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Decentralization is the key benefit of blockchain technology and the race to apply it to video streaming is in full swing; Theta wants to usher video content into Web3 and create a new paradigm for how we digest and interact with our favorite video content.

Theta is no household name like Bitcoin (BTC-USD) or Ethereum (ETH-USD), but it may come as a surprise it was once a top 10 cryptocurrency by market cap before losing momentum (now ranked #51 by market cap).

According to Crunchbase, Theta Labs has raised $113 million in funding over five funding rounds. Theta has 32 employees based in the San Francisco Bay Area.

Theta is built on a decentralized video streaming network called Theta Network, which aims to disrupt the traditional video streaming industry. Instead of relying on ads or subscription fees to monetize content, Theta Network uses a dual-token system made up of the Theta USD (THETA-USD) token and Theta Fuel (TFUEL-USD) token to secure the network and incentivize creators and users.

Anything in our digital lives that is controlled by a large, centralized organization is ripe for disruption by blockchain technologies that can decentralize the respective use case and better align incentives between creators, users, and those providing the digital infrastructure.

In the video streaming space, YouTube reigns supreme and frankly, works pretty damn good. However, all the power is centralized at the top (Alphabet (GOOGL) owns YouTube) and any real incentives really only accrue to the largest video streamers. What if YouTube could be removed from the equation? In its place, a blockchain network built on code. Value creation can then be used to incentivize content creators, users, and those providing computing power for the network.

One factor for blockchain technologies that have an edge over centralized players is hosting the data. Alphabet, for example, has massive server costs to host all of the YouTube content. In a blockchain world, the storage costs can be decentralized across the network. Individuals willing to contribute digital storage space and computing power can provide that to the network and earn rewards.

Here is a quick diagram of Thetas video infrastructure:

Summary of Theta's Video Infrastructure (Theta Main Website)

Blockchain technology can also create a richer experience between creator and user. Hypothetically, users can directly earn rewards for watching videos, NFTs can be rewarded to users who achieve certain milestones, and those NFTs can create access to exclusive content or in-real-life events.

According to Messari Research, "Theta TV is the leading application on the Theta Network with millions of users. Theta TV is similar to Twitch, both are live streaming platforms, but users on Theta TV can simultaneously earn rewards for relaying the stream to others. In addition, Samsung VR, Pandora, and MGM are partnering with Theta to use the Network."

It has established partnerships to run enterprise validators on their network with the following organizations:

Enterprise Validator Partners (Theta Network Main Site)

Theta aims to make this a reality through their Mainnet 4.0 (Metachain), which they claim will allow Web3 media, entertainment, and virtual world businesses to scale even more than current Web2 platforms. The team launched the Theta Mainnet 4.0 and related tools on a testnet in October 2022, with a full release in December 2022. Since the release, the Metachain sees around 20,000 transactions per day and around 15,000 daily active wallets. For some perspective, the Cardano network sees anywhere from 50,000 to 100,000 daily active wallets. Given how recently the Metachain was released, this is impressive growth.

It should be noted that Livepeer (LPT-USD) is Theta's primary competitor and has been able to generate organic demand for their network as well.

Statistics on Theta and Theta Fuel Token Activity (Theta's Block Explorer)

There are two tokens in this ecosystem: Theta (THETA) and Theta Fuel (TFUEL).

The THETA token is basically the governance token and used for staking to earn TFUEL. The TFUEL token is a utility token that is paid out as a reward to validators, viewers, and those willing to contribute storage and computing power for the network.

Theta's Token Allocation (CoinGecko)

The token allocation or tokenomics is good but not great. There is a 20% insider share (Team + Partners), but the more worrisome part is the 36.3% in Theta Lab Reserves. That is a lot of Theta token that could be dumped on the market. On the bright side, the THETA token has a fixed supply like bitcoin, meaning inflation will not corrode the value over the long term.

TFUEL, on the other hand, has a 5% inflation rate and no max supply. Here is a comparison of the two tokens:

Theta vs. Theta Fuel (Messari)

Theta Price Action

Theta has fallen over 90% from the all-time high to just over $1 per token, after reaching over $13 in May of 2021.

Theta (THETA) Price Chart (CoinMarketCap)

Similar price action for TFUEL:

Theta Fuel (TFUEL) Price Chart (CoinMarketCap)

Many in Web3 have an end goal of being fully decentralized, but it order to bootstrap growth they often sacrifice decentralization in order to establish themselves, with a goal of decentralizing later.

Theta is no exception. Theta is fairly centralized with most decisions made by Theta Labs and the 20-30 enterprise validator nodes. Then they also have guardian nodes and Edge nodes which just add to the confusion.

Weve gone and tested out Theta.TV and its frankly not great. This is not to say it will be bad forever. In fact, creating a decentralized video infrastructure network is incredibly complex and the team should be given credit for even trying to tackle such a massive project. This technology is still very early and they've been able to secure partnerships that should help improve the content quality over time. Theta Labs recently published additional information on their Mainnet launch and content partners.

They recently launched an new roadmap here:

Theta's recently released 2023 Roadmap (Theta Webpage)

Theta is tackling a very complex issue in creating a decentralized video network. It is still so early. Yes, there is upside potential but there are so many unknowns. The 36% of the token distribution in Theta Labs is a concern but it may be used for value-adding purposes like capital expenditures or acquisitions.

The Theta Fuel (TFUEL) token may be where the value accrues since it is really the reward mechanism for creators and network users. But the Theta Fuel token has 5% inflation rate, which is essentially a 5% hurdle rate.

Theta needs to decentralize further.

Lastly, Livepeer is a formidable competitor, and an analysis of Livepeer will be provided in the near future.

Theta is one to watch, but it is not worthy of an investment at this time.

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Theta Network (THETA-USD): Decentralized Video Streaming Is ... - Seeking Alpha