> ## Documentation Index
> Fetch the complete documentation index at: https://docs.livepeer.org/llms.txt
> Use this file to discover all available pages before exploring further.

# LPT Tokenomics

> Formal economic model of LPT issuance, bonding dynamics, reward distribution, and security equilibrium.

export const MathBlock = ({latex, className = "", ariaLabel, style = {}, ...rest}) => {
  const value = latex === null || latex === undefined ? "" : String(latex);
  if (!value) return null;
  return <div className={className} aria-label={ariaLabel || "Math expression"} style={style} {...rest}>
      {`$$\n${value}\n$$`}
    </div>;
};

export const MathInline = ({latex, className = "", ariaLabel, style = {}, ...rest}) => {
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  if (!value) return null;
  return <span className={className} aria-label={ariaLabel || "Math expression"} style={style} {...rest}>
      {`$${value}$`}
    </span>;
};

## Executive Summary

LPT tokenomics defines how the Livepeer Protocol issues new supply, adjusts inflation relative to security participation, distributes rewards, and maintains a capital-backed security equilibrium.

The tokenomics model is implemented at the **protocol layer (on-chain)** via staking, inflation adjustment logic, and deterministic reward allocation.

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<Accordion title="Technical Reference: Formal Tokenomics Model" icon="function">
  ## 1. Formal Variables

  Let:

  * <MathInline latex={String.raw`S_t`} /> = total LPT supply at round <MathInline latex={String.raw`t`} />
  * <MathInline latex={String.raw`B_T`} /> = total bonded LPT
  * <MathInline latex={String.raw`B_i`} /> = bonded stake attributed to participant <MathInline latex={String.raw`i`} />
  * <MathInline latex={String.raw`\beta`} /> = bonding rate = <MathInline latex={String.raw`\frac{B_T}{S_t}`} />
  * <MathInline latex={String.raw`\beta^*`} /> = target bonding rate
  * <MathInline latex={String.raw`r_t`} /> = inflation rate applied in round <MathInline latex={String.raw`t`} />
  * <MathInline latex={String.raw`\alpha`} /> = inflation adjustment coefficient
  * <MathInline latex={String.raw`c_O`} /> = commission rate set by Orchestrator <MathInline latex={String.raw`O`} />

  ***

  ## 2. Inflation Issuance Model

  Per round <MathInline latex={String.raw`t`} />, newly minted LPT:

  <MathBlock latex={String.raw`R_t = S_t \cdot r_t`} />

  Supply update:

  <MathBlock latex={String.raw`S_{t+1} = S_t + R_t`} />

  Inflation therefore compounds relative to current supply.

  ***

  ## 3. Bonding-Rate Feedback Mechanism

  The protocol adjusts inflation according to the deviation between the current bonding rate and target bonding rate.

  Current bonding rate:

  <MathBlock latex={String.raw`\beta = \frac{B_T}{S_t}`} />

  Adjustment rule:

  If <MathInline latex={String.raw`\beta < \beta^*`} />:

  <MathBlock latex={String.raw`r_{t+1} = r_t + \alpha`} />

  If <MathInline latex={String.raw`\beta > \beta^*`} />:

  <MathBlock latex={String.raw`r_{t+1} = r_t - \alpha`} />

  This creates a control loop:

  * Under-bonded system → higher inflation → stronger staking incentive
  * Over-bonded system → lower inflation → reduced dilution

  The system seeks equilibrium where <MathInline latex={String.raw`\beta \approx \beta^*`} />.

  ***

  ## 4. Reward Distribution

  Total issuance per round <MathInline latex={String.raw`R_t`} /> is distributed proportionally to stake weight.

  Define economic weight:

  <MathBlock latex={String.raw`W_i = \frac{B_i}{B_T}`} />

  Allocation to Orchestrator <MathInline latex={String.raw`O`} />:

  <MathBlock latex={String.raw`R_O = R_t \cdot \frac{B_O}{B_T}`} />

  Delegator <MathInline latex={String.raw`D`} /> bonded to Orchestrator <MathInline latex={String.raw`O`} />:

  <MathBlock latex={String.raw`R_{D,O} = R_O (1 - c_O) \cdot \frac{b_{D,O}}{B_O}`} />

  This separates gross issuance from commission-adjusted Delegator returns.

  ***

  ## 5. Issuance vs Fee Revenue

  Returns to bonded participants may consist of:

  1. Inflation-based issuance (supply expansion)
  2. Fee revenue from video/AI workloads (demand-based)

  Total reward to participant <MathInline latex={String.raw`i`} />:

  <MathBlock latex={String.raw`Reward_i = Issuance_i + Fees_i`} />

  Inflation is protocol-determined; fees are market-driven.

  Tokenomics must therefore be evaluated in two components: issuance dynamics and network demand.

  ***

  ## 6. Security Equilibrium

  Security cost for adversarial control scales with bonded stake.

  Let <MathInline latex={String.raw`\theta`} /> be the threshold fraction required to influence governance or allocation.

  Required capital:

  <MathBlock latex={String.raw`Capital_{attack} \geq \theta B_T`} />

  Increasing <MathInline latex={String.raw`B_T`} /> increases the cost of control.

  Inflation adjustment encourages equilibrium around a stable security participation rate.
</Accordion>

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## 7. Economic Tradeoffs

| Mechanism                | Tradeoff                                  |
| ------------------------ | ----------------------------------------- |
| Dynamic inflation        | Stability vs responsiveness               |
| Delegated staking        | Accessibility vs centralisation risk      |
| Capital-weighted rewards | Security strength vs wealth concentration |

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## 8. System Diagram

```mermaid theme={"theme":{"light":"github-light","dark":"dark-plus"}}
flowchart TD
    BondedStake["Total Bonded Stake B_T"]
    Supply["Total Supply S_t"]
    BondedStake --> BondingRate["Bonding Rate β"]
    Supply --> BondingRate
    BondingRate --> InflationAdjust["Adjust r_t"]
    InflationAdjust --> Issuance["R_t"]
    Issuance --> RewardDist["Proportional Distribution"]
```

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## 9. Protocol vs Network Separation

**Protocol Layer (On-Chain):**

* Inflation calculation
* Bonding rate adjustment
* Stake accounting
* Reward minting

**Network Layer (Off-Chain):**

* Fee generation from workloads
* Operational performance
* Job routing

Tokenomics governs issuance; network activity governs fees.

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## References

* [Livepeer Protocol Repository](https://github.com/livepeer/protocol)
* [Contract Registry](/v2/about/resources/reference/livepeer-contract-addresses)