In the world of crypto, “staking” is a method of generating passive income. It is a simple procedure wherein a stakeholder earns his/her rewards through their Cryptocurrency holdings. So, NFT staking is nothing but an additional way to earn passive income as done in crypto staking.
When it comes to NFT trading, NFT staking is a promising subsection of Defi that is emerging as a problem solver in NFT trading. Above all it provides a chance to earn tokens from their NFT without even making the sale, this makes it a lucrative passive income model.
We are in the early stages of NFT staking but after observing the growth of NFTs and the utility behind NFT staking, it’s easy to predict that this practice will only become more common in near future.
What is NFT staking?
In general, NFT staking is locking up an NFT either on an NFT platform or on an outside platform. In return for staking the NFTs, holders receive staking rewards. This reward depends on NFTs staked or total value locked i.e TVL, the staking duration, and the APY (annual percentage yield). Hence, staking NFTs provides a way for holders to earn passive income and also make money from their NFTs instead of selling them or transferring ownership.
NFT staking is a practice that comes from different crypto-currencies and tokens, especially those that use PoS protocol (proof-of-stake) for authenticating transactions.
Staking is the vital function that allows networks to process transactions and also stay secure on the PoS blockchain. Further, staking rewards for blockchains and Web3 platforms generally come in the form of interest or Network transaction fees.
Reasons to Stake NFTs
One of the major problems in NFTs is the problem of liquidity. This is because of the Non-fungible nature which makes NFT sales difficult. However, much of the value of an NFT is largely subjective i.e. it’s worth whatever a specific person is willing to pay for it. Contrarily, fungible tokens like crypto-currencies are easily traded because of their fixed market value in relation to both fiat and crypto-currencies.
Hence, the solution that NFT staking provides is that it allows stakeholders to earn from their NFTs without finding a buyer directly. Thus, staking addresses the liquidity problems with NFTs.
Working of NFT staking
As mentioned earlier, NFT staking happens on proof-of-stake (PoS) platforms. It operates on a consensus algorithm. So, each new transaction is recorded in the blocks generated in the blockchain network.
Holding NFTs gives a stakeholder the authority to validate the blocks. PoS allows the validation of new blocks in the blockchain. These validators are randomly selected and earn staking rewards. In short, staking rewards come in the form of a native token and are given either daily or weekly.
NFT staking platforms
Because the concept of NFT staking is new, there aren’t many platforms that offer different NFT collections. Also, where you can stake your NFTs will vary from contract to contract.
Some NFT contracts require holders to send tokens to a specific address, while others allow investors to use any compatible wallet. So, here are some Top NFT stacking platforms for staking your NFTs.
NFTX (NFT protocols)
NFTX allows certain holders of NFT collections to deposit their NFTs into a vault. In return, NFTX issues an ERC20 token known as vToken that has backing from NFT collectibles. Further, this token is composable and fungible at a ratio of 1:1. This implies that on staking 1 NFT into the vault you get 1 representative vToken.
However, these vTokens are also come in handy while acquiring a certain NFT from the vault or can be staked to yield rewards. In addition, holders can use these vTokens to purchase other vaults NFTs, put them into liquidity pools, or sell them on decentralized exchanges.
Recently NFTX rolled out V2 of its app. Here, users can create a public vault for any NFT they choose. In the previous version, users could only stake NFTs with existing vaults of NFTX. A complete explanation of how NFT staking works on NFTX, along with how to add the platforms’ liquidity pools, is available in the NFTX whitepaper.
KIRA (Defi platform)
KIRA is a blockchain that secures its network via a process called multi-bonded-proof- of-stake. Compared to a regular PoS network, KIRA allows users to stake any number of cryptocurrencies or NFT assets.
It provides interoperability between web3 Dapps. Further KIRA enables fractionalizing NFTs by creating fungible tokens representing fractions of any particular NFT.
On the staking platform, users can deposit any type of NFT to receive $KEX native tokens, and $KEX holders will stake $KEX tokens to gain KIRA NFT as rewards.
Staking directly within an NFT Collection
The easiest form of NFT staking happens within the NFT collections that provide this feature directly. Staking NFT within a collection that gives rewards means holders get their stake back once the share expires.
Moreover, holding on to particular NFT shares decreases the supply of that NFT. Theoretically, this helps raise the floor price for the NFT collection (considering that the demand also doesn’t increase).
So allowing holders to stake within a collection can prove to be a win-win situation for both the NFT creators and NFT holders. This type of direct staking is common in collections attached to blockchain such as P2E i.e. play-to–earn games.
Spinterlands (P2E games)
Spinterlands is another popular blockchain card game that has staking features. The holders of SPS token i.e. Splinterlands will need to stake the token to – access the taking rewards, participate in special offers, promotions, and bonuses for SPS holders.
Users can stake SPS either in their Binance Smart Chain (BSC) wallet or using their Splinterlands game account. In addition, users can bet on players using SPS tokens in ranked battles, liquidity pools, and the DAO governance voting pool. But, only SPS holders staking through BSC wallet will get a chance to participate in the governance of the games DAO.
This highly popular P2E game brought in a staking feature a few months back. Here gamers can stake the game’s governance token i.e. Axie Infinity Shards ($AXS).
Presently, $AXS is staking rewards carry an 80% annual percentage rate (APR). This also means that stakers will receive approximately double the amount of $AXS they might stake over the course of a year.
When it comes to Staking, the situation with Mutant isn’t so straightforward. This is because; it highlights some potential problems that NFT projects possess. In fact, Mutant Cats was one of the rare non-gaming NFTs that let users stake their NFTs for rewards. The holders who stake their Mutant Cat NFTs get rewards in the form of the $FISH token. To clarify, $FISH is the token of the Mutant Cats DAO.
The mutant cats had some trouble with their original devs. This led to an entirely new team taking over the project overseeing the DAO. This team made an announcement regarding several changes that were going to happen. After consulting with lawyers, they are rethinking the $FISH token completely. In fact, the team might have to scrap $FISH altogether because of potentially running afoul of securities laws.
Now that you have the details of platforms, let’s observe some benefits of NFT staking.
Benefits of NFT staking
- More income- In NFT staking, investors lend their tokens to the blockchain network and get rewards along with additional tokens which serve as interest. The main agenda behind staking is to earn rewards which could be in fungible tokens of the platform or new-minted NFTs. The holder can receive rewards up to 100% APY for lending their NFT to another user for joining a liquidity pool.
- More NFTs- Almost all the staking platforms reward users with other unique NFTs. These new NFTs may also possess exclusive benefits.
- Increased Liquidity – One of the backlogs of non-fungible tokens is the lack of liquidity. Hence, with NFT staking, the liquidity of these rare assets increases, and it encourages more investors.
How to Calculate NFT staking Yields
You can use the following formulas to see if it’s worth buying an NFT which allows staking:
Annual Yield = (token price * daily reward * 360) / NFT price
Breakeven time = NFT price / (token price * daily reward)
Let’s consider a Mutant Cats example:
Annual Yield = (0.46 * 10 * 360) / 1800 = 25%
25% yield for passive income… this is good!
It is fair to say that NFT projects have a long journey ahead of themselves from fully functional tokens and staking models’ perspectives. NFT staking is an interesting prospect that some collections and platforms have been able to figure it out. But one should certainly seek a piece of professional advice before taking financial risks involving NFTs, especially while NFT staking.
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NFTHI does not recommend any kind of Investment in NFTs or NFT trading. All the strategies are merely educational references.
Conduct thorough research before you start with NFT trading.