When it comes to NFTs, people almost always think of them as digital art and collectibles with the potential to increase in value over time.
This is true for most NFT projects, but as the market continues to grow, artists, developers, and collectors are exploring new uses. One promising use case for NFTs is “staking” – storing the collection in the pool and receiving rewards from the staking platform.
In this guide, we'll take a look at what NFT staking is, how it works, what types of rewards holders can earn, and the best staking platforms.
What is NFT Staking?
NFT staking is the locking of tokens on a platform or protocol in exchange for staking rewards and other benefits. NFT staking allows owners to earn income from their collection while retaining ownership.
In the cryptocurrency world, NFTs are coming into vogue. They are indivisible smart contracts, usually based on the Ethereum network, using the ERC721 token standard, which means that each token is unique. These cryptographic tokens, like cryptocurrencies, are recorded on a blockchain and can be used to verify the ownership, authenticity, and provenance of virtually any physical and digital object, including artwork, avatars, video files, GIFs, collectible cards, video game assets, and more.
A lot of the noise and hype around NFTs is due to their potential to revolutionize art collecting. Many of the NFTs that have made headlines are usually related to the arts. For example, digital artist Beeple made history in March 2021 by selling his NFT piece “Everydays: the First 5000 Days” for $69 million at Christie’s. This event was one of the first milestones that accelerated the meteor rise of the NFT.
NFTs have also found their way into blockchain-based games and GameFi projects. Play-to-earn crypto games use NFTs to give players the ability to prove ownership of the virtual items they collect in games like Axie Infinity, Gods – and Illuvium.
The uniqueness of NFTs makes them ideal for wait-and-HODL strategies, although it may be a long time before such long-term investments become a reality. NFTs are not without drawbacks: the process of mining, buying and selling NFTs can be resource intensive, sometimes requiring high transaction fees, especially on Ethereum. There is also uncertainty as to whether NFTs will actually appreciate in value over time.
NFT betting opens up a new opportunity for collectors to monetize their NFT collections. It has become a new way to generate passive income in the world of cryptocurrencies. HODLers betting on NFTs are locking their holdings in Decentralized Finance (DeFi).
Decentralized Finance (DeFi) takes the decentralized concept of blockchain and applies it to the world of finance. Build…
) platforms to earn rewards without having to sell or lose ownership of your collection. Basically, you can get your cookies and eat them too.
It is similar in concept to DeFi yield farming, an investment strategy that involves lending cryptocurrencies or staking to liquidity providers to earn rewards in the form of transaction fees or interest. It's like getting interest from a bank account, but without an intermediary to facilitate transactions and get your cut.
Staking involves “locking” tokens in a digital wallet to support the operations and security of the blockchain network in exchange for a reward. Platforms that support staking typically use proof of stake (PoS).
The blockchain relies on a global network of transaction validators to secure the network by verifying the authenticity of transactions before adding data to a new block chain. These validators (also called miners) are rewarded in the blockchain's native cryptocurrency for dedicating their resources to the network.
In energy-intensive proof-of-work (PoW) blockchains such as Bitcoin, resource validators must allocate their computing power, which requires a lot of electricity and expensive specialized hardware.
PoS improves on the competitive approach of the PoW model by requiring significantly less computing resources to validate transactions and secure the network. Users who want to become validators simply have to “stake”, or pledge, the blockchain’s native cryptocurrency.
How does NFT Staking work?
The blockchain protocol locks funds in a staking pool and then randomly selects validators who are tasked with “mining” or validating blocks of transactions. The more a participant deposits, the more likely they are to be selected.
Every time a new block is added to the chain, new tokens are generated and distributed among the validators as a stake reward. There are a number of factors that determine how much a validator receives as a stake reward, including the number of coins they stake, the duration of the active stake, the number of coins on the network, the inflation rate of the token, and more.
By staking their coins and becoming validators, coin holders can make their idle assets work for them in exchange for rewards and earn passive income. The cryptocurrency protocol is also secure and user transactions are confirmed. Everyone is a winner. Users who stake their coins still own their assets and can remove them from the staking pool at any time, subject to the terms and conditions of the cryptocurrency protocol.
Staking on NFTs works the same way, as NFTs are essentially tokenised assets. Users can lock up their NFTs on certain custodial platforms and earn rewards based on a set Annual Interest Yield (APY) and the number of NFTs wagered.
It is important to note that, as with cryptocurrencies, not all NFTs can be used to earn rewards. Different projects have different requirements, so before purchasing an NFT, read the terms and conditions of the project you have chosen.
NFT staking reward
The type of reward that NFT holders can receive for betting on their collection depends on the platform used and the type of NFT being bet on. Most platforms that allow users to bet on NMT offer daily or weekly rewards. The stake reward is usually issued in the form of a native utility token, which is often listed on exchanges and can be exchanged for other cryptocurrencies or fiat money.
Some staking platforms have a decentralized autonomous organization (DAO) where NFT holders can lock their assets in the DAO.
Decentralized Autonomous Organization (DAO), being open source blockchain accounting, is defined by a clear set of rules ...
a pool to participate in the management of the platform and vote on future proposals.
Since most of the NFT market is in-game NFTs, most betting opportunities are found on gaming platforms such as Axie Infinity, The Sandbox, Polychain monsters, Splinterlands and others. In the next section, we'll take a look at some of the best NFT betting platforms.
Best NFT Betting Platforms
Recently, a lot of platforms have emerged that offer the opportunity to bet on NFTs. All you have to do is deposit NFTs on a compatible wallet to get started. Below are some of the best NFT betting platforms.
NFTX is a platform for creating ERC20 tokens backed by NFT collectibles. Users deposit their NFTs into NFTX storage and mine ERC20 tokens, which are composite and fungible at a 1:1 ratio. These tokens, called vTokens, can be staked for yield rewards or used to purchase specific NFTs from vault.
Holders can pool their vTokens into automated market makers (AMMs) to create a liquid market for other users to trade. The user can earn trading commissions by acting as a liquidity provider. In addition, vTokens with liquidity and trading volume receive a “floor price” – the lowest market price for NMT, which is ideal for investors trying to price their NMT.
Splinterlands is a blockchain-based collectible card game similar to Hearthstone in that players can collect a collection of cards with different abilities and stats and use them in matches.
The game has its own SPS token (short for “Splintershards”), which is created as a DAO on Binance Smart Chain (BSC). Users can stake their SPS tokens on players participating in ranked battles, liquidity pools, and the DAO pool to vote on governance issues.
Music NFTs represent a new era for the music industry in which creators have full control over distribution. BAND Royalty is at the forefront of this revolution. It is an NFT exchange where users can buy music NFTs and participate in royalty pools to receive a share of the proceeds from the sales of their songs or albums. The larger the platform's music library becomes, the higher the royalty income stream for NFT holders.
Polychain monsters is a blockchain platform for animated collectible NFTs called Polymon, which are purchased from digital booster packs. Polymons have different characteristics and varying degrees of rarity. Some combinations are extremely scarce and desirable. Polymon holders can stake their NFTs and earn weekly rewards in Polychain Monsters native cryptocurrency, PMON.
Doge Capital is a collection of 5 pixel art NFTs that have been minted on the Solana blockchain. They can be purchased from any Solana marketplace. Doge Capital has a staking program that offers NFT holders DAWG tokens as a daily reward. DAWG is Doge Capital's native token and is listed on multiple exchanges including Dexlab and Raydium.
Is NFT-staking a good investment?
The concept of NFT staking is still in its infancy. Understandably, liquidity is a big issue for NFTs, partly because of the underdeveloped ecosystem, but also because most NFTs are purchased with the intent of HODLing as a long-term investment. However, the NFT hype has generated interest from first-time crypto investors looking to explore and potentially earn on NFT platforms.
NFT staking may not be as popular as cryptocurrency staking yet, but it has a lot of potential for growth in the near future, especially when Eth2 successfully transitions to a PoS mechanism and staking replaces Mining.
NFT staking already has a promising foundation that has paid off. Perhaps the biggest benefit of NFT staking is that you don't have to transfer ownership or sell your collection of NFTs. All you really need to do is lock your assets in the staking pool and get rewarded.
It is so simple!
The Bottom Line on NFT Staking
NFT betting is a great way to earn additional passive income from your idle NFT collections. This has created new possibilities for the use of NMT that have never been explored before. While this concept is still in its infancy, it is likely to lead to new opportunities for NMT staking. If you're looking to start your own NFT collection, check out our list of the best NFT marketplaces to get started.
The gaming industry in particular also has a lot to gain from NFT betting. To learn more about how blockchain is being used to revolutionize the gaming industry, check out our GameFi guide.