Everything You Need to Know About NFT Staking
The new buzz in the NFT market is NFT staking. Staking an NFT enables investors to earn passive income in the crypto world. Let’s understand the staking process and how it can help you earn an income.
What is NFT staking?
The term NFT staking refers “to the exercise of locking up non-fungible tokens on a blockchain protocol or staking platform to earn rewards.” The process of NFT staking enables the user to secure the blockchain network and gain rewards in exchange for their participation. Staking happens to be a critical operation that enables a blockchain to process crypto transactions and stay secure.
NFT staking resolves one of the biggest challenges with NFTs- asset liquidity. Since NFTs are irreplaceable, selling them is a tricky endeavor. An NFT’s value is subjective, which means that its net worth depends on what a particular individual is willing to pay for it. Alternatively, fungible tokens are considerably easier to trade since they have a defined market value, both in fiat currency and other cryptocurrencies.
Staking NFT tokens provides owners with a passive revenue stream without losing hold of their NFTs. Moreover, NFT staking provides liquidity to NFT owners. Rewards from staking are based on various characteristics such as the asset’s ability to generate passive revenue such as royalties.
Here is how NFT staking can be beneficial for investors:
- Staking rewards- NFT staking rewards users for depositing or lending their NFTs. The rewards vary depending on the uniqueness and/or rarity of their NFT collection. They can be additional tokens, airdrops, fiat money, or other incentives. An owner can collect rewards up to 100% APY for loaning their non-fungible tokens to other users and encouraging them to join the liquidity pool.
- New NFTs- Many platforms remunerate their users with brand new NFTs as an incentive for staking. The new NFTs may have other ownership benefits that users can enjoy.
- Enhanced liquidity- The liquidity of these non-fungible assets improves due to NFT staking, which attracts additional investors to the liquidity pool.
- Enhanced security- More users staking their NFTs contributes to the overall security of the blockchain. Thereby, staking improves the safety of the NFTs as well as the entire blockchain network.
How does NFT staking work?
NFT staking process is similar to crypto staking, wherein blockchain users utilize Proof-of-Stake protocols (PoS) as collateral to confirm and validate crypto transactions. Blockchains fundamentally rely on a global network of miners/validators to validate all transactions before adding them to a new blockchain block.
The blockchain network chooses validators based on the number of altcoins they promise to the blockchain network’s functioning. For contributing resources, validators receive various incentives. Whenever a new block is added to the blockchain, new tokens are created and distributed to validators as staking rewards.
The amount of staking incentive a validator receives is decided by several factors. This includes the number of coins staked, the time the validator has been actively staking, the total number of tokens staked on the network, the token’s inflation rate, etc. By staking their altcoins and becoming validators, token holders may put their idle crypto coins to work in return for rewards.
Anyone can stake their coins while keeping control of their assets. They can opt-out of the staking pool at any time, as long as they follow the blockchain protocol’s limits and regulations. The staking process keeps the protocols secure while also validating crypto transactions. Considering that NFTs are tokenized digital items, they can be staked through the same process.
NFT owners may safely deposit or lock up their NFTs on specialized platforms and get rewards depending on the annual percentage yield (APY) and the amount of NFTs staked. It’s important to understand that, like cryptocurrencies, not all NFTs may be staked for rewards. Different projects have different requirements; therefore, double-check the conditions of your selected project before purchasing any NFTs.
When you stake on an NFT staking platform, it automatically calculates the value and the annual percentage yield (APY) of the digital asset. APY represents the amount that you will earn in a year from staking. The asset’s value will be estimated by specific criteria. These include rarity, perceived uniqueness, the potential to create a steady revenue stream through royalties, and the ability to attract more investors.
In other words, most staking platforms include a built-in mechanism that will evaluate your NFT, estimate its worth, and provide a dividend value based on various time periods. These mechanisms are often decentralized and provide high levels of protection for your crypto assets until you’re ready to trade them.
Many popular NFT artworks and in-game assets are stackable, with specific assets giving up to 100% annual percentage yield. (APY). Some examples include CyberKongz, Mutant Cats, Doge Capital, etc. There is a generic formula that you can use to evaluate your incentive:
“Breakeven Time = Cost of NFT / (token price * daily reward).”
“Annual Percentage Yield (APY) = (token price * daily reward * 360) / Cost of NFT.”
The Pros and Cons of NFT staking
The merits of NFT staking are:
- Staking can help owners earn income from their ideal non-fungible tokens.
- The process is relatively inexpensive.
- Staking rare collectibles increases the owners’ liquidity.
- NFT staking can help maintain a healthy blockchain.
- Unlike mining, it does not require any special equipment.
- Staking is environmentally friendly.
The demerits of NFT staking are:
- Staking increases the risk of centralization.
- Users cannot sell or trade their NFTs at a moment’s notice as their tokens are tied up.
- Price volatility is a risk.
- Finding the right platform that discourages fraudulent practices be a challenge.
Top NFT staking platforms
Today, there are numerous NFT staking platforms online that provide:
- A user-friendly interface.
- Robust security.
- Great incentives.
- High-quality Smart Contracts.
NFT holders find it simpler and more enticing to join, stake, and engage through a staking platform because of these qualities. They can effortlessly earn various rewards, including native tokens, cryptocurrency, and fiat money.
Take a look at the top NFT staking platforms available in the market:
Onessus is a decentralized Play-to-Earn gaming platform. The platform offers multiple packages such as HodlGod, WhenStaking, VOID Market, NiftyVillie, GEEC, and Stream to Earn. WhenStaking enables NFT holders to earn VOID, Onessus’s native token. Individuals can set up and connect their WAX Cloud Wallet to stake their in-game NFTs.
The platform is widely popular in the gaming community as its in-built lending mechanism allows users to lend NFTs to gamers. That way, gamers can access NFT features without limitations. Moreover, NFT staking on WhenStaking incentives the NFT during the lock-up period. NFT holders can earn EXP by staking.
At Onessus, the average APY is 80% per NFT, although this percentage fluctuates depending on the lock-up period. The base staking capacity on the platform is around 40K VOID. This means that any NFT with a value less than 40K VOID cannot be staked on the platform.
Splinterlands is a popular blockchain-based Play-to-Earn card game where each card represents an NFT. Essentially, players can lend their game cards to the liquidity pool and earn rewards in the form of the native token DEC (Dark Energy Crystals).
On Splinterlands, players have to finish daily requests for 15 days to earn rewards. Unlike other games, which are Ethereum based, Splinterlands is set up on the Hive Protocol. Even so, players can easily convert their DEC into ERC-721 tokens. Once the token is converted, it can be treated as NFT and sold on verified NFT marketplaces.
The NFTX is a DAO (Decentralized Autonomous Organization) platform that is built on ERC20 tokens. It’s built on the Aragon blockchain. Furthermore, NFTX is incorporated with DeFi; therefore, users can deposit their NFTs into a vault and mint ERC20 tokens (also known as vToken). It allows users to stake NFTs in exchange for rewards.
On NFTX, NFT owners can earn trading fees, protocol fees, and farming due to staking. NFTX supports all NFT collections prior to the ERC-721 token standard. Another advantage of using NFTX is that it does not restrict the use of any cryptocurrency. Moreover, it offers greater liquidity to NFT owners.
KIRA is a DeFi application that connects web3 DApps. The KIRA networks support liquidity through staking. It also allows NFT holders to re-funge their tokens. This means that users can fractionalize their NFTs so that others can use the fractions for lending or trading.
The network is compatible with Ethereum, Cosmos, Binance Smart Chain, and Polkadot. The multi-layer security measures ensure greater security of NFTs and other tokens. It provides users rewards for staking in the form of robust yields.
NFT staking has a promising future because it addresses and alleviates issues related to NFT trading. Staking allows NFT holders to earn tokens and other incentives without trading their NFTs, making it an appealing passive income resource. The emergence of NFT staking platforms also makes it easy for more people to try staking. More importantly, NFT staking opportunities are driving new case uses for non-fungible tokens that were previously unexplored.
While it’s still early days for NFT staking, given the popularity of NFTs, more individuals see the value in staking NFTs. Therefore, it’s clear that this practice will only grow in the future. NFT staking is creating opportunities not only for NFT owners but also for the gaming industry and other blockchain-backed areas.
Whether you wish to learn about NFT, Blockchain, Web3.0, Metaverse, or other emerging technologies, we have the vital resources that will enlighten and help you make an informed decision.
Subscribe to UPYO Blog Newsletter to deliver emerging technology updates straight to your inbox.