How to Earn Passive Income by NFT Staking?
You must have heard of token staking where the investors earn rewards by staking their existing crypto assets in a staking pool. If not, let us give you a brief description. Staking is the process of locking cryptocurrencies in a staking pool for a definite period of time (usually 180 days) to earn rewards from the pool. The rewards are mostly awarded in the form of native tokens of the platform. It is one of the best methods to put your cryptocurrencies to use, which are otherwise reaping no benefits while sitting in decentralized exchanges. Similarly, NFT staking is another way of making passive income by staking NFTs instead of crypto tokens. Let’s understand NFT staking in a bit more depth.
What is NFT staking?
NFT staking is the process of locking your non-fungible tokens in staking protocols in order to earn rewards in the form of tokens from the platform. Different staking platforms have varying lock-in periods for staking NFTs. However, some of them offer an indefinite lock-in period. The best feature of NFT staking is that the user doesn’t lose ownership of their NFTs while staking them.
How does NFT staking work?
Let’s now look at the detailed process of NFT staking and understand how you can earn money by staking NFTs.
- Firstly, the various validators pledge their NFTs to the staking pool where the NFTs get locked by the pool.
- Secondly, the platform chooses one of the validators to facilitate the mining process on the blockchain. The chosen validator records the transactions on the blockchain as a new block.
- The protocol then awards the validator for their ability to pledge NFTs to the pool and mining blocks, with rewards such as native tokens.
It must be noted here that the validators are chosen by the platform after consideration of several factors such as the number of NFTs pledged by the validator, the value of each NFT in the pledge, the number of validators in the pool, the duration of staking, the inflation rates of the assets and so on. Therefore, it is not possible for any validator to accurately predict the amount of passive income they may be making by staking NFTs.
Furthermore, the types of rewards that the validators earn, depend upon the platform on which they are staking their NFTs, and the types of NFTs that they are staking on the platform. Play-to-earn platforms allow users to play the games and earn rewards in the form of NFTs. Similarly, DAO platforms allow users to lock their NFT assets and participate in the voting processes for the future decisions of the protocol.
Is NFT staking profitable?
Yes, NFT staking can be profitable if you choose the right NFT for staking. While staking NFTs, the investors must clearly observe the annual percentage yields offered by the project. In case the NFT collection is facing high price volatility in a short period of time, it is best to stake the NFTs and hedge against price fluctuations.
Secondly, you must look for projects with a large number of staked NFTs. If there is a big community of people holding the NFT collection for a long time, there are high chances that the project has some actual utility for the users. Therefore, the prices of the NFT collection are going to increase in the future.
Thirdly, it is always good to stake NFTs with practical use cases. This prevents the NFT from facing price drops due to the loss of HODLers. Also, before staking NFTs, make sure that you research the project and its future potential so that you don’t miss out on generating high profits in the long run.
Best NFTs to Stake and Earn Rewards
Here are the five best NFT collections that you can stake right now and generate passive income for yourself.
CyberKongz is a collection of over 1000 NFTs featuring strange yet creative ape characters. In addition to this, the project is offering Banana tokens to the owners of CyberKongz ape NFTs. These tokens can be hodled to earn high-profit margins.
Axie Infinity is the biggest play-to-earn game in the NFT world. Incentivizing the players with the native AXS tokens and additional Smooth Love Potio tokens, the game offers an excellent way to level up your position on the Infinity leaderboard and earn rewards.
The Sandbox is one of the most popular gaming platforms in the market. Gamers love it because it allows them to create a huge bundle of gaming assets like clothes, cosmetics, and even individual games inside the Sandbox ecosystem. Each of these assets is created in the form of NFTs. The users can then earn money from these assets and even earn the native SAND tokens.
These NFTs allow the creation of ERC-20 tokens known as v-tokens on the NFTX platform. The users can then use these v-tokens to stake in different pools and earn passive income. In addition to this, the users can lend these tokens to AMM model-based platforms to provide liquidity.
Besides being a totally fun game to play among gaming enthusiasts, Splinterlands issues Splintershards to the gamers for facilitating some in-game activities. The players can also use these tokens to engage with the Binance Smart Chain network, vote on the ranked matches, stake on DAO platforms, and so on.
Now that you are aware of how profitable NFT staking can be, would you like to give it a shot? However, before you begin staking your NFTs, make sure that you go through the details such as estimated APY, rarity coefficients of the NFTs, price movements of cryptocurrencies over the decentralized exchanges, etc. It is because these factors can largely affect the scope of profits that you are going to make by staking your NFTs.