What is NFT Staking
NFTs have a lot more value than meets the eye.
To some they may appear to just be JPEGs, but these digital assets have the potential to transform every industry, from event ticketing to digital art and “phygital” goods. The hidden value of NFTs lies beneath the surface in their intrinsic utility, and that’s something that can’t be captured with a screenshot.
Another thing that most people don’t know about NFTs is that they have the ability to earn passive income. Many collections allow users to stake NFTs to earn rewards. There are also NFT staking platforms designed to enable NFT holders and non-holders to make the most of these digital assets.
In this article, we will discuss what NFT staking is, how it works, and why it is an opportunity to earn passive income.
NFT Staking Explained
NFT staking is locking away your non-fungible token onto a blockchain protocol, often in exchange for a reward. Developers use smart contracts to in order to deploy NFTs onto
NFT staking exists for a number of reasons:
- To drive up scarcity. If an NFT is locked away, then it can’t be sold. If it can’t be sold, then supply goes down and prices go up.
- For NFT holders to earn passive income. If there were no benefits of staking for the NFT holder, there would be no reason to do it. So when someone who owns an NFT locks it away, they are given something in return by the team behind the project.
- To support Proof-of-Stake (PoS) networks. PoS is the mechanism that most blockchains use to validate transactions on the network.
There are usually associated gas fees for anyone who wants to stake an NFT on a blockchain. This is because validators need payment as their reward for securing the network. So it’s gas fees that stakers are rewarded with.
How NFT Staking Works
The blockchain protocol locks up the funds in a staking pool and then randomly chooses validators, who are tasked with “mining” or confirming blocks of transactions. The more a participant pledges, the more likely they are to be chosen.
Every time a new block is added to the chain, new tokens are minted and distributed to the validators as staking rewards. There are a number of factors which determine how much a validator receives as a staking reward, including how many coins the validator is staking, how long the validator has been actively staking, how many coins are staked on the network, the token’s inflation rate, and more.
By staking their coins and becoming validators, coin holders are able to make their idle assets work for them in exchange for rewards and generate passive income. The cryptocurrency protocol is also secured and user transactions are confirmed. It’s a win for everybody. Users who stake their coins are still in possession of their assets and have the freedom to remove them from the staking pool at any time, depending on the terms and conditions of the cryptocurrency protocol.
NFT staking works using the same system, since NFTs are essentially tokenized assets. Users can lock up their NFTs on specific platforms for safekeeping and receive rewards based on the established annual percentage yield (APY) and the number of NFTs staked.
It’s important to note that, like cryptocurrencies, not every NFT can be staked for rewards. Different projects have different requirements, so check the conditions of your chosen project first before you acquire any NFTs.
How are NFT staking rewards calculated?
Every collection that offers staking will have its own rewards rate, which incentivizes NFT holders to lock up their assets for as long as possible.
Just as you can view the annual percentage yield (APY) on traditional cryptocurrency staking platforms, so too can you preview returns on NFT staking sites. However, not every site will show an exact APY, but instead may display the expected token rewards (e.g. 10 tokens per day) that can be earned during the staking period.
Again, the exact reward value will vary by NFT, but the common factor uniting most projects is that they will compensate users that stake NFTs by rewarding them with a utility token. This token may have additional perks such as voting, governance, and general DAO benefits. Some NFT collections will even let you stake these earned tokens, allowing users to compound returns!
Platforms To Consider for NFT Staking
Multiple platforms have recently offered opportunities to stake NFTs. All you need to do is stake your NFTs in a compatible wallet to get started. Below are some of the platforms you can consider for NFT staking.
NFTX is a platform for creating ERC20 tokens that are backed by NFT collectibles. Users deposit their NFTs into an NFTX vault and mint an ERC20 token that’s composable and fungible at a 1:1 ratio. These tokens, called vTokens, can be staked for yield rewards or used to purchase specific NFTs from a vault.
Holders can pool their vTokens in automated market makers (AMMs) to create a liquid market for other users to trade. A user can then earn trading fees as a liquidity provider. Additionally, vTokens that have liquidity and trading volume get a “floor price” ― the lowest market price for an NFT — which is ideal for investors trying to price their NFTs.
Splinterlands is a blockchain-based collectible card game that’s similar to Hearthstone in that players can build up a collection of cards listng various abilities and stats, and use them in matches.
The game has its own native token called SPS (short for “Splintershards”) that’s set up as a DAO on the Binance Smart Chain (BSC). Users can stake their SPS tokens on players participating in ranked battles, liquidity pools, and the DAO pool for governance voting.
Music NFTs represent a new era for the music industry, in which creators have complete control over distribution. BAND Royalty is at the forefront of this revolution. It’s an NFT exchange where users can buy music NFTs and stake them in royalty pools to earn a portion of the proceeds their songs or albums acquire. The larger the platform’s music library becomes, the higher the royalty income stream for NFT stakers.
Polychain Monsters is a blockchain platform for animated collectible NFTs called Polymon which are acquired from digital booster packs. Polymon have different traits and varying levels of rarity. Some combinations are extremely scarce and desirable. Polymon holders can stake their Polymon NFTs and earn weekly rewards in Polychain Monsters’ native cryptocurrency, PMON.
Doge Capital is a collection of 5,000 pixel art NFTs that were minted on the Solana blockchain. They can be purchased from any Solana marketplace. Doge Capital has a staking program which offers its NFT holders DAWG tokens as a daily reward. DAWG is Doge Capital’s native utility token, and it’s listed on a handful of exchanges, including Dexlab and Raydium.
Factors to consider before staking NFTs
- Can you stake it?
Not every NFT can be staked. If you are considering staking, make sure that the NFT that you want to buy or mint can be staked.
- Lockup period
Some NFT staking platforms have no lock-up period and some do. The lock-up period can be anything from days to years. Choose a lockup period that suits your goals and needs.
- Annualized percentage yield
Annualized percentage yield (APY) is the expected return on a staked NFT. Some projects can offer a high APY, but be aware of their sustainability. Each protocol has a different way of calculating APY. The rarity and price of the NFT can have an impact on the APY.
- Community participation
Some NFTs staking platforms distribute rewards with their native cryptocurrency tokens that can have utilities such as voting power on the platform.
- Cryptocurrencies volatility
NFTs are denominated in cryptocurrencies and the staking rewards are also paid in the cryptocurrencies. The volatility of the cryptocurrency can have a significant impact on the value of NFTs and the rewards received from them.
The future of NFT staking
As NFT values have dipped and cryptocurrency prices have fallen off a cliff, the current outlook for NFT staking isn’t optimistic. Projects that performed exceptionally during the height of the 2021 bull run are now offering low returns.
But this doesn’t mean there’s no future for NFT staking. The next couple of years will see projects find new and better utility for their NFTs. And with this will certainly come staking programs.
The goal for all new projects and platforms is to develop something that isn’t built purely on hype. Once they achieve this, then sustainable rewards from NFT staking become a real possibility.