The vaults generate fees based on vault activity — buys, sells, and swaps.
Earn vault fees by providing liquidity
Becoming a liquidity provider for the vault isn’t just a philanthropic exercise for the NFT Project Team to give back to their community, they are also going to be earning the majority of the fee’s that are generated through buys, sells, and swaps on the vault.
As the NFT Project team you have a number of choices as to what to do with the earned fees. Some ideas include:
- These can be matched with ETH and put back into the liquidity pool
- They can be used as inventory staking
- They can be issued to community members as rewards
- They can be used to redeem NFTs from the pool for giveaways/rewards to the community
- They can be sold to ETH to reinvest into the project
You can also encourage your community to become involved by providing instructions on how to stake their own NFTs in the pool and be part of the pool earning fees. You can learn more about that by reading more in our Staker section.
How vault fees can provide cover for missing royalty payments
When NFTs are bought/sold on NFTX it isn’t the NFT itself that is being sold, but instead it is an ERC20 token. What happens when you sell an NFT into the vault is
- The NFT transferred into the vault, and an ERC20 token is minted (there is always a 1:1 relationship between the number of tokens and the number of NFTs in a vault)
- The ERC20 token is swapped for ETH (some of the token is used as fees to distribute to liquidity providers).
- The ETH ends up in the sellers wallet.
The same approach happens when users are buying NFTs from the vault.
- The user buys ERC20 tokens from the pool in ETH
- The ERC20 token is burned in exchange for an NFT from the vault (some of the token is used as fees to distribute to liquidity providers)
In both cases the NFT itself is not sold, it is just transferred and it is the ERC20 token that is sold/bought. This means that any royalties applied to the NFTs via the contract won’t generate any revenue.
By becoming the major liquidity provider for the vault, the NFT Project team can ensure that all the transactions that happen through the pool are rewarded via the fees that are distributed to liquidity providers rather than relying on the royalties attached to the NFTs.
These royalties will still be realised if users go on to sell them on OpenSea.
Setting vault fees
Vault fees is the key to how NFTX is able to attract both inventory and liquidity, and provides a great ongoing revenue for NFT projects outside of the royalties from market sales.
Vault fee defaults
During the vault creation process the default fees are applied to the vault. These fees are set to
|Target Redeem (buy)||10%|
Before you publish your vault ensure that your fees are set correctly to support the type of vault your have and in a way that will attract both additional liquidity providers as well as encourage shoppers to buy NFTs from your collection.
Once the vault has been published there is a 30 day cooling off period before any fee updates can be made. You can read more information about changing vault fees here(link to changing vault fees).
Best practices & what to watch for
Each NFT and community is unique, and therefore the best practices outlined here are generic rules of thumb. The should be taken with a grain of salt and weighed up for what is best for the NFT Project, your community, and the liquidity and inventory providers you hope to attract.
- Always charge a mint fee — while it would be nice to provide someone with a whole token for adding their NFT to the vault, this can be achieved by supplying their NFT through liquidity or inventory staking (their position is locked for 48 hours to avoid short term staking to avoid the fee). By having a 5—10% fee you encourage liquidity as well as earn fees for the NFT Project stake which will make up for the secondary sale fees.
- Always charge a redeem fee — this is similar to the mint fee, where you want to subsidise the secondary royalty payments by earning fees on buying/redeeming NFTs.
- Randoms should always be less than targeted — Random will pull any items from the vault, but a targeted allows users to choose. If someone just wants to get exposure to your collection without worrying about specific items you can let them do so cheaper.
- Swaps — understand how your community works when setting the swap fee. A swap is essentially a sell and a buy, but you’re avoiding paying double gas. For vaults like MANA and INCOOM who are all about completing sets of NFTs the Swap feature is heavily used and users are therefore happier to pay a premium (although it should be lower than mint/redeem combined). On other vaults where people just want a update, it works better with lower swap fees. Remember though, if someone puts a high value item into your vault someone will swap/buy it back out pretty quickly.
The fees earned while staking are accrued per block as the buys/sells/swaps occur on the vaults. These fees are then distributed to the liquidity and inventory providers within the same block.
Liquidity staking reward distribution
The liquidity staking fees are paid out in vault tokens and can be claimed at any time from the staking page. Remember, it costs Gas to claim the tokens so make sure you’re not claiming less than it costs to claim. If you ever exit your position the unclaimed amount is automatically claimed and returned to you as part of the transaction.
You can get an idea of the fee rewards using the APR figure associated with each of the vaults. This is calculated using the past 7 days fees annualised and can be found on the Info tab on each vault (and listed on the Staking page).
Inventory staking reward distribution
The inventory staking fees are paid out in vault tokens and added to your current position so that you are auto compounding the fees you are earning.
You can get an idea of the fee rewards using the APR figure associated with each of the vaults. This is calculated using the past 7 days fees annualised and can be found on the Info tab on each vault (and listed on the Earn page).
Next, let’s take a look at how you can use the vaults to empower your community.