Jun 21, 2022
What is NFT Staking?
With numerous options within the ecosystem, cryptocurrency has made passive income a simple task. Similarly, the growth of non-fungible tokens in the last two years keeps providing new investment opportunities. Most people think of non-fungible tokens (NFTs) as digital representations of art and collectibles that potentially increase in value over time. But, there’s more than storing to be done with NFTs; just like you can stake your crypto asset to earn rewards, you can stake NFTs to earn rewards.
What is NFT Staking?
NFT staking is the locking up of NFTs on a platform or protocol to receive rewards –these rewards are usually the protocol’s native coin or NFTs– and other benefits. This means staking your NFTs is a method of putting your one-of-a-kind token to work on the blockchain. Therefore, by staking NFTs on a platform, you can earn rewards based on the annual percentage yield (APY), the duration of staking, and the number of NFTs staked.
Basically, the NFT method of staking is comparable to staking in DeFi, in which cryptocurrencies are given to the protocol of liquidity providers to earn rewards through transaction costs incurred by others. However, not all NFTs can be staked to earn rewards. The requirements differ between projects, so check with your preferred projects before purchasing the NFTs. In addition, some platforms enable users to stake their NFTs indefinitely, whereas others have defined time limits on how long NFTs can be staked before they can be retrieved.
How does NFT Staking Work?
Staking is an essential feature of many blockchains. For example, most of today’s blockchain networks use a Proof-of-Stake (PoS) consensus mechanism and rely on a global network of validators to confirm and verify transaction blocks and keep the network secure. As a result, each time a new block is added to the chain, new tokens are minted and distributed to validators as staking rewards. In exchange for staking rewards, validators stake cryptocurrency and verify transactions.
NFT staking works similarly to fungible assets because NFTs are mainly tokenized assets. So, by dedicating your NFT to a blockchain network, you can stake NFTs in a platform and earn rewards in exchange for your NFTs based on the APY and the number of NFTs staked. Staking increases the liquidity of the NFT ecosystem while also providing rewards from your NFT holdings. Staking rewards are determined by several factors, including the NFT’s desirability and ability to develop royalties. Also, staking protocols differ in how they operate and have their own rules and reward structures. For example, some protocols require NFT holders to vote on proposals, while others reward them for just locking up their NFTs.
To participate in NFT staking, you must have NFTs stored in a compatible crypto wallet. The NFTs would then be sent to a smart contract, usually ERC-721, and locked for a set period. The reward system varies from platform to platform and is influenced by various factors. In addition, just like staking cryptocurrencies is limited to the PoS protocol, not all NFTs can be staked.
NFT Staking Rewards
The staking platform determines staking rewards available to NFT holders for locking their NFTs and the type of NFT being staked. When you stake NFTs on a staking platform, the amount of reward you can receive is determined by several factors, including the APY, the duration of stake, the number of NFTs staked, and essentially, the rarity of the NFTs (the rarer your NTF, the higher the APY). These rewards are frequently paid out with the platform’s native token. However, you can trade reward tokens and convert them into other cryptocurrencies on exchanges.
Furthermore, there are staking platforms with decentralized autonomous organizations (DAOs). It is critical to remember that DAOs play a vital role in staking systems. Locking your assets in a DAO pool allows you to participate in platform governance.
Where NFTs Can Be Staked?
The platforms on which you can stake your NFTs will vary depending on the contract protocol. For example, some NFT contracts will require users to send their tokens to a unique address, while some will allow users to use any compatible wallet with the platform.
How to Stake NFTs
- Find an NFT staking platform that supports the NFT you want to stake. However, keep in mind that not all NFTs can be staked.
- Open an account and deposit your NFTs once you’ve found a platform that meets your requirements.
- Depending on the platform, if it is centralized, the know your customer (KYC) process is required during account setup. Decentralized platforms, on the other hand, do not require KYC.
- Once your account has been created and verified, you can deposit and stake your NFTs.
- The final step is to wait for the stake rewards after the period has passed.
Popular NFT Staking Platforms
SPLINTERLANDS
Splinterlands is a collectible card game based on the Hive blockchain network. It enables players to buy and sell NFT-identified digital cards. The game includes over 500 cards players can collect and use in battle. SPS is the game’s native token. It was created as a DAO on the Binance Smart Chain. Users can stake SPS tokens to earn rewards, participate in governance, and receive special offers, bonuses, and promotions.
MOBOX
MOBOX is a play-to-earn gaming metaverse built on the Binance Smart Chain ecosystem that combines DeFi yield farming with NFTs. The platform’s native token is MBOX. MBOX allows NFT participants to invest and earn rewards. The MOBOX metaverse, also known as the MOMOverse, provides NFTs known as MOMOs. MOMOs can be staked to earn MBOX tokens. The NFT marketplace allows you to mint, earn, or purchase MOMOs. The greater your stake, the greater the rewards
NFTX
The NFTX platform is used to generate ERC20 tokens backed by NFT collectibles. Users can stake their NFTs on NFTX to mint fungible ERC20 tokens at a 1:1 ratio. These tokens are known as vTokens and can be staked to earn rewards and purchase specific NFTs from vaults. Holders can also pool their vTokens in automated market makers (AMMs) to provide liquidity for other users to trade. A user can earn trading fees as a liquidity provider.
Final Takeaway
The idea of NFT is still in its early stages. As such, liquidity is a significant area of concern for NFTs, which is understandable given the ecosystem’s minimal acceptance and the fact that most NFTs are purchased as long-term investments. However, Instead of simply holding NFTs and waiting for their value to rise, NFT staking is a great way to profit from them. Therefore, the most significant benefit of NFT staking is that there is no need to sell or transfer ownership of your NFT assets. Instead, you can secure your NFT tokens and earn rewards for securing the blockchain network.
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