What is NFT Staking and How to Make Money with NFTs?

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Introduction

Everyone in the cryptocurrency community has heard about NFTs or Non-Fungible tokens. Most people understand NFTs as media files that they can use to create and sell artwork. However, it is important to understand that NFTs are also a type of cryptocurrency.

Therefore, they can offer other functions than just working as a privately owned media file. This article is going to discuss NFT Staking and how cryptocurrency investors can use it to their advantage.

What is NFT?

It is important to understand that NFTs are another type of cryptocurrency because they are also hosted on decentralized networks called blockchains. NFTs are usually media files that can contain audio, video, or static images. The main difference between cryptocurrencies and NFTs is their unique fungibility.

NFTs as their names suggest are only created once and cannot be copied. It means that anyone who owns an NFT cannot replicate it or manipulate its contents. Once an NFT has been minted it cannot be edited or changed. NFTs are also used in Web3 gaming to privatize avatar skins, gaming weapons, and other digital paraphernalia.

Therefore, gamers can create and trade them for a unique digital experience. NFTs are also used to sell and create digital land ownership and they are also used to facilitate fractional sales of stocks and real estate.

What is NFT Staking?

NFT Staking works much like staking of any other cryptocurrency. The cryptocurrency market has adopted staking methods as an alternative to savings account options provided by real banks. Anyone with a real bank account knows that they can opt for a savings account and earn interest income in exchange for storing their money.

Banks usually issue an APY or Annual Percentage Yield to inform the customers about how much interest they can earn every year. In the same manner, cryptocurrency investors can stake their reserves in custodial wallets, exchanges, decentralized exchanges, liquidity pools, and other DeFi applications to earn interest income.

The same can be done with NFTs. Some DeFi staking pools offer their investors to earn yield income by staking their NFT and locking them for a predetermined duration to qualify for earning interest.

How does NFT Staking Work?

NFTs are non-fungible meaning that one NFT cannot be duplicated or manipulated. The NFT that one person has minted is going to show unique ownership and it can only transfer from one person to another when it is sold. When NFTs keep selling a small percentage of income keeps going to the original owner of an NFT.

Since NFTs are unique, it means that not all NFTs can be staked. However, they are considered tokenized assets meaning that they represent the value of tangible assets such as artwork in a digitized form. Therefore, NFTs can be sent to staking platforms that support them.

These staking platforms can store the staked NFTs using smart contracts according to the rules of the local blockchain network. NFTs have been around for around a decade. However, they become popular among the masses as early as 2021. To this end, staking NFTs is an even more recent concept.

Most people invest in NFTs in the same way as they invest in artwork. However, since each NFT is unique just like a real painting, it means that the owners who have purchased a new NFT are reluctant to sell them. In most cases, NFTs cannot be used as a medium of exchange like cryptocurrencies.

Hence, the owners have to keep the NFTs static before they can find a suitable buyer. Therefore, NFT Staking is an idea that is well-received as a way to utilize the dormant NFT reserves to generate passive income.

However, unlike cryptocurrency staking, the users require a specialized digital wallet to stake NFTs that are technically compatible. The users must ensure that the digital wallet is suitable for the particular NFT under their possession as well as the blockchain where they intend to stake it.

Eventually, the users can stake the NFTs and send the NFTs to the relevant smart contract for creating a new staking position.

Origin of NFT Staking

NFTs were first invented by two Computer scientists named Kevin McCoy and Anil Dash in 2014. The project was a video clip of the wife of McCoy named Jennifer. This video was registered on the NameCoin blockchain which was a fork of the Bitcoin genesis blockchain network.

During a live demonstration of the technology at New Museum, NYC McCoy sold the clip to Dash for $4. The founders of the technology called it Monetized Graphics. The first public NFT project called Etheria was launched in 2015 and introduced during the DEVCON 1 London event.

This project made its debut only 3 months after the introduction of the Ethereum blockchain. It issued 45 hexagonal tiles which remained unsold until 2021. These tiles were hardcoded to 1 ETH coin and were sold for a total value of $1.4 million.

NFTs got an upgrade in 2017 with the integration of the ERC-721 standard that was shared on the Ethereum GitHub. According to Wall Street Journal, the 2021 NFT craze started to slow down in 2022. DeFi applications like Flow and Torum started to offer a staking option for NFTs during the second quarter of 2022.

NFT Staking Rewards

When a user stakes their cryptocurrencies they can expect to earn yield tokens or other cryptocurrencies as their rewards. The investors have the option to stake their yield tokens further, convert them to purchase more cryptocurrencies for staking or redeem them for other crypto rewards.

However, when it comes to staking NFTs the rules can be a little different. Each NFT is unique and the reward system can also differ from one staking platform to another. Some platforms may release weekly rewards while others incentivize stakers every month.

Some staking platforms consist of Decentralized Autonomous Organizations or DAOs. These platforms offer governance and voting privileges to the NFT stakers. Major Web 3 gaming forums such as Axie Infinity, Sandbox, Splinterlands, and Polychain Monsters are play-to-earn models where staking is allowed for NFTs.

There are three types of rewards that NFT stakers can expect to earn from their staking positions based on different staking forums:

Utility Tokens

In most cases, staking platforms issue utility tokens for their users as rewards. However, each staking forum has the option to design a unique rewarding mechanism and criteria for NFT holders.

Airdrops

Airdrops are cryptocurrency rewards that are issued in advance to the first investors or stakers. Some DeFi projects incentivize new stakers by offering Airdrops meaning the first chance to get a hold of a new currency that has the potential to gain massive price momentum later.

In most cases, Airdrop tokens are native currencies rather than utility, yield, or governance tokens.

Other Incentives

There are some cases, where the investors can earn more than just monetary rewards for their staking positions using NFTs. These rewards can entail governance rights or exclusive access to administrative decisions.

There are some forums where users can earn exclusive investing options for IDOs, IEOs, IGOs, and others.

Now that it has been established what type of rewards NFT staking entails it is time to learn more. As mentioned before, each NFT is a unique product which means that the staking forums cannot offer a unified APY ratio to determine the value or interest return for each.

Therefore, most NFT staking platforms can use the following criteria to determine the percentage of yield or privileges it is going to earn:

The uniqueness or rarity of the NFT that is offered for staking. The rarer an NFT is deemed, the more the stakers can expect a return. The total duration of the staking position that NFT has held. Longer durations can generate greater rewards.

The total number of NFTs that are staked on a platform. When there are more NFTs the reward can divide and start to become lesser for individual stakers. The number of NFTs that a single validator can stake can make a difference in their total returns. More NFT staking positions can create more rewards.

The experience and duration of the validator depend on the total duration of their actively staked NFTs. If the NFT rewards can be used for Yield Farming or not. In case the users can stake the rewards earned from their NFT staking positions they can end up multiplying their income.

Top NFT Staking Platforms in 2023

Here are some of the top NFT Staking platforms in 2023.

Binance NFT PowerStation

Binance NFT PowerStation is a platform where users can stake the NFTs to support their favorite sports teams and players. The stakers get to earn the Binance Fan Tokens or BFTs as rewards. This platform is based on Binance Exchange which touts millions of users around the world.

BFTs are utility tokens that can represent a particular sports team. The users can get exclusive ticket sales or participate in voting decisions for their preferred sports club. These tokens are also used by celebrities and artists.

NFTX

This platform issues ERC-20 tokens against staking positions for NFTs. The users are allowed to submit their NFT reserves into a digital vault. In exchange, they can mint new ERC-20 tokens that are editable and backed 1:1 ratio. These tokens are also fungible and they are called vTokens that can be used for further staking or purchasing other NFTs from the vaults of NFTX.

The holders can also pool vTokens in AMMs and offer liquidity. When their tokens are utilized they can earn transaction fees as a reward from the liquidity pool. Furthermore, the users that are offering liquidity with vTokens get a floor price which is the lowest market value for an NFT.

Splinterlands

It is a blockchain-based gaming platform. The players are allowed to build a collection of e-cards based on the abilities and stats of various gaming characters. These cards are used for duels and the game issues a native token called SPS which stands for Splintershards.

The platform is based on Binance Smart Chain. Users may stake their SPS tokens to the players that are participating in battles. They can also stake them in the native liquidity pool or DAO to gain governance rights.

Polychain Monsters

It is a play-to-earn blockchain platform that is designed for gamers. Using this forum the gamers aim to collect animated characters called Polymon. Polymon are NFTs collectibles. Each Polymon has a unique design, abilities, and level of rarity.

Some combos are considered to be very scarce and thus extremely sought after. The players have the option to stake their Polymon NFTs and earn weekly rewards in the form of PMON tokens issued by the Polychain Monster blockchain.

How to Pick the Best NFTs for Staking?

There are tons of NFTs available and the number is only growing larger. Among the clutter of NFTs, users can be at a loss to find the best NFTs that can earn them the biggest rewards.

Each NFT is unique and it can be very difficult to pick the right one for investing in comparison the fungible currencies like Bitcoin and Ethereum. Here are some important traits that cryptocurrency investors can look for when they are planning to earn massive staking income from an NFT:

Annual Percentage Yield or APY

Annual Percentage Yield or APY is the predetermined ratio of rewards that a staking platform informs its users. Just like any other cryptocurrency staking platform, investors should always collect the APY offer from all available NFT staking forums at their disposal.

When the users have made their comparison they can go for the option that offers the highest rewards to maximize their earning potential.

However, the investors must keep in mind that the APY rates are always subject to volatility and thus the users will do better by learning the criteria for the revision of the APY rates before opening a new account.

Meanwhile, some forums may offer unusually high rewards at first to attract more users but change them to the lowest later. NFT platforms that release rewards at shorter durations should be preferred.

Protocol Token Staking

Investors should always be on the lookout for sneaking NFT staking conditions. NFT staking is a fairly new phenomenon and therefore most investors are not aware of the hidden rules. It is best to learn about all the staking conditions beforehand to avoid facing issues later.

Many NFT staking forums only allow users to stake their NFTs in addition to the native protocol tokens to increase the traction for local tokens.

Localized Lending Mechanism

Many blockchain gaming projects allow users native leverage. It means that the users who are participating in battles can borrow the NFT characters from other users or players. The lenders in turn can earn a small cost and this income is shared with other NFT stakers by the protocol in an automated manner. These platforms are one of the best options for staking NFTs, as all stakers can keep earning a portion of leveraged income each time an NFT is borrowed.

Staking Duration

The duration of staking can play an important role in increasing or decreasing the total number of staking rewards. However, the duration of staking can differ from platform to platform. Some staking protocols allow users to stake their NFTs for an indefinite duration.

On the other hand, others restrict the duration to encourage them to create new staking positions to renew their staking positions. It is best to go for the smaller staking duration to avoid the probability of impermanent losses.

Staking Limitation

Most NFT staking platforms have enforced a limit on the individual on the total number of NFTs that they can stake. In some cases, the staking limitation is based on the total yield earned or the rarity of the NFT in question. Other forums only accept NFTs that possess sufficient rarity otherwise they are reclined.

Demand and Popularity

It is common sense that cryptocurrencies that are deemed users can retain their value. The same rule also applies to NFTs. Investors cannot expect to earn considerable yield by staking NFTs that are not considered to be in demand.  It is best to stick with the NFT collectibles that offer real utility such as gaming or others.

The investors must also research the demand for the NFT games that they are using for staking. If the game does not have enough reach it can go out of commission leaving the users with losses.

Conclusion

NFT Staking is the latest trend among NFT investors. It is well-received because it allows the owners to get a chance to earn an additional income from a static digital product. Investors can benefit from all the advantages of staking when it comes to NFTs and they must also beware of its limitations.

Those who have already invested in NFTs can use this option to write off their losses or earn additional income without losing the ownership of their non-fungible tokens.


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