NFT Staking: Earn Passive Income from Your NFT Collection
Apr 28, 2023
This article is for general information purposes only and isn’t intended to be financial advice.
Subscribe to our newsletter
Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
NFTs change the way we perceive digital assets, art, and collectibles. As the NFT market continues to grow, innovative ways to generate income from NFTs have emerged. One such method is NFT staking, which enables NFT holders to earn passive income by locking up their NFTs for a specified period. This comprehensive guide will delve into the process of staking NFTs, how rewards are calculated, factors to consider, and the best platforms for NFT staking.
Understanding NFT Staking
NFT staking is similar to cryptocurrency staking, where users lock up their assets in a platform for a set period and earn rewards in return.
Most NFT projects offer staking benefits in terms of APY, with reward rates increasing with the length of time your NFT is locked in. Other systems may display your predicted return in terms of tokens rather than APY.
Maximize Your Rewards
Comparable to digital currencies, NFT staking functions using the proof-of-stake (POS) consensus mechanism. Every new transaction is documented within the blocks created on the distributed ledger system. Possessing NFTs provides authority to participants in the verification of these blocks. PoS enables the confirmation of each freshly minted block on the blockchain. Validators are chosen arbitrarily and receive staking incentives. The higher the stake, the better the odds of obtaining rewards.
Upon initiating the staking process for an NFT, the staking service assesses its value according to its scarcity and assigns an appropriate APY. The more uncommon your NFT, the greater your APY will be. Another crucial aspect influencing an NFT's worth is its ability to produce consistent revenue via royalties. Staking returns will be provided in the platform's indigenous token. These tokens can be exchanged for alternative digital currencies or traditional currency on trading platforms.
Key Considerations Before You Go All-In
When considering staking NFTs, it is essential to evaluate several factors, such as whether the NFT is eligible for staking, the lock-up period, and the APY offered. Additionally, consider the right to participate in project governance, the price volatility of both the cryptocurrency and the NFT, and the percentage of NFTs staked. It is also crucial to weigh the pros and cons of NFT staking to make an informed decision on whether to stake your NFT or not.
The advantages of staking NFTs include generating passive income, engaging with projects and communities, and gaining access to whitelists. However, there are drawbacks to consider, such as potential scams or rug pulls, NFT price fluctuations, cryptocurrency price volatility, and lengthy lock-in periods. It's essential to weigh these pros and cons carefully before deciding to stake your NFTs, ensuring that you make an informed decision that aligns with your investment goals.
At present, the majority of NFT staking possibilities can be found in Play-to-Earn (P2E) gaming and metaverse platforms like Axie Infinity, Decentraland, The Sandbox, Polychain Monsters, Splinterlands, and others. Alternative staking platforms require securing the NFTs within DAO (decentralized autonomous organization) protocols. By placing NFTs in DAOs, you can engage in the platform's governance and cast your vote on upcoming proposals.