NFT staking is a new way to earn passive income in the crypto world. It lets NFT holders lock their assets in DeFi platforms to receive rewards. All without the need to sell their NFT collections.
The concept will be familiar to anyone who’s dabbled in yield farming or crypto staking. The process relies on owners offering their NFTs to proof-of-stake consensus models, locking the token up for a varying amount of time. During this period, owners will receive proportional rewards based on the number of tokens they’ve staked and the current yield percentage.
While NFT staking is still in its early stages, it’s proving incredibly popular. Holders of NFTs are now being passively rewarded for holding their tokens whether they’re in it for the long haul or they’re waiting for the right price point to sell.
In this article, we’ll explain in a little more detail exactly what is staking in NFTs and how it works.
Let’s start from the top and recap what a non-fungible token (NFT) is.
In the economic world, when something is “fungible,” it can be replaced and exchanged by others of the same kind. The best example is money. The U.S. dollar, for example, is fungible. While two people may have two separate $1 dollar bills, they both have the same utility and spending power. The same goes for cryptocurrencies like Bitcoin. It doesn’t matter so much which particular Bitcoin you own, as all 21 million will be effectively the same.
While monetary assets are fungible, a lot of other assets are not. Non-fungible assets are not replaceable with equivalents. They have unique qualities, utility, or history of their own. A house, for example, may look exactly the same as its neighboring building but the two could hold significantly different values due to several reasons, from its former owners to the interior décor.
Non-fungible tokens exist on the blockchain like a cryptocurrency but are like real-world assets in that they have unique qualities.
NFTs act as a certificate of authenticity that something is the original, de factor version of an image, video, audio clip, or other digital assets.
Staking is simply where you lock up a token for a reward.
It involves offering your token to the original NFT project or another third-party platform. In return for “locking up” your token, you received “staking rewards.” These rewards come in the form of cryptocurrencies or project utility tokens.
This process is similar to crypto staking where investors are able to rent or lease their cryptocurrency to third parties to generate passive income. NFT staking does exactly the same but instead of locking up cryptocurrency, you temporarily lend your non-fungible token.
First NFT-Based Staking Pool on the Binance Smart Chain
For the third-party, this lending process introduces liquidity into the ecosystem, freeing up the value locked in assets. In the NFT market, scarcity is paramount so by design liquidity is a problem. NFT staking goes some way to solving this problem.
NFT staking also promotes longer-term holding and not constantly flipping. By rewarding owners with a regular passive income, they are less likely to relinquish ownership and, instead, wait for the price to appreciate.
The first step in NFT staking involves transferring your token to the “staking platform.” As it stands, most NFT staking platforms relate to play-to-earn games such as Wulfz (https://wulfznft.com/), Zookeeper, (https://www.zookeeper.finance/) and Cryptoblades (https://www.cryptoblades.io/).
In most cases, holders simply visit the website of their project or an NFT staking platform and submit their token address. This will then temporarily transfer the token to a different wallet for a certain period of time, typically measured in weeks or months.
It’s important to remember that ownership is never transferred however and the token will be returned after the set period. Once transferred, the NFT is staked and rewards will accumulate.
While passive income is an obvious incentive for the owner of an NFT, for some projects the incentive is that staking takes items out of circulation allowing more to be minted. This generates more players and more revenue.
Other platforms use a calculation of the NFTs value to establish an annualised yield (APY) and then used to secure protocols using the proof-of-stake consensus model.
The kind of reward you get for staking your NFTs depends on what platform or project you stake with. Most platforms that allow owners to stake will issue rewards in the form of native currencies that are often listed on cryptoexchanges for real-world value. In most cases, these rewards are distributed either daily or weekly.
Some projects, such as Bored Ape Yacht Club, use these rewards in conjunction with a decentralized autonomous organization (DAO). These are used to govern the future of the project, provide liquidity to the ecosystem, and encourage long-term participation.
As it stands, however, play-to-earn games are leading the charge when it comes to NFT staking, with games such as Axie Infinity and Splinterlands being amongst the most popular.
However, it’s worth making the distinction between NFT staking and games like Axie Infinity. In Axie, owners are staking their $AXS tokens, which are fungible, ERC20 tokens. With projects like Bored Apes, you are staking your actual NFT token.
Here, we’ll take a look at a few projects that offer NFT staking to holders and see what rewards are on offer.
Owners of the exclusive Bored Ape NFTs are now able to earn passive income using the project’s novel new staking system.
The ApeCoin DAO allows owners of Bored Ape Yacht Club NFTs to stake their tokens and receive $APE as a result. The coin is an ERC20 governance token that is going to be used to build a decentralized community of collectors.
A platform for creating ERC20 tokens, NFTX’s liquidity is provided by NFTs.
Users of NFTX can submit their NFTs into a collective vault and mint ERC20 tokens to an equivalent ratio, called vTokens. These can then be staked for rewards or used to purchase other NFTs.
MOBOX is another project where owners can stake their NFTs. In this case, MOBOX is a metaverse game that introduces DeFi yield farming into the mix to provide rewards for NFT owners.
The game is free to play and each “MOMO” NFT has a different hash power, determining its reward value.
Unlike almost 80% of NFT projects, MOBOX leverages the Binance Smart Chain (BSC) blockchain which typically translates into lower fees and faster transactions.
Staked MOMO NFTs reward owners with $MBOX, a governance token that is distributed every day. $MBOX can be used with other compatible platforms or cashed out.
Another example of a play-to-earn games that offers NFT staking is Wulfz.
Based on Ethereum, Wulfz allows owners to stake their pixel-art wolf NFTs in exchange for $AWOO tokens. These are non-monetary utility tokens that will be used in the Wulfz ecosystem.
As it stands, each Wulfz NFT generates 10 $AWOO a day. With enough $AWOO, you will eventually be able to exchange the currency for further NFTs that can be turned into a profit or held in a wallet indefinitely.
Like other NFT staking sites, Wulfz uses a simple hub dashboard (https://hub.wulfznft.com/) where you can see how many NFTs you’ve staked, your balance, and yield per day.
While NFT staking is still very much in its early days, it’s safe to say that the concept is proving popular.
Still a nascent technology, NFTs have proven confusing for some outside the space unable to understand the value of digital assets. While for some investors, the token’s artwork and community buzz are enough to give the NFT intrinsic value, for others, non-fungibles lacked utility.
NFT staking now gives tokens ongoing utility. Simply owning a token is now an ongoing and rewarding investment that is likely to attract the attention of traditional types going forward. Not only are NFT staking rewards a lot higher than traditional investment returns, but they are more flexible too. Many projects even let you continue “using” locked NFTs, depending on how the smart contract has been written.
Nevertheless, NFT staking has a long way to go to catch up to crypto-staking. This can be seen as a good thing, however, with the crypto-staking space making inroads for investment and growth that NFT staking can utilize in the future. This will be especially true when Ethereum switches from a proof-of-work consensus model to a proof-of-stake mechanism.
There really is no downside to staking NFTs. It is simple to do, provides genuine passive income, and rewards owners for holding rather than flipping their token.
While most projects don’t yet offer staking opportunities, the number is growing with the concept now included in the roadmap of most upcoming projects.
So, the next time you’re scouting out up-and-coming NFT projects to invest in, it’s worth considering whether or not it allows staking, providing an easy way to earn a return on your investment.
Source: NFT’s Street