These days, crypto space offers a multitude of options to earn passive income. Whether it's trading cryptocurrencies, lending, DeFi yield farming, Ethereum staking, and newly even non-fungible token staking.
The first thing that comes to mind when we come across the term Non-fungible token (NFT) is a digital asset on blockchain technology such as artwork, music, or any other digital art that has the potential to grow in value. The NFT craze started in 2021 and will likely continue for a while longer.
NFT, with its uniqueness, is one of the most sought-after digital asset types today. NFTs are tokenized assets where the ownership of NFTs provides for a transparent and programmable relationship between the NFT author and investors. However, less discussion seems to be revolving around an ability to stake NFTs.
Before jumping into NFT staking, let's first understand the meaning of NFT.
What NFTs Are
Non-Fungible Tokens (NFT) are representations of digital contents like arts, music, videos, and in-game items, stored on blockchain. Regardless of visual similarities, each NFT is unique. A good example would be the Mona Lisa painting by Leonardo da Vinci. Several computer-generated versions of this painting are indistinguishable from the original—from the number of brush strokes to the precise lines that make the art. Even if it looks similar, it won't be priced the same as the original, and cannot replace it.
In a simple explanation, crypto staking is a process that involves committing crypto assets in a blockchain-based protocol to earn rewards in return. It is simply locking cryptocurrency in a protocol liquidity pool to earn rewards. However, it is also important to find out the best staking crypto for different staking platforms and their requirements before diving in.
Just like the popular crypto staking on DeFi platforms, NFT staking is a new way to generate passive income in the crypto world. It allows NFT holders to lock their assets in the DeFi protocol staking pool, after which users either earn a percentage rate reward or get a share from transaction charges, all without having to sell their NFT collectibles.
Proof of Stake (PoS)
Similar to yield farming investment strategy in Decentralized Finance (DeFi), NFT staking relies on a consensus mechanism called Proof of Stake (PoS).
Let us define Proof of Stake and explain how it works to understand better.
Proof of stake (PoS) is a mechanism that ensures the verification and security of all transactions without a bank or an intermediary. Confirmation of transactions on PoS will not require a powerful machine with the ability to solve very complex mathematical problems. That is where PoS shines.
In the Proof of stake consensus mechanism, holders lock up their cryptocurrencies to take part as validators on the chain. Individuals who take part in PoS by staking their holdings can be referred to as a node-runners since they validate transactions on the network.
What Is NFT Staking?
As the name implies, NFT staking is the locking up of NFTs on a DeFi platform liquidity pool to provide liquidity to the protocol and, in return, earn percentage rewards and other benefits. This way, NFT holders can earn passive income while still maintaining ownership of their NFTs.
NFT holders can benefit from NFT staking as the total supply of NFTs becomes limited, and the demand for them increases. Also, from a wider perspective, the usage of NFTs has now gone beyond the popular idea of collecting digital artworks. NFT staking is a new and profitable NFT utility.
NFT staking is basically like holding NFT in a crypto wallet and earning rewards simultaneously, for aiding the security and operations of blockchain protocols.
Although NFT staking is still new and has not gained momentum in the blockchain industry like yield farming, they are very similar in essence.
The amount of NFTs staked, the staking period, and the annual percentage yield (APY) are all factors that determine the rewards earned when you lock up your NFTs on a platform.
Commonly, NFTs get more appreciation and hype for their uniqueness, so collectors would rather hold them, hoping they would appreciate as the time progresses. Many NFTs owners have made millions of dollars from reselling only a few months after acquiring them.
However, lately, the decentralized finance platforms have increased the utility of NFT ownership with staking. This might interest more NFT owners and collectors to take part and increase the demand for NFTs in the NFT marketplace.
NFTs are smart contracts based on the Ethereum network using the ERC721 token standard. The ERC721 standard makes them globally unique, hence there is supposed to be a distinct quality for every NFT minted on a blockchain.
NFT staking is user-friendly and is quite similar to Ethereum (ETH) staking. If you hold certain NFTs, staking shouldn't be much of an issue. However, not all NFTs can be staked to receive rewards, so it is advisable to do your own research (DYOR) before acquiring NFTs for staking on any platform.
How Does NFT Staking Work?
Here's how it works: NFT holder finds a DeFi protocol that supports NFT staking and stakes their NFTs in the platform liquidity pool. The protocol then locks up the funds and appoints random validators to mine and confirms blocks of transactions.
Blockchain validators are network nodes responsible for forging (PoS validation process). They ensure the network remains secure.
New tokens are minted and distributed to validators as staking rewards to the chain. Block constitutes previous transactions and new transactions. A new block is added to a chain only when its contents are verified.
The amount of coin a validator stakes, the staking duration, the total amount of NFT crypto staked in the pool, and the inflation rate of the token influence how much staking rewards the validator earns.
It doesn’t get much easier for an NFT holder than to stake his NFT. The smart contract removes friction from the process by ensuring every validator gets a fair share of rewards while maintaining autonomy and accuracy. Because smart contracts are algorithms, they aren’t prone to errors in rewards distributions.
NFT staking structure for one of the projects
When NFT holders stake their tokens and become validators, they can make their assets work for them while they receive their rewards and generate passive income. Some might say the process resembles bond investments in traditional finance.
Meanwhile, with all these transactions taking place, NFT holders who staked their assets still maintain their rights and ownership over the assets. This means they may withdraw them from the staking pool whenever they please, depending on the terms and conditions of the staking platform.
Presently, crypto investors looking for the best crypto staking rewards can earn an annual percentage yield (APY) of up to one hundred percent and on occasions, even more. The annual percentage yield typically depends on the number of participants in the pool.
This idea of NFT staking will likely fuel people’s interest in NFT and attract potential NFT and crypto investors to staking platforms. It’s a win-win case for the investors, the protocol, and even the NFT ecosystem.
What Rewards Do We Get from NFT Staking?
The rewards NFT holders receive for staking their assets are largely determined by the staking platform and the NFT staked on it.
The rewards from staking are usually in the form of the staking platform’s native utility token. Further, most staking platforms that allow NFT staking distribute rewards on a daily or weekly basis. These native tokens are mostly available on exchanges and may be traded for other cryptocurrencies or fiat currency.
Also, NFT owners can lock up their assets in a staking platform liquidity pool that supports or is structured as a decentralized autonomous organization (DAO). This enables investors to take part in the platform's governance by deciding on the future direction of the platform. Community members get the feeling of inclusion, seeing that their decision really matter.
Most blockchain games will often have their marketplace to trade in-game NFTs. So, gaming platforms such as The Sandbox, Splinterland, Axie Infinity, and others allow active players or NFT holders the opportunity to stake their NFTs on their platforms.
Where to Stake NFTs
Crypto staking is quite popular, with most decentralized finance platforms supporting crypto staking in some shape or form. However, certain crypto staking platforms and crypto projects are now developing platforms to stake NFTs.
Here is a list of some of the best crypto projects and platforms that allow NFT staking:
In the early days of NFT staking, most staking opportunities were from gaming platforms. Splinterlands is a play-to-earn gaming platform that runs on the Hive blockchain and strives to gain more awareness with NFT staking possibilities.
Here, every card you receive in the game is an NFT. You may choose to stake what you have in your collection, so other players can borrow and play with them. In return, you earn passively from transaction fees.
This also is a play-to-earn metaverse game that runs on the Binance Smart Chain (BSC). This platform combines NFTs and DeFi yield farming, enabling players to stake their NFTs and earn rewards in its native token, MBOX.
The platform has a native NFT—MOMO. The more NFTs you collect daily, the more token rewards you earn.
Onessus is a Dapp development platform that runs on the EOS blockchain and is known for Boysterous, Void Elementals, and Hodlgod games.
Onessus also has a feature called WhenStaking—an exclusive protocol for NFT staking. You can keep NFTs earned in Onessus games on the platform to earn rewards in its native token, VOID.
This is a gamified yield farming decentralized application (DApp). ZooKeeper provides users with a two-in-one farming experience. With the two-in-one farming, users can earn the platform utility token (ZOO) and liquidity provider token (WASP).
It ultimately allows users to enjoy higher crypto rewards while they stake their NFTs.
Kira is a network that connects decentralized applications (DApps) and facilitates market access to any digital asset in the crypto world, including NFTs.
Users may stake their NFT and, in return, earn the platform's native token, $KEX. Also, token holders can stake their $KEX to earn the platform's native NFTs. Kira can also divide your NFT into bits and make each bit into individual NFTs.
Future Prediction of NFT Staking
NFT staking is a new NFT use case and a great way for users to make an additional income from their "idle NFT assets." Rather than just holding and speculating that it would appreciate someday.
Although the idea of NFT staking is currently still in its early stage, it poses to be a potentially great revolution in the NFT ecosystem and crypto world. Extra incentives will bring additional motivation for the investors who will likely weigh staking rewards when considering their NFT investments.
In the long run, the success or failure of the NTF market will be down to fundamentals rather than leveraged incentives providing short-term gains.
*This communication is intended as strictly informational, and nothing herein constitutes an offer or a recommendation to buy, sell, or retain any specific product, security or investment, or to utilise or refrain from utilising any particular service. The use of the products and services referred to herein may be subject to certain limitations in specific jurisdictions. This communication does not constitute and shall under no circumstances be deemed to constitute investment advice. This communication is not intended to constitute a public offering of securities within the meaning of any applicable legislation.