You probably aren’t yet aware of this but non-fungible tokens (NFTs) represent an untapped passive income-generating opportunity.
Read on to learn how you can earn passive income with NFTs using a variety of methods that actually work.
The convergence of NFT technology and decentralized finance (DeFi) protocols has led to the potential for staking NFTs.
Staking is commonly used in proof-of-stake (PoS) protocols where users commit their tokens to secure a network and validate transactions. But there are also other forms of staking, such as locking away cryptoassets in a DeFi protocol smart contract to generate yield in return.
Similar to staking cryptoassets, staking NFTs allows you to generate passive income in the form of staking rewards while retaining ownership of your tokens.
Staking NFTs can be a good strategy if you are planning to hold them long-term since you can’t trade your staked NFTs. NFT staking platforms often study the rarity of the NFT and calculate the APY (annual percentage yield). The higher the rarity, the higher the APY, and the higher the staking rewards.
Currently, there are several platforms that support NFT staking, including Kira Network, NFTX, Axie Infinity, and more.
Renting out NFTs
Several GameFi platforms allow you to earn passive income from your NFTs by renting out your digital collectibles to NFT gamers. This is a new trend in the blockchain gaming space as the utility derived from game NFTs offers attractive income opportunities. As a player, you can rent out your NFTs to improve your overall gaming experience.
You can rent out items such as character skins, innovative weapons, and unique tools that can unlock new in-game features. For example, some card trading games will allow you to rent out NFT cards to boost your chances of winning. Smart contracts are used to govern the terms of the deal such as the duration of the rental agreement and lease rate.
reNFT, for example, is a rental protocol that allows the renting and lending of NFT assets. You can rent NFTs by specifying the rental duration, paying the stipulated collateral, and receiving your borrowed NFTs.
Earning royalties from NFTs
It is estimated that the NFT industry recorded billions of USD in revenues in 2021. Creators are looking to get a slice of the profits by pushing their digital artworks into the market. One way to do this is to generate passive income through NFT royalties.
As a creator, you can set terms that impose royalty fees anytime your NFT is traded in the secondary market. This way you can earn a share of the NFT sales price in perpetuity.
For example, you can set the royalty for your NFT at 5%, which means you will receive 5% of the actual sales price every time your digital artwork is sold to a buyer.
The fascinating thing about NFT royalties is that the entire process of enforcing royalty terms, tracking payments, and disbursement is automated through smart contracts. NFT marketplaces such as Rarible allow creators to earn royalties from the artworks.
Providing liquidity with NFTs
The ongoing integration of NFTs in the DeFi ecosystem enables you to provide liquidity in DeFi pools and earn NFTs in return.
For instance, when you provide liquidity to the Uniswap V3 decentralized exchange, you will be issued LP-NFT tokens, which is an ERC-721 token that captures the amount you have locked in the pool. You can sell this NFT on the secondary market to liquidate your position in the liquidity pool.
Aside from earning encoded royalties from your own NFTs, all other current passive income strategies involving NFTs incur a relatively high level of risk as you are typically depositing your NFTs in smart contracts in the DeFi markets. Like with all DeFi and any investment activities, there are risks that investors need to be aware of before deploying any capital or NFTs.
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