- Like cryptocurrency staking, NFT staking involves locking the token to a platform or protocol and receiving rewards in return.
- The value of the reward will depend directly on the NFT, however, most compensation is granted in utility tokens, that is, in a fungible token of the collection or of the platform or protocol.
- NFT staking contributes to solving the problem of the lack of liquidity of the platform.
The cryptocurrency ecosystem continues to expand and it is now possible to stake non-fungible tokens (NFTs). Yes, we have all heard about cryptocurrency staking, which is a strategy where rewards are earned for locking cryptos and protecting the network. But how is this possible with NFTs?
NFTs are becoming more popular every day and, therefore, it is normal that innovation in the sector is practically the norm. In the end, it is a nascent ecosystem just like the rest of the cryptocurrency and blockchain technology industry and, therefore, new products and services are emerging every day.
Obtaining passive income
A very particular attraction of the crypto ecosystem is that it has made it possible to democratize finance. Previously, the concept of obtaining passive income was directly tied to the banks, however, as many will know, the interest rates on the savings accounts of common users are not usually significant.
In fact, in many cases, the interests that are generated from savings accounts in banks are devoured by inflation. That is, inflation is greater than interest. Conclusion: The user loses money, the bank earns it.
What the crypto ecosystem has done is offer an alternative to all those who were neglected and forgotten by traditional banking institutions.
If you closely follow the introductory guides of Bitcoin Mexico, you will know that there are a wide variety of options through which you can earn passive income.
In this sense, below you will find a detailed guide on what NFT staking is, how it works, what interest it offers and what its risks are.
What is staking and how does it apply to NFTs?
staking that everyone in the crypto community knows consists of a product that allows investors to earn passive income, and for its part, passive income is considered to be all that is obtained on a regular basis, without the need to allocate time and attention permanently.
Namely, cryptocurrency staking is a tool that has allowed people to earn income on a regular basis without the need to spend time and attention on an ongoing basisas opposed to, say, a full-time job.
It is generally suggested that an excellent strategy is to consider passive income as a complement to the person’s main activity.
So how does staking work? Where do the rewards come from? Essentially staking is possible on a blockchain with a Proof of Stake (PoS) consensus mechanism. In this type of blockchain, validators lock a certain amount of tokens in the network to keep it safe and running, and in return, rewards are given to maintain the incentive.
But if this is staking, is it really a tool for passive income? Not directly. Being a validator is a job in which a series of tasks and processes must be fulfilled.
Typically, validators run a staking pool, i.e. they collect funds from a pool of holders that are used to maintain the network, so people can delegate their tokens to pool operators who end up doing everything. the job.
Now, NFT staking it is essentially the same. It consists of blocking the token to a platform or protocol and, in exchange, rewards are received. It is essential to remember that an NFT is not necessarily a digital image, it can be video files, game elements and much more.
basicallye NFT staking allows holders to earn passive income from their assets while maintaining ownership.
How does it work?
As for tokens, not all NFTs can be used for staking. For this, it is necessary that a Smart Contract is established in the appropriate blockchain protocol, so, if you want to stake NFT, you should check the conditions of the chosen project before purchasing an NFT.
Some specific aspects such as the reward rate or the blocking time will depend directly on the collection that offers the staking or on the platform or protocol independent of the collection.
The value of the reward will depend directly on the NFT, but there is a common factor and that is that most compensation is given in utility tokens, andthat is, in a fungible token owned by the collection or the platform or protocol.
The fact that it is a utility token implies that it can be used for other purposes, for example, as a voting token, governance or to obtain general benefits from the decentralized autonomous organization (DAO) if it has one.
Why would anyone stake NFTs?
NFT staking is one of the newest products in the crypto ecosystem and therefore is still quite criticized and unreliable for some.
However, regardless of this, NFT staking contributes to solving a problem in the sector: the lack of liquidity Since these are non-fungible tokens, their exchange is directly subject to demand. In fact, the value of an NFT is quite subjective and depends on the willingness to pay of others.
With staking, NFT holders can profit from their asset without the need to sell it and, therefore, maintain its long-term investment strategy.
It is profitable?
Before making any investment decision, it is necessary to evaluate the profitability of the product or service that you wish to acquire. Some of the factors that should be evaluated when determining whether or not to stake NFT are:
- NFT price: Just like any other token, investors need to know when to hold and when to sell. In some cases, it may be more profitable to sell the NFT than to stake it. Remember that staking blocks the asset for a certain time, so the NFT cannot be sold during that period.
- Annual return: Evaluate the annual return of staking NFTs. Beware of protocols or platforms that offer excessively high returns; they are usually unfulfilled or scams.
- Market Context: The price of NFTs is tied to cryptocurrencies such as Ethereum so the price of Ethereum will affect the profitability of NFTs.
- Total percentage of NFT stakingNote: Generally, a high number of NFTs staking a protocol is a positive sign, although it is not a guarantee. It simply indicates a lower probability of a sell-off.
It is also essential not to forget the security aspects. As you may know, NFT scams and thefts are the day to day of the ecosystem and if you enter the wrong protocol and sign the wrong Smart Contract you could lose everything.
final thoughts
As the entire cryptocurrency ecosystem evolves, innovative new products and services are emerging to meet specific needs.
In particular, andNon-fungible token staking is here to provide additional returns to holders of that asset class who have a long-term investment strategy. In fact, it is a concept that is still under development and, like everything else, is not exempt from its weak points. In general, the entire NFT ecosystem is underdeveloped.
NFT staking is not a necessarily profitable strategy for everyone under any conditions. Actually, it is an excellent option in very specific cases but, in addition, it is changing like the rest of the crypto ecosystem. It may be that in a moment it is profitable and quickly the conditions change and this ceases to be the case.
Although it is an innovative way to earn passive income, you cannot think that you will lock your NFT in a protocol or platform and go back years to see the performance you got. Rather, more or less recurrent attention and time is required to avoid losing money.
In conclusion, the profitability of this service is directly linked to the profitability or not of maintaining an NFT in the long term and to the general conditions of the crypto market. Consequently, NFT staking also inherits the risks of NFTs and cryptocurrencies in general.
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