The market for non-fungible tokens (NFTs) has been growing exponentially over the past couple of years. As the market expands, novel use cases for this nascent asset class emerge. One such use case that has recently gained notable traction is NFT staking, which allows NFT holders to earn passive income from their digital items.
NFT staking involves locking digital items in a smart contract or a blockchain protocol in exchange for rewards. Despite being new, this idea has already gathered some momentum. Furthermore, new platforms dedicated to offering staking services for NFTs have emerged, making it extra easy for owners to stake their blue-chip NFTs.
However, similar to cryptocurrency staking, NFT staking does not come without risks and drawbacks. In this article, we will look closely at NFT staking, how it works, and the potential risks associated with it.
NFT staking refers to the process of locking up non-fungible tokens in exchange for rewards or a recurring payment. In a nutshell, NFT staking gives investors a chance to generate passive income while keeping the ownership of their staked NFTs.
Staking NFTs is comparable to DeFi yield farming and cryptocurrency staking, where digital assets are lent to liquidity providers in exchange for rewards. Staking rewards depend on the annual interest rate (APY) offered by a platform, the staking duration, and the number of NFTs staked.
Notably, NFTs are non-fungible, meaning each NFT is different from another NFT in rarity and in value. This also impacts the APY rate on each NFT. In simple words, NFT staking platforms offer higher APY rates for rarer and more valuable NFTs.
Collectors and investors usually purchase NFTs because they believe that they will be valuable in the future, offering what they consider a safe investment option. NFT staking opens up a new opportunity for NFT holders to do more than hold their assets. It allows them to monetize their NFTs and earn income while still owning their staked NFTs.
Technically, NFT staking relies on a Proof of Stake (PoS) mechanism to reward participants. PoS is a model that validates transactions through randomly selected validators. By locking up NFTs, users will receive rewards depending on the APY rate, the number of NFTs staked, and the rarity of the staked NFTs.
Users will have to pay gas fees in order to stake their NFTs on a blockchain. This gas fee is then paid to validators as their reward in exchange for securing the network and validating transactions.
Staking NFTs is similar to cryptocurrency staking in many ways. In the first place, both NFT and cryptocurrency staking require investors to lock up their assets for a specific period of time in exchange for a projected APY rate that could change based on market conditions.
However, one main difference relies on the fact that each NFT is different while cryptocurrencies are fungible. In other words, the reward for staking two CryptoPunks will be different while the reward for staking any two BTC or ETH will be the same.
Furthermore, there are considerably more platforms that offer cryptocurrency staking services compared to NFT staking. That is because staking NFTs is largely a new concept and is yet to gain mainstream adoption.
To start earning passive income with staking NFTs, all users need is some blue-chip NFTs in their wallets. Blue-chip NFTs are those whose value has skyrocketed, and industry experts believe these digital assets can retain their high value even in sour market conditions.
Aside from blue-chip NFTs, other NFTs are wildly volatile and can lose more than 90% of their value in a matter of hours. That is why the majority of NFT staking platforms only offer staking services for blue-chip NFTs.
If you have a blue-chip NFT, like a CryptoPunk or a Bored Ape Yacht Club NFT, in your crypto wallet, you can stake it on a staking platform. Numerous platforms for NFT staking have emerged recently, with the more popular ones being NFTX, Splinterlands, BAND NFTs, Doge Capital, and Polychain Monsters.
The amount of reward for staking NFTs is dependent upon several factors such as annual percentage yield (APY), staking time, and the number of NFTs staked. The staking platform evaluates the NFT value based on its rarity and provides the appropriate APY rate.
The higher the rarity of an NFT, the higher the projected rate of annual return, and thus higher rewards. Many NFT staking platforms offer daily or weekly reward programs. Rewards are distributed in the form of the staking platform’s native token, which can then be traded for other crypto assets using exchanges.
Staking NFTs is a win-win for both the owner and the staking platform. The NFT holders remain in possession of their assets while earning a passive income. On the other hand, the NFT staking platform earns a share of the revenue generated by staked NFTs. However, there are certain risks.
For one, if the platform is hacked, users may lose all of their staked NFTs. Another risk is associated with the value of an NFT. NFTs are generally very volatile. Therefore, before staking an NFT, users need to consider that its value might drop while the asset is locked in the staking platform.
Amid the rising demand for staking NFTs, several NFT staking platforms have emerged. Here are some of the more popular NFT staking platforms:
Splinterlands is a blockchain-based, auto-battler card game where every trading card is a collectible NFT. Built on the Hive blockchain, the platform allows users to stake their NFT cards in liquidity pools and earn staking rewards.
NFTX is a protocol for NFT index funds on Ethereum. Users can deposit their NFTs into an NFTX vault and mint an ERC20 token, called vToken, that’s composable and fungible at a 1:1 ratio. VTokens can then be staked for rewards or used to purchase specific NFTs from a vault.
Band NFTs is a global music company that is run by musicians and fans and incorporates NFTs. Furthermore, it’s an NFT exchange where users can buy music NFTs and stake NFTs in royalty pools to earn a portion of the proceeds their songs or albums acquire.
Polychain Monsters is a cross-chain digital collectible and gaming ecosystem for animated collectible NFTs called Polymon. Polymons have different rarity levels and varying traits. Owners of these NFTs can stake them on the Polychain Monsters platform and earn weekly NFT staking rewards in Polychain Monsters’ native cryptocurrency, PMON.
Doge Capital is a Solana-based NFT collection that consists of 5000 pixel Doges. Users can stake their Doges and earn DAWG tokens as a daily reward.
Staking NFTs can be highly profitable. However, as of now, most NFT staking opportunities come from play-to-earn (P2E) games. In simple terms, P2E games allow players to earn rewards in the form of digital assets while playing games. These games also use NFTs to represent their in-game assets.
Two P2E games that allow for NFT staking are MOBOX and Zookeeper. These games allow players to stake NFTs and earn rewards in the form of their native cryptocurrency.
MOBOX is a P2E gaming platform that combines yield farming and NFT staking. The platform’s metaverse is called MOMOverse, and its NFTs are called MOMOs. Users can mint or purchase MOMOs from its NFT marketplace, and stake NFTs to earn rewards in the form of the ecosystem’s governance token MBOX.
ZooKeeper is an innovative multi-chain gamified yield farming decentralized app (dApp), currently available on Avalanche and Wanchain. It provides NFT staking in liquidity pools that feature different mascots.
Similar to cryptocurrencies, NFTs are highly volatile, meaning they can gain or lose more than 90% in a matter of hours. Since staking involves locking up NFTs in a platform, which might make them inaccessible for a period of time, there is market risk. In other words, the drop in value of staked NFTs can exceed the staking rewards.
Therefore, at times, selling an NFT might be much more profitable than staking it. However, with regard to blue-chip NFTs, which have much fewer short-term price fluctuations, staking might be more profitable than selling. This is particularly true when the market is at lows.
Besides creating new use cases for non-fungible tokens, NFT staking allows users to generate passive income from their idle NFT collections. The concept is still in its infancy, but it has already gained notable traction. Therefore, it is reasonable to expect new and exciting NFT staking opportunities in the near future. So, we hope you’ve learned more about the fact NFTs can be staked, staking rewards, NFT holders, how does NFT staking work, etc. While reading our blog, you will also learn more about a staking period, NFT projects, NFT market in general, staking cryptocurrencies, NFT assets, and so much more.
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Disclaimer. This material should not be construed as a basis for making investment decisions or as a recommendation to participate in investment transactions. Trading digital assets may involve significant risks and can result in the loss of invested capital. Therefore, you must ensure that you fully understand the risk involved, consider your level of experience, investment objectives, and seek independent financial advice if necessary.