METHODOLOGY

For a full description of our methodology, click here.

Theta Token: SIMETRI Research Digital Asset Report and Rating
T

SIMETRI: Full Digital Asset Report & Evaluation

A standardized, dynamic approach to evaluating blockchain-based projects and identifying long-term value and potential in the associated crypto-assets.

Market Opportunity
7
Ecosystem Development
6.3
Token Economy
7.9
Token Performance
6.1
Core Team
7.8
Underlying Technology
7.4
Roadmap
7.5
FINAL GRADE
7.2

SUMMARY

The Theta Network is a blockchain platform and open source infrastructure for decentralized video streaming applications.

The Theta Labs team wants to deliver faster, cheaper and better quality video to users all across the world and see blockchain technology as the best way to do so.

The project began in 2017 with a private token sale, raising a total of $20 Million. Since then, the project successfully launched their testnet, mainnet, and first application (Sliver.tv). If the project continues on its current trajectory, Theta could become a valuable player in the blockchain-based content delivery market and potentially compete with traditional platforms.

Centralized online video platforms such as Twitch, Youtube and Facebook are struggling to meet the growing demand for online video streaming with their current infrastructure - data center and Content Delivery Networks (CDNs).

These problems are most prominent in the developing world where digital infrastructure is not optimised and content delivery is difficult. These technical challenges are set to further intensify as demand for 4K, 8K and Virtual Reality streaming increases over the next decade.

Furthermore, these same platforms are at-odds with content creators who complain that they are charged unreasonable royalty fees for the maintenance and use of the platform. For example, Youtube charges 45% royalty fees on advertisement revenue, while Twitch charges 50%.

Theta Network aims to compete with traditional data centers and CDNs by leveraging the collective computer power and bandwidth of users. Users earn cryptocurrency rewards for sharing bandwidth and computer resources with the rest of the network. These resources facilitate high quality video streaming to other users while simultaneously reducing the cost of video delivery, relative to traditional methods.

Additionally, the team has built out a thriving ecosystem with top quality partners, advisors, investors and active community members. Consequently, Theta can leverage its existing network of advisors and partners to further drive future adoption.

Despite this, there is one major challenge that must be tackled for The Theta Network to reach full adoption - decentralization. It seems as though the Theta Labs team traded off decentralization in the short term in order to achieve speed and security. Which to be fair is not abnormal for such a young project. Its important that where possible centralization of power over the network by Theta Labs be minimized and distributed instead to the community as well as partners.

In general however, The Theta Network has a good chance to grow and prosper along with demand for blockchain video streaming, which is expected to rise substantially over the next decade.

Theta Market Opportunity

The Theta Network aims to serve two different market niches within the online video industry. Firstly they are targeting live video streaming. Eventually as the platform evolves Virtual Reality video streaming functionality will also be made available.

Secondly, there is the Video on Demand (VoD) market which The Theta Network has plans to grow into and serve further down the line. Once this functionality has been achieved through continual upgrades to the protocol, applications built on The Theta Network will (in theory) be able to rival the likes of YouTube, Twitch and Facebook. 

According to Statistics MRC, the global video streaming market is expected to reach $83B by 2022, growing at a compound annual growth rate of 17.9% from 2015 to 2022. Meanwhile, Renub Research states that the global Virtual Reality market will be worth $55B 2024 and expected to grow with a staggering compound annual growth rate of 44.05% into the future. 

 

Theta VR Global Traffic Growth

 

Due to growing interest in video streaming and game streaming content the market will likely continue to expand. Creating a platform capable of serving both of these markets simultaneously Theta has a huge market potential with plenty of room for sustained growth.


Blockchain competition in the streaming content arena

The integration of blockchain technology and online video services is a logical combination to many, not least so that crypto tokens can be used to reward frequent users, content creators and provide on chain voting to users. So then, we might expect that there are many projects attempting to capture a share of the market.

The only projects that show significant signs of future growth potential and serious competition to Theta are Lino Network and Livepeer. 

Lino Network – the Lino Network is a blockchain platform designed to optimise live video streaming for dApps who choose to build on it. It’s dApp, DLive.tv, offers a blockchain-based streaming service that is a direct competitor to Twitch, and it is doing well in terms of brand recognition and user adoption. This brand recognition has largely been driven by PewDiePie the most subscribed to Youtuber, who has agreed to regularly do exclusive live streams on DLive.tv. 

The Lino Network is therefore a serious competitor to The Theta Network as its brand recognition and influencer marketing may divert investors, partners and users from Theta towards itself. This hinders adoption and renders Theta irrelevant.  

Livepeer – Technically speaking Livepeer is a dApp built on top of Ethereum and is not its own protocol. As stated in the Whitepaper, Livepeer is designed to allow any node to send a live video into the network and have it accessed by users all across the world. 

Livepeer is a serious competitor to Theta for a few reasons. Firstly, it is built on top of Ethereum which has one of the largest and most committed communities in the entire blockchain space. This generally means that the Ethereum community will be favorable to Livepeer as it works to drive adoption and utility of the underlying platform.

Additionally, many of the Ethereum community members will have ERC-20 compatible wallets and so when Livepeer eventually launch their own token it will be easily stored, transferred and spent among Ethereum community members. This network effect combined with the security of Ethereum make it a long term threat. In the short term, however, Ethereum’s scalability issues should massively hinder Livepeer’s usability and rate of adoption. 


Traditional Competitors 

Twitch, Facebook Watch and YouTube primarily make their revenues via video streaming and related services, therefore the market caps of each company are derived from these revenues.

Consequently, YouTube, Twitch and Facebook’s combined market caps ($722 Billion) can be used to indicate what the blockchain video streaming market may be worth at some point in the future.

Additionally, the fact that Steve Chen, Co-Founder of Youtube and Justin Kan, Co-founder of Twitch are official advisors to Theta indicates that Theta has been recognized for its merits and future potential. Otherwise the project would be ignored along with the rest of the blockchain video streaming ventures. 

The market opportunity for blockchain video streaming is at present quite small, there are a few startups attempting to build MVPs and user adoption but nothing significant yet.

However, as traditional video streaming infrastructure is put under more strain due to demand for 4K, 8K and VR streaming, the blockchain video streaming market will become a viable (as explained later in the report) alternative for users to migrate to. In turn, this will lead to exponential growth in the value of the blockchain video streaming market and incumbent projects.

At this time, Theta is in the strongest position to capture that growing market, drive adoption and strengthen the value of the underlying assets. SIMETRI Analysts

 

Theta Advisory Team


Theta Underlying Technology

Theta aims to drive forward the evolution of video streaming on blockchain and has employed various novel technologies to achieve this. The Theta Network uses a ‘multi-level BFT’ consensus mechanism, an Aggregated Signature Gossip Scheme and Resource Oriented Micropayment Pools to ensure the protocol is secure, scalable and efficient. 

Multi-Level BFT Consensus Mechanism 

The ‘multi-level BFT’ consensus mechanism used to secure the Theta is a form of Delegated Proof of Stake (DPoS) and consists of two stages. The first stage consists of 10-20 Validator Nodes called the validator committee mining blocks and verifying transactions on the network.

Currently, the small number of nodes are mainly run by Theta Labs and partners, they allow for rapid transaction verification and therefore large throughput on the network. When the mainnet was initially launched the Validator Nodes were and are still run by Theta Labs, which will then be followed with additional Validator Nodes operated by key strategic partners. 

Guardian Nodes

The second stage is composed of Guardian Nodes, which are run by the community to verify the block finalization. As stated in the Whitepaper, eventually it is intended that the best performing nodes, as gauged by their node availability, hardware and bandwidth requirements, staking amounts etc. may be eligible to participate as a validator node on a rotating basis.

The guardian pool, which consists of the Guardian Nodes, will double check the validity of the blocks and ensures no bad actors have been able to game the system (double spend). The guardian pool verifies the validity of blocks by only needing to agree on the hash of the checkpoint blocks.

‘Agree’ in the way it’s used here means there is more than a ⅔ consensus that blocks are valid. As stated in the Whitepaper, this “leapfrogging” finalization strategy leverages the immutability characteristic of the blockchain data structure — as long as two guardian nodes agree on the hash of a block, they will, with overwhelming probability, have exactly the same copy of the entire blockchain up to that block. Finalizing only the checkpoint blocks gives sufficient time for the thousands of guardians to reach consensus.

Incentivization

To incentivize both Validators/Guardians to participate in consensus the network there will be block rewards built into the consensus mechanism. All the Validators Nodes can get a share of the tokens for each block. However, this is not the case with the Guardian Nodes.

Due to the fact that there will be thousands of Guardians in the Guardian Pool and they all contribute to consensus, once launched on mainnet there will be an algorithm to randomly pick a limited number of Guardians for the block reward. Of course, the smaller the number of Guardians on the network the greater a Guardians chances of winning the reward. In order to achieve the optimal number of Guardian Nodes, roughly 1000, the network requires approximately 100,000 – 1,000,000 THETA tokens to be staked per Guardian Node to participate in consensus. This number is adjusted dynamically, depending on how many nodes are on the network at any one time.

Aggregated Signature Gossip Scheme

Aggregated Signature Gossip Scheme is one of the technologies required for the Multi-Level BFT consensus mechanism to achieve the high transaction throughput, security and decentralization previously mentioned. In essence, this communication mechanism between nodes ensures continued consensus whilst maintaining minimal storage requirements for nodes on the network. 

If all of the Guardian Nodes were to attempt to broadcast the block hash of each check point assigned to them to every other Guardian Node, due to communication overhead it’s unlikely that the network would be able to scale above 1000 TPS. To mitigate the risk of this happening the Theta Labs team is utilizing an Aggregated Signature Gossip Scheme. In this scheme each guardian node keeps combining the partially aggregated signatures from all its neighbors and then ‘gossips’ out the aggregated signature.

Resource Oriented Micropayment Pools

Resource Oriented Micropayment Pools are another feature on The Theta Network to enable users to create a payment pool any other users can draw down from. According to the Theta Labs team they are much more flexible than off-chain payment channels, drastically improve scalability and still maintains double spend resistance. An example when one of these pools will be particularly useful is when a user wants to pay for video content pulled from multiple caching nodes without the time constraints associated with on-chain transactions. 

 

Smart Contract Support

 

Another feature on The Theta Network to enable users to create a payment pool any other users can draw down from. According to the Theta Labs team they are much more flexible than off-chain payment channels, drastically improve scalability and still maintains double spend resistance. An example when one of these pools will be particularly useful is when a user wants to pay for video content pulled from multiple caching nodes without the time constraints associated with on-chain transactions. 

Turing-Complete Smart Contract Support 

Another major feature of The Theta Network is its support for Turing complete programming languages for smart contract creation and implementation. The Theta Network offers a smart contract runtime environment fully compatible with the Ethereum Virtual Machine. This allows for Solidity-based Ethereum smart contracts to be ported to the Theta network with little effort. 

One of the more common applications for smart contracts on The Theta Network will be for royalty distribution. Instead of having complex royalty settlement processes that favour the platform as seen on traditional video on demand and live video streaming platforms, The Theta Networks smart contracts can be designed to benefit the content creator, in a secure, transparent and immutable way. 

Theta’s GitHub account consists of 2 main repositories which previously had large amounts of activity but has decreased considerably after the launch of mainnet in March. At the present time there are 2 main contributors to main repository, collectively contributing 52 commits in the past 4 months. However, these repositories do not contain some important code, including Theta’s streaming or decentralized CDN repositories, in addition to the signature aggregation from gossip scheme.

When asked for an explanation of the low GitHub activity, the Theta Labs team revealed that: “Besides these two (repositories) we do have a couple of private Github repos that we are actively working on. We’ll decide if and when we will make them public.”

Overall, The Theta Network is powered by advanced underlying technologies including a 2 layer Delegated Proof of Stake consensus mechanism and Aggregated Signature Gossip Scheme. These and other technologies allow for a very large throughput on The Theta Network, which means that if a sudden wave of adoption does happen it should not negatively impact the efficiency of the network but in fact, improve it. 

That said, the lack of availability to core repositories on GitHub and the general rate of development on the public repositories is concerning. However, due to the imminent (Q3 2019) updates to the protocol it is likely that the team is actively working on the mentioned offline repositories and evidence of this will be visible once these updates reach the mainnet.


Theta Token Ecosystem Development

As the Theta Network is its own blockchain, the project has had to build its ecosystem from the ground up which includes investors, partners/applications, validators and community members. So far at least, the team have been able to build the strongest ecosystem out of the competitors detailed in the previous section. This has given Theta a solid start when it comes to attracting  partners and applications with substantial user bases. 

Node Concentration/Centralization

There are two types of nodes on The Theta Network, Validator Nodes and Guardian Nodes. There will be a total of 10-20 Validator Nodes on the network working to verify transactions and validate blocks. Meanwhile the pool of roughly 1000 Guardian Nodes are working on layer 2 of the protocol to ensure that the Validator Nodes are acting honestly and maintaining the integrity of the system. This system is called a Multi-Level BFT consensus mechanism and when fully operational will provide huge transaction throughput capacity for the network whilst maintaining security. 

That said, all of the Validator Nodes are still being run by Theta Labs. This comprises the integrity and safety of the network at least for the short term as the platform now has a central point of failure. The team acknowledge this and simply state that once Guardian Nodes are released in Q3 2019 it will improve decentralization and the integrity of the network. 

 

(Review date: July 9th, 2019. This is a partial report. For early access and the full assessment, click here.)

 

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