When people discuss non-fungible tokens (NFTs), they often think about them as digital representations of art and collectibles that could potentially appreciate in value over time. While this is true for many NFT projects; artists, developers, and collectors are exploring new use cases for NFTs!

A new use for NFTs is “staking,” which involves locking up a collection of non-fungible tokens in a pool and earning rewards from the staking platform. In this guide, we will take a look at what NFT staking is, how it works, the pros and cons of staking NFTs and more.

What is NFT Staking?

Staking is a way to put your unique token to work on the blockchain. The Bored Ape Yacht Club collection is an example of digital art that exists on the blockchain, but NFTs can also be items in a video game or other kinds of objects. NFT staking is the process by which you attach your nonfungible tokens to a protocol or platform. In exchange for this, you get staking rewards. Thus, you can earn extra while still owning your tokens.

You can compare staking to earning interest through yield farming—the process of lending or deploying cryptocurrencies to liquidity providers—where income is earned from either interest payments or from transaction costs incurred by others. This type of income is similar to that earned through banks but without the middleman.

NFT Staking: How Does it Work?

Nonfungible tokens (NFTs) are made of digitized assets that are not interchangeable. NFTs can be deployed on staking platforms where you can keep them safe and secure via smart contracts on appropriate blockchain protocols. While it is too soon to tell what the impact of staking NFTs will be, many NFT holders are very excited about this development! That is because a non-fungible token is unique and makes holders reluctant to sell. This is a big difference with cryptocurrencies, where you can easily buy and sell crypto.

First, make sure that your favourite wallet is compatible with the blockchain on which the NFT is located. Then connect your wallet to the staking platform (the counterparty website that allows you to send your NFTs there). This process can be compared to staking coins. Both can be performed by going to the staking section of the platform.

How to Earn Passive Income Staking NFTs?

If you own NFTs in your crypto wallet, you can earn passive income by staking them. This is done by locking the tokens in a smart contract. Passive income from NFTs is primarily achieved through monetary investments. Before you start staking NFTs, let’s take a look at the pros and cons of it.

Pros of Staking NFTs

• Earn passive income

You can earn passive income by holding your NFT for a long duration. The same principle is also applicable to crypto holders who stake their coins. The value of a token can fluctuate in the short term, but you can counterbalance it by earning more of the coin.

• Participation in the community

Staking your reward tokens goes beyond just flipping crypto assets for a quick profit. Native cryptocurrency utility tokens have additional perks like voting power and governance in the future direction of the project.

Cons of Staking NFTs

• Possibility of rugging

There is a possibility that the developers and founders of the project you are holding an NFT in will leave it. This is known as rugging. Sometimes they leave it to the community and other projects even disappear completely. This leaves the holders with NFTs that are worthless.

• Price volatility

When you stake an NFT, its value can change significantly. If your NFT has a long lockup period, then you won’t be able to sell for a while. But if you’re holding long-term, you can worry less about short-term fluctuations as your NFT continues earning interest on your investment.

Is NFT Staking a Good Investment?

It's hard to find liquidity for NFTs, partly because the ecosystem is underdeveloped and also because most NFTs are purchased for the purpose of long-term holding. Nevertheless, the increasing popularity of NFTs has generated a lot of interest among investors who are entering the crypto market for the first time and want to potentially earn rewards on NFT platforms.

NFT staking is not as popular as cryptocurrency staking yet, but it has a lot of potential for growth in the near future, particularly when Eth2 successfully upgrades to a PoS mechanism.

Staking NFTs—a type of crypto asset—has a promising foundation to build upon. One of the biggest advantages is that you don’t need to sell your collection. All you really need to do is lock up your assets in a staking pool, and you’ll earn rewards!

The Bottom Line on Staking NFTs

You can make money by staking your non-fungible tokens, which is a great way to earn passive income from your idle NFT collections. This concept has created new use cases for NFTs that have never been explored before. The concept is still young and evolving, but if you’re keen to start your own collection and profit from it.

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