We explain this mechanism that involves locking assets to generate passive income. Its advantages and risks, as well as the most popular platforms.
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What is NFT Staking?
NFT staking is the action of “locking” the asset with the aim of generating passive income. In other words, it allows the holder to earn interest on the non-fungible token without selling it.
In a segment where profits are mainly associated with the buy-sell of assets, NFT staking is a resource that incentivizes investors to hold onto their tokens, as the rewards offered do not involve disposing of them.
How does NFT staking work?
NFT staking is a developing mode, immersed in a decentralized finance variant that is also in its early stages. However, there are already platforms that offer this service which insiders describe as promising.
The operation of NFT staking is guided by these principles:
- Holders lock their assets in deposit on DeFi platforms.
- This allows them to receive credits without having to sell their collections.
- The operation is similar to DeFi yield farming.
- The reward to participants is based on the Proof of Stake (PoS) mechanism.
In practice, when NFTs are locked in deposit, users receive interest based on the annual percentage yield (APY) and the amount of tokens in staking.
To understand the operation of NFT staking, it is important to review the evolution of these assets.
Keep in mind the following.
With a clear increase in popularity since early 2021, when the artwork Everydays: the First 5000 Days by artist Beeple was sold, the NFT market has mainly been linked to the representation of digital pieces and collectibility.
Regarding its value as an investment, the value of NFTs is tied to the increase in their value over time for eventual sale.
There are also other ways to earn returns on non-fungible tokens:
- Some projects share part of the profits with the holder community, which generally come from sales on the secondary market and royalties.
- Another option is NFT staking, which we are discussing here.
In any case, locking an NFT is like staking Bitcoins or Ethers. It is necessary to have a cryptocurrency wallet with non-fungible tokens.
One more thing: not all NFTs can be staked. Additionally, the requirements for doing so vary when the method is accepted. That is why it is important to examine projects before investing in them.
Benefits of NFT Staking
The primary advantage of NFT staking is the receipt of rewards that, as stated, do not require the sale of the asset.
This locking action also diversifies the cryptocurrency market in general and NFTs in particular. Why? Look.
- At the individual level, it opens new opportunities for investors in a market where the supply of the asset tends to be lower.
- In a broader view, staking of non-fungible tokens offers more use cases for those assets beyond digital art collection and mere commercialization.
There are more benefits of staking. Let’s see:
- It generates greater NFT exposure and expands the community around it.
- It can increase the value of the asset, as it creates demand from people who want to participate.
Where can I stake my NFTs?
To stake NFTs, attention must be paid to play-to-earn games, a mode with increasing visibility in the world of cryptocurrencies.
In summarized terms, NFT games combine entertainment with decentralized finance, offering players rewards (usually with the Ether currency) based on their progress.
At the time of publication of this article (January 2022), the main opportunities to stake NFTs are in those video games.
One alternative is MOBOX, a metaverse that combines yield farming with non-fungible tokens. There, players can stake their assets and receive yields in the MBOX currency, native to that environment.
Another option is Zookeeper, a yield farming decentralized application (DApp), in whose proposal gamification is highlighted. There the user can stake NFTs, which represent pets, with different lock-up periods and consequent variations in APY rewards.
Other relevant platforms for staking NFTs are:
- Doge: It stands out for its low fees and broad NFT support.
- Splinterlands: Supports a wide range of NFTs, including some of the most popular play-to-earn games.
- BAND NFTs: It is one of the most well-known in this field, recognized by participants for its intuitive and user-friendly interface.
How much money can be made with NFT staking?
To know how much money is possible to earn doing NFT staking, you have to consider a series of factors that will move the needle.
- The platform that is used, since the percentage of rewards varies according to the environment.
- The number of NFTs in staking.
- The value of those assets.
Following NFT Calendar site, in general terms “the more NFTs are staked, the more rewards are obtained“. The source notes another fundamental aspect: when the asset has little value, you won’t make much money.
Risks of NFT staking
The risks of staking non-fungible tokens replicate those that affect any type of investment, especially in the field of cryptocurrencies.
- Computer attacks: No digital asset is 100% safe from malicious hacks.
- Platform failures: They can result in permanent losses.
- Inactivity time: When this occurs on platforms, it is not possible to access the NFT during that period.
Is staking NFTs more profitable than flipping and holding?
Is staking more advantageous compared to holding (asset holding) and flipping (buying at a low price and quick sale to obtain profits)? The answer is “it depends.”
The same occurs in “traditional” markets, the profitability of investments in the crypto universe depends on multiple variables, from expectations to the risks one is willing to assume.
Staking NFTs is a good option for those looking for passive income. As noted by the source mentioned above, it is ideal for those who want to sit back and let the money work for them.
On the other hand, if the goal is to get quick returns, probably holding and flipping will be better.
In summary (moving away from the imprecision of “it depends”), staking is a long-term option; while holding and flipping are more suitable for investors who move skillfully with market fluctuations.
In any case, there are some basic recommendations for staking NFTs. Among them, analyzing the number of users and transactions on platforms, the types of tokens accepted, the security functions of each environment, and the fees charged for each transaction.