These days, the crypto space offers a multitude of options to earn passive income. Whether it's trading cryptocurrencies, lending, DeFi yield farming, or other methods. Innovative methods like NFT staking are rapidly gaining traction, offering a promising avenue for investors to diversify their portfolios.
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. With platforms like the Ape Yacht Club leading the charge, the community around NFTs has expanded exponentially, further solidifying its place in the crypto market.
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. This relationship is often governed by a governance token, ensuring a democratic approach to decision-making. However, less discussion seems to be revolving around an ability to stake NFTs, a concept that can revolutionize the way we perceive 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 a blockchain-based platform. 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. Yet, the price of each version varies based on its provenance and the blockchain platform it's minted on. 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. This process is facilitated through staking contracts, which dictate the terms and conditions of the staking process. However, it is also important to find out the best crypto for different staking platforms and their requirements before diving in. Having a secure cryptocurrency wallet is paramount to ensure the safety of one's assets during staking.
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 pools, after which users either earn a percentage rate reward or get a share from transaction charges, all without having to sell their NFT collectibles. This exchange for staking not only provides liquidity to the platform but also empowers the community by giving them a stake in the platform's success.
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).
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. This energy-efficient approach is what sets PoS apart from other consensus mechanisms.
In the Proof of stake consensus mechanism, holders lock up their cryptocurrencies to take part as validators on the chain. Validators, often backed by a robust wallet infrastructure, play a crucial role in the network's stability. Individuals who take part in PoS by staking their holdings can be referred to as 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 innovative approach has opened up new avenues for NFT holders, allowing them to leverage their assets in ways previously unimagined. This way, NFT holders can earn passive income while still maintaining ownership of their NFTs.
NFT holders can benefit from locking their NFTs 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. It is basically like holding NFT in a crypto wallet and earning rewards simultaneously, for aiding the security and operations of protocols. This dual benefit, combined with the allure of potential price appreciation, makes NFT staking an attractive proposition for many.
Although locking NFT 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, with the introduction of staking contracts and the growing community around NFTs, there's a shift in perspective. 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.
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. This uniqueness is what drives their value and sets them apart in the crowded crypto market.
NFT staking is user-friendly and is quite similar to Ethereum (ETH) staking. However, not all NFTs can be staked to receive rewards, so it is advisable to do your own research (DYOR) before locking NFTs on any platform. Being aware of the potential risks can lead to a more informed and successful staking experience.
How Does NFT Staking Work?
Here's how it works: An 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.
Validators are network nodes responsible for forging (PoS validation process). They ensure the blockchain network remains secure. Their role is further enhanced by the use of staking contracts, which dictate the terms of their participation and rewards.
New cryptos 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 lock-up duration, the total amount of NFT crypto staked in the pool, and the inflation rate of the token influence how much rewards the validator earns. It's essential to understand that while locking NFTs offers potential rewards, it also comes with its set of risks. The crypto market is known for its volatility, and prices can fluctuate based on various factors.
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 NFTs 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 platform. This flexibility is one of the key attractions of NFT staking, allowing investors to have the best of both worlds, earning rewards while retaining ownership.
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. As the community around NFT staking grows, it's expected that more platforms will offer competitive rates to attract investors.
This idea of NFT staking will likely fuel people’s interest in NFT and attract potential NFT and crypto investors to dedicated platforms. With the increasing integration of governance tokens in these platforms, investors not only earn rewards but also have a say in the platform's future direction. 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 platform and the NFT staked on it. It's crucial for investors to align their investment goals with the potential rewards offered by different platforms.
The rewards from staking are usually in the form of the platform’s native utility token, which is available on exchanges and may be traded for other cryptocurrencies or fiat currency. Further, most platforms that allow NFT staking distribute rewards on a daily or weekly basis. As the demand for NFTs grows, it's anticipated that the value of these native tokens will also see an uptick, offering additional benefits to the stakers.
Also, NFT owners can lock up their assets in a 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 matters.
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.These platforms are leveraging the power of the blockchain network to offer innovative staking solutions.
In the early days of NFT staking, most 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. The integration of nonfungible tokens into gaming platforms like Splinterlands showcases the versatility and potential of NFTs in various sectors. 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 fusion of gaming and finance on platforms like MOBOX represents a significant shift in the crypto dynamics. 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. The ability to connect various DApps showcases the interconnectedness and potential of the blockchain network. 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.
NFTX is a platform that allows users to mint and trade ERC-20 assets backed by their NFT assets. One of its standout features is the ability for users to stake individual NFTs to earn rewards. By locking NFTs in specific pools, users can earn index tokens that represent a share of that pool, effectively turning their NFTs into fungible tokens that can be traded or further staked for additional rewards.
Doge Capital is a platform that brings together the world of NFTs and staking in a unique way. They offer a series of Doge-themed NFT cards. Owners of these NFT cards can stake them to earn rewards. The platform often introduces new series of NFTs, and stakers have the opportunity to earn these new NFTs as rewards, making it an engaging and dynamic staking experience. Doge Capital also emphasizes community involvement, with NFT holders having a say in various platform decisions and future developments.
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. As of 2023, the landscape of NFT staking is rapidly evolving, driven by the convergence of NFTs and DeFi. Platforms are emerging that not only allow users to stake NFTs but also integrate other DeFi protocols, enabling functionalities like taking loans against staked NFTs or using them as collateral in decentralized exchanges.
The utility of NFTs is expanding beyond mere collectibles or art pieces. With staking, NFTs are becoming gateways to exclusive content, virtual events, or even tangible real-world benefits. This enhanced functionality is attracting a broader audience, seeing NFT staking not just as an investment but as a means to unique experiences.
Mainstream adoption is on the horizon as more renowned brands, artists, and celebrities delve into the NFT space. These major players are likely leveraging NFT staking to engage their audience, offer exclusive rewards, and foster a more interactive experience. With the growth of the ecosystem, there's a heightened focus on security. Advanced staking contracts, better wallet integrations, and a general emphasis on user security are becoming standard, addressing the risk associated with locking NFTs.
Community involvement in platform governance is becoming a trend, with stakers having a say in platform developments and reward structures. This sense of community governance is fostering trust and loyalty among users. Moreover, the staking models themselves are diversifying. Beyond just earning rewards, the future might see staking tied to virtual real estate or other innovative models.
In conclusion, by 2023, NFT staking stands at the crossroads of finance, art, and technology. The blend of these domains is propelling NFT staking to new heights, making it an integral part of the broader crypto ecosystem. The success or failure of the NFT market will likely hinge on these developments, rather than just short-term incentives.
*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.