Putting NFTs as collateral on a platform or protocol to accrue incentives and other advantages is called “staking.” Because of this, holders of NFTs can put their unused assets to productive use without selling them.
The process of staking an NFT is identical to that of staking a cryptocurrency; all you need is a Web3 wallet. Not all NFTs have the ability to be staked. Before purchasing digital collectibles to stake them, ensure that the preferred staking service supports the collection.
How does NFT Staking actually work?
Even though it’s still in its infancy, the staking of NFTs operates similarly to that of proof-of-stake (PoS) cryptocurrencies. Staking in Proof-of-Stake networks allows players to support the network by securing their cash using a blockchain protocol.
This is the core concept underlying PoS. Tokens are given out as staking rewards to validators whenever a new block is added to the chain. This happens whenever a new block is introduced to the chain.
Token holders can assist in supporting the operation of the network by locking their money on a blockchain. In exchange for rewards, this allows token holders to put their HODLed assets to work for them while also contributing to the maintenance of the network.
Staking your NFTs requires leaving them on a platform for a predetermined period to be eligible for rewards. Staking non-fungible tokens (NFTs) can cause deflationary supply pressure, which can lead to an increase in the price of similar non-fungible tokens that are still in circulation. This is one benefit collectors and the greater NFT marketplace get from stacking NFTs.
The rewards you are eligible to get are determined by various criteria, including the annual interest rate provided, the length of time that you invest, and the total quantity of NFTs you stake. The type of incentives that NFT holders receive is determined by the platform used and the type of NFT that was staked.
The platform’s native token, which can be exchanged for other cryptocurrencies or fiat currency, is often how staking incentives are paid out. Play-to-earn blockchain gaming platforms are among the most prominent players in the NFT staking arena.
This is because the in-game assets used to fuel the games frequently take the form of NFTs. To participate in the governance of certain NFT projects, holders can deposit their assets into the decentralized autonomous organization (DAO) pool. Certain NFT projects maintain these DAOs.
Each platform that makes staking available will also have its method for computing interest rates that will encourage holders of NFT to keep their assets deposited for the longest time possible. Although certain services may offer high-interest rates, it is important to understand their risks.
If the interest rates offered by the platform seem too good to be true, this may indicate that the platform cannot be trusted. Before you deposit your NFT on a staking protocol, you should always do your research (abbreviated DYOR) and make sure you are aware of the risks involved.
Factors to consider
Are you able to stake it?
Not all NFTs can have stakes placed on them. Ensure that the non-fungible token (NFT) you wish to buy or mint can be staked if you consider betting on it.
There is no lock-up time on some NFT staking platforms, whereas others have one. The holdout phase could last anything from a few days to several years.
Annualized percentage yield
The predicted return on a staked NFT is denoted using annualized percentage yield (APY). Be wary of the long-term viability of certain projects, even if they promise a high annual percentage yield. The APY is calculated uniquely according to each protocol.
Participation in the community
Some NFTs staking systems give rewards in their native cryptocurrency tokens, which may have utility within the network, such as voting power.
The unpredictability of cryptocurrencies
The NFTs are denominated in cryptocurrencies, and the staking rewards are likewise paid out in these cryptocurrencies. The price swings of cryptocurrencies can considerably affect the value of non-fungible tokens (NFTs) and the incentives that can be obtained from using them.
The benefits of stakes in NFTs
Utilizing your dormant digital assets in productive ways
If you have been sitting on an NFT for some time and have no immediate plans to sell it, staking is a fantastic opportunity to put your inactive digital assets to productive use. You can stake your NFT on a platform and reap the rewards without giving up control of the tokens.
Participating in various endeavors and communities
Most projects typically reward users who stake their NFTs with utility tokens. This is true, although the benefits and advantages of staking an NFT will vary from one project to the next. These tokens may come with extra advantages, such as voting and governance rights, which give the holder a say in developing the project.
Cons of NFT Staking
Potential for scams
Remember that potential loss is associated with earning rewards on your NFTs, although this may sound alluring. Because the NFT sector is still in its infant stages, it might be challenging to determine who can be trusted and who should be avoided in such a new environment. It is not a situation that is completely out of the realm of possibility for an unethical staking platform to steal its users’ funds and disappear with their tokens.
Performing your research and due diligence is the most effective approach to staying informed about possible cons. Always do your homework and look into the team behind the staking platform and the platform itself; remember that it’s preferable to err on caution.
While you are locked in, the value of your NFT may experience a large increase or decrease depending on the developments in the market and the digital art scene. You may be unable to withdraw an NFT with a lengthy lock-up time if the terms of your staking platform do not permit it. If, on the other hand, you have always intended to hang onto the investment for the long term, short peaks and falls in the market should be fine for you.
NFT staking participants can gain additional prizes from their new digital collectibles. In addition, if the NFT project includes a DAO, holders of NFTs will be able to participate in the project’s governance by staking their digital assets in the DAO’s pool.
Beyond simple accumulation, this asset class now has access to a wider range of potential applications thanks to the advent of NFT staking. Although it may be too soon to say, it is highly likely that in the not-too-distant future, the NFT market will witness the emergence of further fresh prospects for staking.
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