NFT Staking: What It Is, How It Works, and How To Earn
Last year, there was a significant breakthrough for NFTs. Most people will associate NFTs with art, gaming, or collectibles, although there are plenty more use cases for NFTs. In itself, this not so strange, since that’s where NFTs received most of their publicity from. One of the new use cases is NFT staking.
Staking makes it possible to lock an NFT up in a pool and receive rewards. This is very much the same way as it happens in liquidity pools on decentralized exchanges (DEX). Currently, there are a couple of options available where it is possible to stake NFTs. This offers a great way to earn passive income, without losing ownership of the NFTs. Staking an NFT is possible with the Proof of Stake (PoS) consensus algorithm. The PoS rewards participants based on how many NFTs a person stakes and the annual percentage yield (APY).
What is NFT Staking
NFT staking works the same way as cryptocurrencies are staked in a liquidity pool. In the same way that rewards in a liquidity pool typically are in the form of the native token, the staking rewards of an NFT are also typically in the form of native tokens. This makes sense, since NFTs are non-fungible, and therefore the rewards are not in the form of the same NFT. Staking NFTs is still in its very early days compared to the various DeFi options out there. However, the yield, or the reward, works in very comparable ways. Staking is rewarded pending on the duration the NFTs are staked, the APY, and the number of NFTs staked.
Before staking NFTs became an option, NFT owners could hodl an NFT and speculate that the price increases. Another option is to sell an NFT, ideally for a profit. However, staking NFTs gives owners the option to generate a passive income without having to sell their NFTs.
How NFT Staking Works
Staking NFTs is still in its very early days when compared to the various DeFi options out there, although they work in identical ways. It works in the same way as cryptocurrencies would be staked. NFTs essentially are tokenized assets, hence it is possible to lock NFTs for staking.
When staking NFTs, it requires a wallet with NFTs, like when somebody wants to stake Ethereum or Solana. However, just as with cryptocurrencies, not every NFT can be staked. Each project can have different requirements, implying that if staking an NFT is in the buyer’s interest, doing adequate research before buying into a collection is strongly recommended.
The platform that stakes NFTs determines the worth of each individual NFT that is staked. The platforms base this on a variety of criteria, the most important one being rarity, This is an easy-to-understand criterion, the rarer an NFT is, the higher its value will be assessed. This will have a direct bearing on the APY of the staked NFTs. A rare NFT receives a higher APY compared to a less rare NFT. Another criterion can be the capability of earning a steady stream of income from royalties. On a slightly different note, staking rare NFTs can also bring value to a platform.
NFT Staking Rewards & Coins
In turn, for staking an NFT, rewards are paid to the person who is staking. The type of rewards can be different, pending on the platform one chooses for staking. In general, platforms pay rewards on a daily or weekly basis. This is typically done with the platform’s token. These tokens are usually traded on exchanges and can be traded. It is possible to buy another cryptocurrency or fiat with these tokens.
Because NFTs live on the blockchain they are minted on, rewards in form that specific blockchain’s token. It is also possible to stake in-game NFTs in a game, which typically results in token rewards of the specific game. Especially with rare NFTs, it will create scarcity of this NFT, potentially allowing the developers to create more of these specific, staked NFTs. Having said that, there are also games that allow players to continue playing the game with staked NFTs. Currently, most NFT staking options are with in-game NFTs in play-to-earn games, based on blockchain technology.
Another option is that a platform features a DAO. In this case, staking NFTs allows the holder to participate in the governance of a platform and vote on proposals that influence a platform’s future.
The rewards are typically generated by transactions fees or interest. This can be compared to DeFi yield farming, where the person who is staking earns rewards similarly. In turn, this can be compared to how one can earn interest from a bank, however, DeFi eliminates all middlemen.
Quite a few NFT platforms have their own tokens, here’s a short list of some well-known NFT tokens.
ENJIN — ENJ
Enjin allows developers of blockchain games to assign value to the various in-game items created by them. This is done with the ENJ token. When game creators want to mint an NFT in-game item, they need to lock up or stake ENJ. Consequently, the players of this game can earn, trade, or buy the in-game items with the ENJ token. The items can also be sold by the players for the amount of ENJ tokens locked in the in-game items.
Efinity — EFI
Enjin set up the Efinity platform with its EFI token. It is meant to be a cross-chain NFT blockchain that is meant to be the hub for all NFTs from any blockchain. Efinity is built as a parachain on the Polkadot network.
The Sandbox — SAND
The Sandbox is one of the leading metaverse platforms. Together with Decentraland (MANA), they offer players a metaverse world where they can buy land as NFTs. SAND is the native Sandbox token. Staking SAND is a great way to earn a passive income.
NFT Staking Platforms
Although, NFT staking is the new kid on the block, there are already various NFT staking platforms around. The only thing required is to have a wallet that is compatible with the chosen platform. Find below a few of the NFT staking platforms that stand out.
Holders of specific NFT collections can deposit their NFTs into a vault on NFTX. In return, they receive a vToken issued by NFTX, which is an ERC20 token in a 1:1 swap. These vTokens can now be used to stake and earn rewards with, to buy other vault tokens with, add them to liquidity pools, or sell them on a DEX.
Splinterlands is a blockchain base card game, and all the cards in the game are NFTs. Players can stake the native SPS (Splintershards) token. Staking SPS allows players to earn rewards, take part in governance, engage in special offers or promotions for SPS holders. Staking options are available in the game itself or in the BSC wallet.
Onessus offers various blockchain games and in-game items can be staked in the WhenStaking platform. This earns VOID tokens, the native cryptocurrency. The APY on staking NFTs can be up to 80%, pending on the staking period.
KIRA is a blockchain that offers cross-chain staking for any kind of NFT and cryptocurrencies. This is done with the multi-bonded-proof-of-stake mechanism. As the staking reward, users earn the KEX token. In turn, users can stake KEX tokens to earn the KIRA native NFTs.
Passive Income NFTs
There are a couple of ways to earn passive income with NFTs. Here are some available options.
Yield generating NFTs
The Cyberkongz are among a select group of NFTs that allow yield generating. The first 1000 NFTs could be minted for 0.1ETH in March 2021 and each owner receivers 10 BANANA tokens, each day, for the next 10 years, from the moment of minting. The current floor price is 70ETH. SupDucks ($VOLT) has a similar set-up as does Mutant Cats ($FISH). Bored Ape Yacht Club has similar plans for the first quarter of 2022.
Renting/Lending NFTs is a great opportunity in metaverses like The Sandbox, Decentraland, and similar projects. Digital real estate or land in the form of NFTs in these metaverses can be rented or lent. Properties can be built on them, that generate income, like hotels, amusement parks, casino’s, sort stadiums, or restaurants. PARSIQ’s IQ protocol may be able to help with earning passive income, based on predetermined conditions between renters and lenders, imposed by smart contracts.
Creators can earn royalties on their NFTs, every time it is sold on. In traditional art, an artist only receives a payment for the initial sale of a piece of art. With an NFT, the creator receives a fixed set of commission, programmed into the NFT, each time the NFT changes owners.
Nested NFTs are layered NFTs. It is possible to add NFTs into an NFT. The Charged Particles platform offers this. An NFT turns this way into a basket, holding one or multiple NFTs (ERC based tokens). This adds intrinsic value to NFTs.
Staking NFTs is still in its infancy. However, the opportunities are out there and can be lucrative. More and more use cases are found to generate passive income by staking NFTs.
The principle of NFT staking works very similar to liquidity pools in DeFi. Lock up one or more NFTs for a specified time and in return, the person who is staking earns rewards. These rewards most likely are the platform’s token.
There are also specialized platforms that offer NFT staking, and quite a few blockchain-based games offer staking inside the game. The earned coins can be used to trade or sell on crypto exchanges. Other options to earn passive income besides staking NFTs include renting/lending NFTs, yield generating NFTs, or nested NFTs.
It is still very early days, and it seems exciting times are ahead of us. The NFT market is investigating options for making it more enticing and profitable to buy NFTs by offering passive income revenues.