Last week we had a look at the NFT Trading Fees on OpenSea and what kind of income that generates for the blockchain, the platform and for creators. This week, we’re analysing how LooksRare performs on the same metrics and then take a closer look at the rewards program baked into the platform meant to benefit users and differentiate itself from legacy marketplaces.

For the most part, LooksRare functions as a regular NFT marketplace on the Ethereum blockchain. On every trade there are three fees users have to pay:

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 2% fee on the amount paid for any item sold on LooksRare. Deducted from the price of the item.

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.

The difference however comes from what happens with the collected platform fees. To incentivize usage and boost retention rates, LooksRare redistributes 100% of the platform fees to the stakers of its own $LOOKS token. The amount of $WETH distributed to each staker is based on the platform fees generated over the last 24 hours and proportional to the amount of tokens staked at the date.

*In addition to $WETH, the marketplace boosts rewards with additional $LOOKS token emissions based on a predetermined schedule. We will only look at the redistribution of platform fees in this 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

All of the fees mentioned above are here bundled under the term Trading Fees. The 90.5k transaction executed over the last 6 months, trading assets of close to $3B, traders paid a cumulative $81.8M in fees.

We can see that all three indices plunged to significantly lower levels after their high in late March. In other cases we’ve seen a similar decrease in trading fees as well as in trading volume, which can be attributed to the broader downturn of cryptocurrency prices that most projects are denominated into. However, in the case of LooksRare, transaction counts have also been on a continuous downturn ever since May and have not yet regained upward momentum. This puts the marketplace in a position of not only dealing with external factors but also with attracting and retaining users on both side of the trade.

II. Fees Breakdown

Over $4.2M paid in gas fees by buyers to the blockchain, and $17M in royalties collected by creators, but by far the largest amount and with the most significant share of total fees are those paid to the platform, amounting to just under $60M over the last 6 months.

The all-dreaded gas fees to the Ethereum network have only represented a little over 5% of all the fees paid in the observed time frame, while creator fees were just under 22%. The unbalanced share of fees is not due to exorbitant platform fees as we might naively think since in this case they charge a flat 2%, lower than on OpenSea, on the price of any sold item. Therefore what this points to (and we will verify later in the report) is that many of the collections traded on the platform have creator fees set lower than the regular 10% and perhaps even 0%.

Below we can see the size of the fees paid over time and their aggregated statistics. This way we can confirm that lower fee volumes are not just the result of less trades, but the values of the traded items also decreased since earlier this year.

What else we can observe from this is the divide between the average and median values in the case of creator and platform fees. This points to an uneven distribution in the value of traded collections, where there are either extremely large (and LooksRare famously sells BAYC, MAYC and other large cap collections) or they are extremely small. In either case, the maximum values still register higher values, indicating that the marketplace itself does not yet struggle with bringing together sellers and buyers for expensive items.

Let’s start to dig into the relationship between fees and trades being made.

First, creator fees. As expected, most of the sales are made with items that have a creator fee set at 10% or lower, with anything over that rarely registering any activity. But while sales on OpenSea would primarily happen closely around the 10% mark, on LooksRare we can see a lot of them being made for items with lower royalties and even 0%.

This plays into the dynamic introduced by the platform fees redistribution program that given the right circumstances can make traders profit on that alone. Because of this, there were many discussions around wash trading and LooksRare had to make adjustments to its program to ensure that it is very unlikely for wash traders to profit.

There have been a fair amount of trades that appear to be made for the sole purpose of farming LOOKS trading rewards, notably on collections with zero royalties. We’re confident that with time and enough volume it would become unprofitable to trade this way, but scrapping the limits and open up rewards for all is one way to prohibit that kind of activity even sooner.
Source

Then there are gas fees. Because there is nothing to earn back from transaction fees, we see a normal preference of buyers to make a purchase when the gas fees add up to 10% to the price of an NFT. Just as in other cases though, buyers are still willing to pay a lot of gas for a highly sought-after item, which can sometime represent multiple times the base price.

Creators are aware of the user preference when it comes to the amount of royalties to pay on an item, and we can see that the vast majority of collections have a creator fee set between 0% and 10%. However, as we could guess earlier, the collections traded on LooksRare have unusually low creator fees and many of them fit in the 0% category.

Looking at the collections that generate both creator and platform fees, we can observe that the marketplace heavily relies on just a handful of projects. The low number of collections being traded and the discrepancy between their sizes is apparent again when looking at the share of creator fees collected by just the top 10 collections.

On the other hand, we can see the top 10 platform fees generators being responsible for almost 90% of all the trading fees, and therefore are responsible for the sustainability of the entire $LOOKS value proposition.

III. Fees Redistribution

Here is where LooksRare changes its approach compared to traditional marketplaces like OpenSea. Instead of directly pocketing the platform fees generated through trading, they redistribute 100% of it as $WETH rewards to users who either:

• Stake their $LOOKS

• Were distributed $LOOKS and have fees sharing enabled

In the second category we’re looking at the Team Vesting wallet, Treasury Vesting wallet, and a Private Sale wallet. All of these tokens are more or less locked for a certain period of time as outlined in the $LOOKS Tokenomics and Allocation announcement.

Below we can have a closer look at this allocation and understand how much each wallet weights in the rewards program. With the current amounts those wallets hold, a little over 80% of all $LOOKS is eligible to receive the platform fees redistribution.

Alright, so let’s look at what you can get for your $LOOKS. An immediate observation is that while we’ve seen already that the amount of fees to be redistributed continued to decrease over the last few months, the amount of tokens eligible to receive the rewards gradually increased. This naturally doubled the pressure on the rewards program and we can see the weekly rewards per 10k staked $LOOKS going from a high of almost 0.09 WETH ($300) in late March, to just 0.0043 WETH ($5.7) in late September.

Conclusions

• Trading fees generate a sizeable but unsteady income stream for the involved parties. Because volumes can be unpredictable, the platform and creators might be incentivized to keep fees higher to account for periods of low activity.

• Most of the fees paid on LooksRare over the last 6 months have been platform fees, with creators and gas fees representing a little over a quarter of them combined. While the gas fees cannot be influenced too much by the platform itself, the low share of creator fees is due to collections’ preference for low to 0% fees.

• The low fees preference can be attributed to the platform fees redistribution program through which $LOOKS stakers receive $WETH rewards.

• Most of the platform fees are generated by 0% creator fees collections and just a handful of them are responsible for almost 90% of them. This creates a lot of risk for the rewards program and the $LOOKS economics as their main funding source is not very diverse.

• A little over 80% of the $LOOKS supply is eligible to receive the platform fees rewards.

• While the token supply continued to increase over the observed period, the accumulated platform fees continued to decrease, creating a double impact on the amount of rewards distributed per staked $LOOKS.

• Although the system is meant to relieve some of the costs associated with NFT trading and reward loyal users, it does not fix all the struggles of creating a successful marketplace with active traders and a wide selection of projects.