NFT staking has exploded in popularity over the past year as a way to earn passive crypto income. But how exactly does it work and is it right for your NFT holdings? This comprehensive guide will walk you through everything you need to know before staking your precious NFTs.
What is NFT Staking?
NFT staking allows NFT holders to lock up their NFTs in smart contracts to earn rewards over time without having to sell the underlying NFT. It works similarly to crypto staking – by locking up your assets, you help provide liquidity and security to the network in exchange for interest payments.
In NFT staking, you typically deposit your NFTs into a staking pool or platform using a smart contract. Your staked NFTs then help provide liquidity and enable different functions on the platform. In return, you earn reward tokens over time that you can sell for profit or use within the ecosystem.
Some key benefits of NFT staking include:
- Earn passive income from your NFT holdings
- Gain more utility from NFTs beyond just holding them
- Support networks and earn governance rights in some cases
- Avoid taxes compared to NFT selling until rewards are withdrawn
How Much Can You Earn From NFT Staking?
Returns from NFT staking vary widely depending on the platform and asset staked but APYs range from 10% to as high as 500%+ in some cases.
However, just like with crypto staking rewards, high double and triple digit APYs often come with a higher risk of impermanent loss. Many factors impact APYs including the popularity of the platform, the demand for the NFT collection, and governance decisions on revenue sharing.
As a benchmark, NFTX, one of the leading staking platforms, offers between 10-20% APYs on collections like CryptoPunks and Bored Ape Yacht Club. On the higher end, staking Sneaky Vampires on Undead Blocks earns a 279% APY at the time of writing.
Ultimately, risk and reward are correlated in NFT staking so be wary of extremely high yields that can quickly plummet if reward parameters change. Governance involvement can help holders manage risks by voting on decisions.
Factors to Consider Before Staking Your NFTs
While NFT staking offers lucrative passive income opportunities, it carries a unique set of risks and considerations before jumping in.
Lockup Periods and Unstaking Windows
Many platforms enforce lockup staking periods that range from 30 days to 1 year or longer, preventing you from unstaking your NFT during that timeframe. This reduces seller pressure but also locks up your capital.
Others have unstaking windows that only allow removing NFTs during certain periods liked fixed one week windows every month. Understanding the lockups attached to your staked NFTs is critical so you aren’t caught off guard.
Technology and Contract Risks
Like DeFi yield farming and liquidity pools, NFT staking smart contracts can have vulnerabilities that get exploited, leading to loss of funds. Only stake on reputable platforms that have been audited by professional third-party firms.
Related risks stem from failures in the underlying blockchain infrastructure with bridges and cross-chain protocols being common attack vectors. Know the risks related to the platform’s stack before choosing where to stake.
Impermanent Loss
Since NFT staking pools need to hold significant liquidity reserves to pay out rewards, changes in NFT valuations can significantly impact your staking yield over longer terms if the assets drop in value.
This is known as impermanent loss – while part of the underlying NFT value is protected by the staked token itself, big market swings can still eat away at overall returns.
Reward Token Volatility
Most NFT staking platforms distribute staking rewards using an internal governance or reward token. The monetary value of these tokens will fluctuate regularly introducing another variable.
If the reward token value declines significantly in comparison to more stable tokens like ETH or stablecoins, your real yield and dollar value profits will take a hit.
Understanding the tokenomics behind staking reward distributions is key for assessing profit sustainability.
Platform and Smart Contract Reputability
Like all crypto yield generating strategies, risk is highest using newer platforms with low TVL and unaudited code. Only stake with reputable protocols that check the boxes like audits from firms like Trail of Bits and Certik.
Monitoring community sentiment is wise here as vulnerabilities or sketchy reward adjustments can tank a platform’s reputation. Stay plugged into Discord channels and other forums to gauge user experiences.
5 Best NFT Staking Platforms
Now that you know the risks and considerations, let’s explore some top platforms for staking your NFTs:
1. NFTX
- Over $1 billion in total value locked
- Stake popular collections like CryptoPunks and BAYC
- 10-20% APY yields
- No lockup periods
NFTX is the bluechip for NFT staking offering institutional-grade custody solutions. By staking top-tier NFTs on NFTX, you can earn consistent 10-20% yields on coveted collections.
2. Undead Blocks
- Focus on staking NFTs from zombie and horror themed collections
- Provides lending and borrowing against staked NFTs
- Yields up to 250%+ APY
- But assets carry higher risk tolerance
For horror fans, Undead Blocks lets you put your creepy NFTs to work with sky-high APYs. Lending and borrowing increases utility for stakers.
3. SupraOracles
- Oracle network for infrastructure data like crypto prices
- Supra Vision NFTs give governance rights
- 40% of fees distributed as yields
- Let your NFTs earn governance power
By staking Supra Vision NFTs, holders can vote on network parameters and earn a share of protocol fees.
4. Yield Guild Games (YGG)
- Leading play-to-earn NFT collective
- Stake in-game NFT assets
- Access scholarships and community benefits
- Play games using staked assets to boost yield
YGG offers a gateway into play-to-earn gaming by staking assets used across various titles and lending them out to community members. Strong support network.
5. AngelsCreed
- Fractionalized ownership NFT platform
- Buy shares of high value collectibles like a $450k Pokémon card
- 75% of rental revenue shared with owners
- Own fractions of expensive NFTs that generate cash flow
Fractionalize expensive NFTs across hundreds of stakeholders and collect rental revenue based on your proportional stake. Supercharge ROI.
The Future of NFT Staking
NFT staking is still in its early innings but shows immense promise as a crucial Web3 boom spinning up alongside the larger NFT market growth.
In 2022, total capital locked in NFT staking rose from $288 million to over $3 billion by EOY – more than a 10x explosion!
And industry forecasts predict this figure could surpass $10 billion by late 2023 as adoption accelerates.
As platforms enhance security, stabilize rewards models, and reduce liquidity friction, expect NFT staking to emerge as a pillar within blockchain ecosystems where users can engage in governance and put their assets to productive income-generating utility.
While risks exist as with any nascent crypto vertical, staking allows NFT owners to tap into passive yields without relinquishing ownership rights to their cherished collectibles.
Combined with fractionalization models that enhance accessibility plus incubator programs designed to bootstrap young collectors, don’t be surprised if NFT staking penetration mirrors the rapid climb of CeFi and DeFi in years to come.
