protocols and applications like Livepeer to leverage app specific chains that reduce resource contention, payment channels that reduce the number of txns, yet still give the users the ability to control their economics and operate in a trustless way.

It’s early days, and the decentralized tech ecosystem is nascent while all of this great technology is being built out. We’re glad to be a part of the early web3 stack, and contribute to the research and development of solutions that not only make these systems trustless and decentralized, but also scalable and cost effective.

Development on the scaling roadmap continues with v2 networking, offchain job negotiation, and research into app-specific chains with value secured by the main Ethereum network for users. Follow along on Github in the research repo, and join the discussion.