The simplest answer is that it is a process of locking your non-fungible tokens in place without any means of interacting with them for a certain period to generate income. NFTs can be staked at various platforms and many modern projects offer ways to create a crypto NFTs income channel without any hassles.
So, what does it mean to stake an NFT? The process is similar to yield farming. The latter is one of the earliest forms of passive income generation in the crypto world. It was possible to generate massive amounts of various coins by simply holding them for some time. Depending on the size of your deposit, your rewards vary.
Several key things were crucial to the sustainability of the yield farming principle:
- Smart contracts (usually, ERC-20 tokens on the Ethereum network) hold funds that can be used to generate liquidity for certain projects or on exchanges where assets are traded. These contracts are tokens themselves and represent the number of funds staked by holders.
- Liquidity providers ensure that funds are sufficient for a healthy economy. LPs receive rewards for contributing to the liquidity pool and can use received rewards as they see fit.
- The total liquidity value (TLV) represents the sum of all funds locked currently to provide additional liquidity to an ecosystem. Usually, we consider high TLV numbers an indicator of a healthy economy within a particular project.
Now, let’s talk about how to stake NFTs.
What is an NFT?
The abbreviation stands for non-fungible token. Being non-fungible means that an asset is not an exact copy of itself. A Bitcoin or a USD banknote is fungible because each represents one of each. A bitcoin can be easily traded for another bitcoin without any issues with the price difference. On the other hand, NFTs are unique and differ from each other.
Before talking about the best staking NFT strategy or how to stake an NFT in general, we must understand why NFTs are different from other crypto assets. The first thing to understand is that these tokens are specific entries on a digital ledger that have unique properties and characteristics. However, a ledger can be used to track any NFT and prove ownership.
The most apparent way to use it is to guarantee ownership of various things in the real world. Consider it a smart contract that has information about you as an owner of a specific object. At the same time, one must remember that NFTs do not carry any rights and cannot be recognized as legal proof of ownership.
NFTs became hugely popular in the world of digital art. The discussion between those who believe that certain digital artworks can be unique and scarce and those who think that copy-pasting exists for a reason is not a healthy one. While it is hard to find a practical application that would disrupt any existing solution, there are distinct merits to NFTs in general. These assets can be used to represent ownership of anything as long as digital ledgers are recognized as reliable enough to carry the weight of proving the chain of token holders legitimate.
Currently, over 50 different NFT marketplaces allow exchanging NFTs for fiat and cryptocurrencies. Non-fungible tokens represent different types of media including video clips, images, music samples, and more. Anything that has values that deterministically differentiate it from anything similar can be used as an underlying asset for a token. Generally, these tokens are tied to computer-generated images.
Among the most interesting use cases are play-to-earn games like Axie Infinity and digital art collections like Bored Apes Yacht Club. Many gaming companies including Square Enix and Electronic Arts expressed their interest in using the technology to further improve the concept of owning in-game items.
What is Staking an NFT?
The idea is still in its early age and many issues have not yet been resolved. If you are interested in staking NFT, meaning that you want to use your non-fungible tokens to generate income, you should be familiar with the concept of yield farming which is a much older technology.
When NFTs are staked, they are locked on a platform that you choose for this purpose. You receive rewards in other tokens depending on what kind of tokens, how many of them, and how long your stake is. Rewards depend on the platform you are using. Some give away mainstream coins and even BTCs, while others have platform-specific, tradable tokens that are often native to a certain exchange.
The vast majority of these projects operate within the Ethereum ecosystem and use the ERC-20 standard. It is a completely new way of using your unique tokens to produce value. Staking NFTs for passive income could become the most common method of holding digital assets in the nearest future.
NFTs with staking rewards: eligible platforms
The most commonly used platforms to stake NFTs are online games. We will talk about them below.
- MOBOX is a lively metaverse where non-fungible tokens are used for yield farming. The whole ecosystem is built on top of the Binance Smart Chain. The native token MBOX is used to reward players for various in-game activities and to provide liquidity. Unique NFTs are MOMOs that can be minted or earned through different means. By accumulating these unique objects, you create a portfolio that generates MBOX traded on Binance.
- Zookeeper is a decentralized app that has many elements of an online game. All non0fungible tokens represent unique mascots used within the game. You are rewarded with ZOO and WASP tokens that can be traded for other cryptocurrencies and even fiat money on different marketplaces. If you stake your tokens for 180 days, you will receive additional rewards.
- Binance. The exchange is not only one of the biggest platforms in the world but also a versatile ecosystem designed to host the inventions of other creators. The most recent idea from the platform was to create a Binance Fan Token platform where various sports clubs can issue fan tokens that can be traded on the exchange. Holders of BFTs enjoy privileges like free merchandise, discounts on tickets, and even voting rights for special events held by sports clubs. BFTs can be staked on the PowerStation app to earn more tokens.
What does staking NFT mean for regular investors?
The NFT craze is something that was created by a massive hype train. While many people jumped on the opportunity to make a quick buck, others criticized the whole industry for allowing fraudulent activities on a scale never imagined before. Scammers and bad actors flooded the crypto domain with their cheap collections of either poorly drawn portraits of animals or even stolen art.
While initial impressions were mostly positive, the year-long history of this endless chain of controversies inevitably led to a situation where many people apply a healthy dose of scepticism to anything related to the concept of non-fungible tokens. It does not mean, however, that the industry will not recover. The potential is certainly there.
There are three types of investors who are interested in NFTs to this date:
- Conservative investors looking for a way to passively generate income over long periods represent the smallest portion of the audience. These people are waiting for an opportune moment to purchase established collections and hold them for years waiting for them to accumulate value.
- Speculators represent the biggest portion of the crowd. Designed to create artificial scarcity, non-fungible tokens are great opportunities for quick-thinking traders to make money on hype alone.
- Common folks who decided to purchase a token or two to sell them at a later date for a profit. Many regular buyers do not know much about the technology and only purchase tokens out of FOMO.
Despite being promoted as a way to solidify ownership of digital art, the industry is not positioned to be a lucrative area for collectors. There is simply not enough mainstream interest in these items to create a community of dedicated collectors who would try to hunt down specific items for the sake of their collecting hobby.
How does NFT staking work for non-gamers?
As mentioned previously, the largest audience that NFT as industry tries to target is the gaming community. However, gamers are not interested in investing in something that could be just a ploy to attract players (aka whales) to various P2E games.
It is unclear whether NFTs will take off and be a massive industry with billions in trading volume. So far, it has been losing its total value quite noticeably. The problem with staking is that you cannot use any NFT. There are specific tokens that you have to buy to stake them. While it is not a big problem for those who are interested in very particular games and platforms, it is an issue for common investors.
You cannot purchase any NFT and stake it on a platform you like. It is something that significantly reduces the range of possible applications of the vast majority of tokens in circulation. The ones that may retain value and even gain it over time are the ones promoted by large corporations and Binance. Other tokens may never receive any use.
Should you try staking NFTs?
There are many interesting places to earn these tokens. If you like gaming or gamified social networks, you will be more than happy to join one of the communities and hold tokens to generate income and support a certain game or sports club. People who want to find a good way to use their hard-earned cash should stay away from projects that they do not understand or want to support. As in many other cases with investment, the final choice is yours.