January 18, 2022

NFT Staking: Earn Passive Income with NFTs

This page explores the concept of Non-Fungible Tokens (NFTs) and explains how they can be used to generate passive income for their holders.

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What are NFTs?

The acronym NFT stands for Non-Fungible Tokens, which represents the ownership of tangible and intangible assets in a digital (cryptographic) format. Such assets may represent anything from the ownership of a house to physical paintings, digital art, and even in-game items such as skins. Put another way, NFTs allow you to tokenise real-world assets and claim their ownership through the blockchain.

How can you make money on NFTs?

If an asset has qualities that are both unique and desirable then it stands to reason that there is an opportunity for monetization.

Assets that are in a cryptographic digital format may be rented or leased to third parties through specialized marketplaces, and thus are capable of creating a stable stream of income.

However, at this juncture, liquidity is a major challenge for NFTs partly because the ecosystem is underdeveloped. Also, the majority of NFTs are bought for the purpose of holding them for a long period of time until they sufficiently appreciate in value while others are acquired for the sole purpose of being burned/destroyed to increase their scarcity. These actions naturally limit NFT liquidity. So how do we get around this issue of liquidity?

NFT Staking: How does it work?

Earlier we mentioned that NFTs are essentially tokenised assets. So just like any tokenised asset, NFTs could be transferred to a platform that takes care of their safekeeping and governance.

That’s right, you can stake tokens in a value-creating crypto project so why not stake tokens in an asset that has the potential to create an income stream instead?

What is the incentive for a platform to do that you may ask? The opportunity for fee generation is often considered a good incentive although it is also fathomable that an NFT could bring unique value to a particular platform as well.

Once the NFT or tokenised asset is transferred to the ‘staking platform’ then governance could be assigned to that asset to determine the tokenomics. Once an annualised yield (APR) is established, the tokens could be staked and the delegators would be able to claim block and fee rewards.

The level of staking rewards would be determined by various factors including the asset’s capacity to develop an income stream such as royalties. Perhaps it is easier to conceptualize this if you think about the notion of ‘tokenised patents‘ that are capable of creating an income stream and potentially even form part of the staking reward. Currently, crypto investors searching for the best staking crypto rewards can earn an APR of up to 100% (sometimes much more).

The point here is that the process of staking will help to attract crypto investors and boost much-needed NFT liquidity, which will, in turn, expedite the development of the NFT eco-system.

The concept of NFT staking is currently still in its infancy although there is already some experimentation occurring. We will continue to watch this space very carefully and will update this page accordingly – so stay tuned!

If you have any views or interesting insights to share about NFT staking then please feel free to reach out to us.