Is Staking NFTs Worth it, and How Does It Work?
When most people think of making money from NFTs (non-fungible tokens), they usually imagine trading. That means buying an NFT at a low price and hoping to sell it at a higher price later on.
But what if your NFTs don’t increase in price over time? Then your money is stuck when it could be earning a return elsewhere.
Thankfully, there’s a new way to earn passive income by staking NFTs.
Staking lets you lock in your NFT assets on trading platforms and receive rewards without having to sell anything from your collection.
In this article, you’ll learn what NFT staking is and how it works. We’ll discuss the risks and rewards of staking NFTs, and then you can decide if it’s right for you.
What is staking?
Staking isn’t a concept that’s unique to NFTs. Many cryptocurrencies also use staking to reward users.
Older cryptocurrencies like Bitcoin use a system called proof-of-work. This means a network of validators keeps the blockchain network secure by authenticating transactions. Validators earn a reward for using their computing power to complete the work.
Proof-of-work can be quite energy and resource-intensive. It takes a lot of electricity and specialized computing power to keep the blockchain network running. That’s why more and more cryptocurrencies are moving to a proof-of-stake model instead.
Under a proof-of-stake model, instead of requiring lots of computing resources, people just need to stake or pledge some of their cryptocurrency to become a validator.
How staking NFTs works
Staking NFTs works a bit like putting money into a savings account at the bank. Your money is locked up for a period of time, and you earn interest on your investment.
NFTs don’t work exactly that way, but the basic concept is similar.
When you stake an NFT, you lock up your tokens on a trading platform in exchange for staking rewards or some other type of benefit.
Staking NFTs is a way to earn passive income from your NFT collection while still keeping ownership of your NFTs.
Just like staking cryptocurrency, staking NFTs helps support a blockchain’s security and ability to operate.
Note: Staking rewards will vary based on the staking platform and the particular collection that your NFTs are a part of. Different NFTs will offer different staking rewards, and some NFTs aren't able to be staked at all. This is decided by the project team when the NFT is first minted.
Risks of staking NFTs
Staking NFTs offers some great benefits to NFT owners. But it’s not entirely without risk either.
Before buying NFTs to stake or trying to stake your own NFTs, there are some key points to keep in mind.
Whenever you need to transfer your NFTs or crypto to a centralized trading platform, there’s a risk of losing your assets.
There’s a common saying in the world of crypto: Not your keys, not your coins.
Basically, this means that if your crypto or NFTs aren’t stored in a private crypto wallet that you exclusively have control over, then you don’t truly own them.
Even large trading platforms like Celcius aren’t immune from suddenly going bankrupt without warning. And if your NFTs or crypto are tied up on these platforms when they shut down, chances are your assets will disappear with them.
The world of NFTs is full of the potential for theft, fraud, hacks, and marketplaces suddenly shutting down.
Choosing to stake your NFTs on the largest and most reputable platforms will help to minimize your risk, but you can never get rid of it completely.
You’ll need to decide for yourself if a 5% annual percentage yield (APY) staking reward is worth the small chance of losing it or if you’d rather keep your NFT in a private wallet and unstaked.
In the best-case scenario, some cryptocurrencies and NFTs allow for non-custodial staking. This means you earn reward tokens just for owning a particular currency or NFT while maintaining full control over them in your private wallet.
Cryptocurrency price fluctuation
Another big risk of staking NFTs is simply the fact that the crypto market as a whole is so volatile.
Most NFTs are ERC20 tokens, which makes them heavily reliant on the value of Ethereum remaining high to stay valuable.
Even if you buy an NFT and it maintains its value in terms of Ethereum, its value may fluctuate widely in US dollars.
For example, the value of ETH dropped from around $3,500 on April 4, 2022, to around $1,000 in June 2022. So even if your NFT maintains a steady value of 1 ETH, it’s experienced a huge drop in value in terms of dollars.
Of course, there are also situations where it works the opposite way during crypto bull markets.
NFT price fluctuation
Even if cryptocurrency is in a period where it’s relatively stable against the US dollar, the price of NFTs themselves can still fluctuate wildly.
As an example, we can look at Bored Ape #6409. In May 2022, it sold for 96.69 ETH. Then in July, it was sold for 82 ETH before being flipped again for 96.69 ETH in August.
That’s the equivalent of tens of thousands of dollars in price fluctuation!
If you’re planning to hold your NFTs long-term, this is less of a concern. But staking NFTs can get risky if you plan to sell in the near future.
Long lock-in periods
In order to get rewards for staking your NFTs, you might need to stake them for weeks or months, depending on the specific platform and NFT collection.
Usually, your staking reward isn’t prorated, so if you pull your NFT out early, you get nothing for all of the time that it was staked up.
You might run into situations where your NFTs are locked up and you can’t access or sell them without missing out on your staking rewards.
Rewards for staking NFTs
Staking rewards for NFT holders can vary a lot, depending on the platform used and the type of NFT staked.
However, many NFTs offer daily or weekly staking rewards.
Usually, these rewards are issued in the trading platform’s native token. These tokens can then be exchanged for other cryptocurrencies or converted into fiat currency and withdrawn.
Some NFTs offer additional rewards for staking. They may include a decentralized autonomous organization (DAO) that enables holders of staked NFTs to vote on future proposals for the project and basically double as governance tokens.
There are other miscellaneous rewards that might be used as an incentive to get people to stake their NFTs. For example, airdrops of other cryptocurrencies or even free additional NFTs.
However, the main reward for staking NFTs is still the fact that they can provide a source of passive income.
How NFT staking rewards are calculated
Most NFT projects will offer staking rewards in terms of annual percentage yield, similar to cryptocurrencies which can be staked.
Many NFT projects will have reward rates that increase depending on how long you lock your NFT in. This encourages NFT holders to stake their assets for as long as possible.
Instead of an APY, some platforms may simply show you an expected return in terms of tokens. So you may see an offer of 20 tokens per day that’ll be earned during the staking period.
What are some NFT staking platforms?
There are various NFT staking platforms available. We don’t necessarily encourage or endorse any of them, so be sure to do your own research. This is simply a list to help point you in the right direction.
- Binance NFT PowerStation
- Doge Capital
- Polychain Monsters
- BAND NFTs
- Mobox (MBOX)
- WhenStaking (Onessus)
Note that many of these options are proprietary platforms for NFT-based games and their game items.
In other words, you can only stake one particular type of NFT on them.
A lot of staking opportunities for NFTs today revolve around play-to-earn games like Polychain Monsters, Splinterlands, and others.
Is staking NFTs a smart investment decision?
The truth is that the concept of NFT staking is still very much in its infancy. As a result, there are a lot of questions still surrounding it.
Liquidity is currently a big issue for NFTs. Most people buy NFTs to hold them as long-term investments, so the liquidity pool and overall ecosystem are currently underdeveloped.
Staking NFTs isn’t currently as popular as staking cryptocurrencies, and it tends to be riskier. Although it also comes with a chance for high rates of growth in the future.
Hopefully, when Ethereum successfully upgrades to a proof-of-stake mechanism, with staking replacing mining, gas fees will decrease, and staking NFTs will become more common.
The biggest advantage of staking NFTs is that you don’t need to sell your NFT collection to keep passively increasing your crypto stack.
So if you’re going to be holding NFTs long-term anyway, you may want to stake them. Although we don’t think we can necessarily recommend buying NFTs just for the main purpose of staking them.
Is staking NFTs worth it?
Staking NFTs is a great way to make extra passive income if you’ve already got a collection of NFTs that are currently just sitting idle.
Staking has created new use cases for NFTs that haven’t been previously explored.
While the concept of NFT staking is still new and risky, chances are that we’ll be seeing a lot more NFT staking opportunities in the future.
The Stack NFT includes revenue sharing, which you could think of as staking rewards. NFT holders will passively earn a percentage of revenues from Stack PRO subscriptions, with the amount varying based on the rarity of their NFT.