How to Stake NFTs and Earn Passive Income
NFT staking is a promising branch of DeFi that has the ability to alleviate a lot of issues with NFT trading. Above importantly, it allows NFT holders to earn tokens without ever having to sell their NFTs, making it an appealing passive income source.
It’s still early days for NFT staking, but given how quickly NFTs are expanding and the value of NFT staking, it’s clear to see how this practise will only grow in popularity in the future. So, without further ado, let’s take a look at NFT staking and why it’s important.
What exactly is NFT staking?
We addressed NFT staking in our NFT passive income tutorial, but we’ll go over it in more detail here.
In essence, NFT staking is the process of “locking up” an NFT, either within the project itself or on a third-party platform. Staking incentives are earned in exchange for staking an NFT. As a result, staking NFTs allows holders to generate passive income and profit from their holdings without having to sell them.
Staking is a method of validating transactions that is used by many cryptocurrencies and tokens, especially those that use the proof-of-stake (PoS) protocol (you can read a little more about PoS here). Staking crypto tokens, like NFTs, entails storing tokens for a period of time in exchange for staking incentives, which provide passive income.
Staking is a critical function for PoS blockchains since it allows them to complete transactions while remaining secure. Staking rewards for blockchains and Web3 platforms are typically in the form of network transaction fees or interest.
What’s the point of staking NFTs?
Liquidity is one of the most pressing challenges with NFTs. That is to say, because NFTs are non-fungible, selling them isn’t necessarily simple. Indeed, much of an NFT’s value is subjective – it’s worth whatever a particular person is willing to pay for it. Fungible tokens, such as cryptocurrencies, on the other hand, are considerably easier to trade since they have a market-defined value in relation to both fiat currency and other cryptocurrencies.
NFT staking is a mechanism that allows holders to make money from their NFTs without having to sell them directly. Staking solves the liquidity problem with NFTs in this way.
What is NFT staking and how does it work?
As previously stated, NFT staking works in a similar manner to bitcoin staking. Of fact, due to the nature of fungible cryptocurrencies and non-fungible tokens, there are some significant distinctions.
Staking an NFT will yield different benefits based on the NFT and the platform on which it is staked. Staking rewards, on the other hand, are typically given in the form of a platform’s native token and are given daily or monthly.
Staking Platforms for NFT
Because NFT staking is such a new concept, there aren’t many platforms that offer it across various NFT collections. Even so, if you’re interested in staking your NFTs, here are a few to consider.
Holders of specific NFT collections can deposit their NFTs in a vault through NFTX. In exchange, NFTX issues a vToken, an ERC20 token. To be clear, this is a one-to-one swap. This means that if you stake 1 NFT in the vault, you will receive 1 representative vToken. vTokens can then be staked for rewards, used to buy other vault NFTs, placed in liquidity pools, or sold on decentralised exchanges.
NFTX, for example, recently released version 2 of its software. Users can now create a public vault for any NFT they desire, which is a huge plus. Users could only stake NFTs with existing vaults on NFTX previously. The NFTX whitepaper contains a detailed explanation of how NFT staking works on NFTX, as well as instructions on how to add to the platform’s liquidity pools.
KIRA is a blockchain that uses a mechanism called multi-bonded-proof-of-stake to safeguard its network. KIRA, unlike traditional PoS networks, allows users to stake an unlimited amount of coins or NFT assets. In exchange for any NFT assets staked, KIRA offers the $KEX token, which can then be staked to gain incentives.
Direct staking within an NFT collection
Without a doubt, the most straightforward type of NFT staking occurs within NFT collections that directly provide this capability. Holders who would usually keep their NFTs in their wallets can earn rewards by staking them within a collection. Furthermore, it inevitably reduces the availability of that NFT. In theory, this raises the NFT collection’s floor price (as long as demand remains stable).
As a result, allowing holders to stake inside a collection could be beneficial to both NFT authors and holders. The practise of staking NFTs is particularly widespread in blockchain-based, play-to-earn (P2E) games. Staking systems are available in various non-gaming NFTs as well. Let’s take a closer look at a few of them.
A few months ago, the popular P2E game included a staking option. The Axie Infinity Shards ($AXS) are the game’s governance token, and players can stake them. Staking payouts for $AXS now have an annual percentage rate of 80%. (APR). This means that over the course of a year, stakers will get roughly double the amount of $AXS they stake.
Another popular P2E game with staking elements is Splinterlands. Splintershards (SPS) token holders will be required to stake their tokens in order to get prizes, participate in governance, or take advantage of special offers, promotions, and incentives available to SPS token holders.
SPS can be staked in either a Binance Smart Chain wallet or directly through a Splinterlands game account. Only SPS holders who stake via a BSC wallet, however, will be able to participate in the game’s DAO governance. Staking from either location, however, will earn holders staking rewards.
While the situation with Mutant Cats isn’t as clear-cut, it’s worth addressing. This is because it elucidates some of the potential staking challenges that NFT projects may encounter. Mutant Cats was one of the few non-gaming NFTs that allowed players to earn rewards by staking their NFTs. To that purpose, holders of Mutant Cat NFTs who bet them receive the $FISH token as a reward. To clarify, $FISH is the Mutant Cats DAO’s token.
That was the aim with Mutant Cats, at least. $FISH was formerly used to represent fractionalized ownership of the DAO’s NFT collection, which contained 11 Cool Cat NFTs, but that is about to change. In summary, Mutant Cats ran into some difficulties with its original creators. As a result, a new team was formed to take over the project and monitor the DAO.
As a result, on January 31, this team announced a number of modifications that will affect Mutant Cats. One of these adjustments is that they are completely redesigning the $FISH token after talking with lawyers. In fact, the team may have to abandon $FISH entirely due to the risk of violating securities regulations.
Given the Mutant Cats example, it’s reasonable to conclude that NFT projects have a long way to go in terms of completely effective tokenomics and staking structures. Nonetheless, NFT staking is an intriguing prospect that just a few collections and platforms have figured out so far.
This article is just for educational purposes.
Make your own exploration before making any form of investment, as always.
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