Moving further along the spectrum of NFT marketplaces on Ethereum, we’re now arriving at X2Y2. It has all of the traditional features we can see on other platforms, it adopted the platform fee redistribution system introduce by LooksRare, but it also has a touch of its own in the form of Flexible Royalties.

In this report we will have a closer look at the fees paid while trading on the X2Y2 marketplace and what impact does the Flexible Royalties feature have on the fees creators would expect to collect.

While it has its quirks, the platform functions like any other one for the most part and traders have to pay the following fees:

1. Gas fee / network fee: Paid to the Ethereum blockchain to process the transaction and add it to the blockchain. The amount varies based on how busy the network is. Paid by the buyer on top of the price.

2. Platform fee: A flat 0.5% fee on the amount paid for any item sold on X2Y2. Deducted from the price of the item.
   All of the fees are charged in WETH and then redistributed to stakers of $X2Y2.

3. Creator fee / royalties: Each project is able to set a unique creator fee percentage on collections listed. Deducted from the price of the item.
   Here is where the Flexible Royalties kick in, a feature that allows users to select 1 of 3 levels to pay: 100% (default), 50% or 0% of royalties.

• The platform also allows users to make private transactions where the seller chooses a specific buyer and they pay 0% creator fees and 0% platform fees by default. Private sales are not included in the report.

The data can be explored more closely using the live dashboard below 👇:

☝️ The dashboard can be updated on-demand by pressing the refresh button 🔄 in the top right corner of the page.

I. Overview

As we could expect, the trading volume took a massive dive over the last couple of months, dragging the amount of generated fees along with it. However, the number of transactions did not have the same fate, and it even seems to sit on a slight uptrend, although very inconsistent.

Over the last six months the platform executed over 640k transactions worth over $3.1B and generated close to $35M in fees split between miners/validators, the platform and the creators.

II. Fees Breakdown

Throughout the observed 6 months traders paid a cumulative $15M in platform fees, $14M in gas fees and just a little over $5M in creator fees. As we know that the platform fee represents only 0.5% of the price of any item sold, we can assume that this incredible imbalance is due to collections with a 0% creator fee or trades where buyers chose to pay none of the royalties through the Flexible Royalties feature.

If we look a little further into the size of trades being execute, we can see that this is indeed the case, with a median creator fee value of $0 over the entire period.

We can dig a bit deeper still and we can see that the distribution of trades based on the creator fees paid is by far the most common transaction type. Besides this category, we can spot trades being made where users still choose to pay up to 10% in royalties, but they have considerably less transactions.

Moving on to gas fees, buyers are most likely to make purchase when it adds between 1% to 3% on top of the base price, with transactions rapidly decreasing for values above that. In the case of OpenSea and LooksRare we could see a more linear decrease in the correlation between gas fees and transaction count, but on X2Y2 this only accelerates past the 3% point. This is perhaps a result of the creator fees that they can bypass. But if that is the case, it also reveals that buyers are still willing to spend the same amount to make a purchase, but they just spend it on a different fee.

Despite having a lot of activity concentrated around 0% creator fees trades, there are still many projects that receive their royalties.

When it comes to the platform fees however, we see that only a handful of projects generate most of the platform fees. Because of the 0% creator fee and trading rewards combination, X2Y2 is oftentimes a place of high volume wash trading from users trying to game the system and they focus on trading projects with the highest trading rewards based on the platform criteria for awarding them.

III. Fees Redistribution

The $X2Y2 token was distributed based on the allocation split detailed in their tokenomics documentation. While some of it was split between different groups that helped bootstrap its launch, 65% of the total supply was allocated as staking rewards and continue to be distributed to this day.

Out of the total circulating supply we can see that almost 40% of the tokens are currently in the staking contract. These tokens along with the Presale tokens and the two vesting contracts for the team and development are eligible to receive the daily accumulated platform fees on X2Y2. In total, they make up a little over 54% of the current supply.

While over this entire period the amount of tokens that receive rewards continued to increase, we’ve already seen that the platform fees declined abruptly after their peak in July. This way, a user staking 10k $X2Y2 went from earning $26 (0.0097 $WETH) weekly at the peak in May to earning just around $5 (0.0043 $WETH) over recent weeks.

This change in the organic yield for token stakers makes participation a lot less attractive and puts the sustainability of the program in question once the bonus tokens program ends.

IV. Flexible Royalties

Ah yes, the user’s choice. Before we can look at what creators are actually receiving, let’s first have a look at the distribution of collections traded on X2Y2 based on the creator fees set by the projects.

The vast majority of projects have a default creator fee of 0%, bringing the overall platform average at just 0.5%. When we exclude that bin, the distribution is a lot closer to what we would see on a marketplace like OpenSea, but otherwise the platform is definitely the place for 0% creator fee projects to go to.

Alright, but because 0% royalty projects don’t generate creator fees anyway, they will be excluded from this point on.

Below we can see the trading activity and volume on the marketplace based on the amount of the royalties users choose to pay when making a purchase. Although they have three options to choose from, we can see that the 50% of royalties option is barely ever selected, with buyers choosing to either pay it in full or not at all.

Most of the trades and volume over the last 6 months comes from trades where users choose to pay 0% of creator fees and that only slightly changed over the last few weeks.

Because so much of the trades were made with no royalties paid, creators missed out on a lot of fees they would have normally collected from this activity. Although the difference between what creators would expect to collect and the actual amount became a lot smaller, below we can see that the amount expected for 100% of the royalties is over 9 times greater than what was actually paid by users.

All the while X2Y2 continues to collect the 0.5% platform fee on all sales based on the price of the item with 100% of the creator fee regardless of the Flexible Royalties user choice.

Conclusions

• Despite having a steady transaction count throughout the observed period, the platform faces the same struggle of dwindling volumes over the recent weeks. The decrease in volume dragged down the generated fees along with it.

• Most of the fees users paid trading on X2Y2 were either platform or gas fees. Combining the trading rewards program with the option to avoid royalties resulted in most transactions paying 0% in creator fees.

• Because users save on creator fees, they are willing to spend the saved amount on slightly higher gas fees instead if necessary.

• Most of the platform fees are generated by a handful of projects with 0% creator fees.

• The platform fees collected daily are being redistributed as rewards to 54% of the $X2Y2 token supply, currently being either staked or sitting in vesting contracts.

• While the fee receiving token supply continues to increase, the actual fees continue to decrease, making the rewards program less attractive and facing it with an existential threat once the bonus $X2Y2 rewards run out.

• Most of the collections listed on the marketplace have a default creator fee of 0%.

• Even for collections that have a creator fee higher than 0% we can see a lot of activity and volume being generated in transactions where users chose to pay no royalties using the Flexible Royalties option.

• The amount of royalties expected to be collected by creators is 9 times greater than the actual amount paid by traders over the course of the last six months.