One of the problems with illiquid assets like art and collectibles is that they do not generate cash flows until sold. NFTs are also like art and collectibles. However, regular cash flows can be generated with NFT staking. This article will explain NFT staking and the factors you should consider before staking your NFT.
What is NFT staking?
Staking is depositing a cryptocurrency in a blockchain network and receiving rewards for not selling it while it is staked.
NFTs can be staked in a staking platform to earn rewards without having to sell the NFTs. It works like a time deposit bank account: you deposit a certain amount of money, and you will earn interest on it. In NFT staking, instead of depositing money, you deposit NFTs, and you will be compensated for that.
How does it work?
NFT staking is a new concept, and how it works can change in different markets.
The general idea is this:
- NFT is sent to a DeFi platform and it is staked using a smart contract in a liquidity pool.
- Depositors earn rewards according to the protocol system. The rewards can be in the DeFi platform token or another NFT.
Factors to consider
Can you stake it?
Not every NFT can be staked. If you are considering staking, ensure that the NFT you want to buy or mint can be staked.
Some NFT staking platforms have no lock-up period and some do. The lock-up period can be anything from days to years.1
Annualized percentage yield
Annualized percentage yield (APY) is the expected return on a staked NFT. Some projects can offer a high APY, but be aware of their sustainability. Each protocol has a different way of calculating APY. The rarity and price of the NFT can have an impact on the APY.2
Some NFTs staking platforms distribute rewards with their native cryptocurrency tokens that can have utilities such as voting power on the platform.
NFTs are denominated in cryptocurrencies, and the staking rewards are also paid in cryptocurrencies. The volatility of the cryptocurrency can have a significant impact on the value of NFTs and the rewards received from them.
Where you can stake your NFTs
- NFTX is a platform that aims to provide liquidity to the illiquid market of NFTs.
- Band Royalty is a music NFT platform that enables the staking of NFTs from its limited collection.
- Kira network is a layer 1 network that offers derivative products on staked assets. Kira is still in testnet.
- Onessus is a play-to-earn game that allows NFT staking with the combination of its in-game cryptocurrency.
NFT staking is a new concept in the world of blockchain. A unified model has not been developed yet, which is why different platforms offer different systems. Nevertheless, the idea of earning passive income on an illiquid investment has a lot of potential because NFTs are here to stay due to their disruptive use cases.
Cem has been the principal analyst at AIMultiple since 2017. AIMultiple informs hundreds of thousands of businesses (as per similarWeb) including 60% of Fortune 500 every month.
Cem's work has been cited by leading global publications including Business Insider, Forbes, Washington Post, global firms like Deloitte, HPE, NGOs like World Economic Forum and supranational organizations like European Commission. You can see more reputable companies and media that referenced AIMultiple.
Throughout his career, Cem served as a tech consultant, tech buyer and tech entrepreneur. He advised businesses on their enterprise software, automation, cloud, AI / ML and other technology related decisions at McKinsey & Company and Altman Solon for more than a decade. He also published a McKinsey report on digitalization.
He led technology strategy and procurement of a telco while reporting to the CEO. He has also led commercial growth of deep tech company Hypatos that reached a 7 digit annual recurring revenue and a 9 digit valuation from 0 within 2 years. Cem's work in Hypatos was covered by leading technology publications like TechCrunch and Business Insider.
Cem regularly speaks at international technology conferences. He graduated from Bogazici University as a computer engineer and holds an MBA from Columbia Business School.
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