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February 3, 2023

How NFT Staking Works

Do you know about NFT staking? It’s a fast-growing way to earn passive income on your NFT investment that doesn’t involve selling your prized asset.

Do you know about NFT staking? It’s a fast-growing way to earn passive income on your NFT investment that doesn’t involve selling your prized digital asset.

But what does staking an NFT mean? 

Let’s take a quick look at NFT staking and how it works, and how you might be able to use it to make some crypto.

What is NFT Staking?

With traditional currencies, you can put your money into a savings account or an investment fund. That fund will earn you money based on prevailing interest rates, or market values. In the world of cryptocurrencies and blockchain technology, staking is a way to generate similar income. 

The principle of staking is tied to the maintenance and support of a blockchain. As ByBit explains, “Blockchains rely on a global network of transaction validators to secure the network by authenticating transactions before the data is added to a new block on the chain. These validators (also called miners) are rewarded in the native cryptocurrency of a particular blockchain for devoting their resources to the network.“

One of the mechanisms for validating blockchain transactions is called “Proof of Stake” consensus, in which a miner is chosen based upon their holdings in a specific cryptocurrency. They are then rewarded for their authoritative position with more crypto tokens. 

Oftentimes, to be selected as a validator, or miner, an individual must agree to lock their blockchain asset to the chain for some period of time. This essentially involves agreeing not to sell their shares during the staking period.

Coinscreed says, “It is similarly possible to earn fees for dedicating one of your NFTs to a blockchain network by using a platform that allows you to stake your NFTs there.”

How do I stake an NFT?

Not every NFT holder can participate in this process. 

According to Sortter, “To participate in NFT staking, you first need to hold the NFTs on a compatible crypto wallet. Then, you would have to send the NFTs to a staking contract and lock them for a certain period. Once the staking platform locks the NFTs, you start earning rewards. The reward system changes from one platform to another and depends on various factors.”

There are also certain NFT types that will be more likely to generate income for an investor. NFT staking contracts are higher for NFTs that are rarer, or for NFT collections that have been well-established in the market. In addition, Play-to-Earn (P2E) gaming and metaverse platforms seem to offer more opportunities for NFT staking.

Why would I stake an NFT?

There are a number of reasons you may want to commit your NFT to an NFT staking contract, and tie it to a blockchain for a period of time. 

Income

As we’ve mentioned, one primary appeal of NFT staking is that it can generate passive income. When you stake an NFT the staking platform will determine the value and the annual percentage yield (APY) for your asset. This will depend on the type of NFT and its relative scarcity, as well as an assessment of the overall market forces. 

Once you have agreed to the NFT staking contract and locked your NFT to the platform, you will earn a reward (in the form of the blockchain’s preferred cryptocurrency) weekly or monthly. 

Platform governance

In some cases, you may wish to lock your NFT to a platform, a company, or an organization in exchange for a share of the governance of the group itself. Staking an NFT can be a point of entry into a decentralized autonomous organization, or DAO. 

As we've discussed on our blog, DAOs “build on this focal concept of decentralization, introducing organizations run by groups of people with no typical business hierarchy. In a DAO, the rules and transactions of the group are recorded and managed on the blockchain, removing the requirement for central entities.”

Membership privileges

NFT staking can also be rewarded with real-world membership privileges. Binance, for example, offers a “utility token” concept tied to sports teams, which can be earned in exchange for staking an NFT to their platform. These tokens can be traded for things like priority ticket sales and involvement in team decisions. 

As you can see, NFTs are about much more than owning a piece of digital art. In fact, at RareCircles, we think that the possibilities are endless. If you want to learn more about NFTs and how to put them to work for you, your business, or your organization, join our NFT Masterclass TODAY!