Staking of non-fungible tokens is nowhere near to the traditional staking, as NFT holders are not doing any useful work of reaching consensus of the blockchain based on the Proof-of-Stake algorithm. How does it work and why is it profitable then? 🤨
What is NFT staking?
NFT staking is a financial transaction that consists of receiving a reward for using or blocking internal tokens from a separate decentralised application developers. Thus, NFT staking is more of a user reward and an additional digital token incentive, then a way for developers to make profit.
NFT staking is similar to the DeFi farming model, where users receive cryptocurrency for supplying liquidity to pools or participating in other activities. 👨🌾
Not every non-fungible token can be staked – most often, only certain items within a single blockchain game or application will bring rewards. 🕹
Which projects already provide NFT staking?
In the spring of 2022, Axie Infinity devs, have introduced a new type of digital items - virtual land sold as NFTs. After purchasing, every token can be staked. 🏞
The third “season” of Sandbox introduction has also brought rewards for the event NFT holders.
MOMOverse metaverse is offering its users MOBOX tokens for staking NFTs on the platform as well. Digital item staking rewards are available for claiming in popular games such as Splinterlands or Alien Worlds. 👾
Band Royalty NFT marketplace allows you to purchase non-fungible tokens issued by musicians and send them to “royalty pools”, receiving the BSTAGE governance token afterwards.
Slowly but steadily, NFT staking is being spread to the leading crypto projects. In May 2022, the integration of the corresponding mechanism was approved by the BAYC metaverse DAO. AIP-21 proposal introduced a feature of giving ApeCoin (APE) rewards for those who contribute NFTs to a special liquidity pool. 🎱
Pros and cons
The obvious advantage of NFT staking is adding value to a digital item through the possibility of generating passive income. Rewarded tokens would usually have high utility too, giving their receivers an opportunity to vote on proposals in the project’s DAO. 🌐
On the other hand, when the NFT is staked, it may rise or fall in price significantly, but the user will not be able to sell it due to a temporary lock. Moreover, placing NFTs worth tens, hundreds or even thousands dollars into third-party smart contracts, rather than a personal wallet, the user exposes his assets to additional risk. 👎
Stay tuned 📻