Before getting into the Livepeer token, it is worth noting that developers (broadcasters) pay to use the network in Ethereum's ETH. ETH is the medium of exchange token in the Livepeer network.
The Livepeer Token is a protocol token for staking, used by those who want to perform work on the network, that serves the following purposes:
- It serves as a bonding mechanism in a delegated proof of stake system, in which stake is delegated towards transcoders (or validators) who participate in the protocol to transcode video and validate work. The token, and potential slashing that occurs due to protocol violation, is necessary in order to secure the network against a number of attacks. More below.
- It routes work through the network in proportion to the amount of staked and delegated token, essentially serving as a coordination mechanism. It is a unit of account that is specific to the Livepeer ecosystem. Services such as DVR, closed captioning, ad insertion/monetization, and analytics can all plug into the Livepeer ecosystem and potentially make use of the security provided by staking LPT.
- The ledger of token balances and double spend prevention are provided and secured by the underlying Ethereum blockchain consensus mechanism. Livepeer is an inflationary token in which new token is generated by nodes who run the Livepeer Media Server and perform transcoding, in proportion to the amount of work that they contributed to the network. Nodes who don't perform work correctly or attempt to cheat will have their token stakes slashed. This has the effect of routing more future work, and fees, towards the nodes who have successfully performed work in the past.
Assuming competition amongst nodes to win broadcasting business and the associated fees in ETH, any increase in proportional amount of token, and hence future work, that can be earned for performing transcoding will equate to a drop in the cost that must be charged to the broadcaster. This creates a positive economic effect for broadcasters looking to transcode live video through the Livepeer Network.