You might be surprised to learn how NFTs in your wallet can work for you, with minimal effort on your part. Here, we explain how to generate passive income from NFTs and make the most of your assets.
NFTs have been a hot topic in crypto ever since they hit the scene. In particular, 2021 was known as “the year of NFTs”, due to the explosive reach that NFTs had around the world.
According to a report published by Business Research Insights, the NFT market size was $15.53 billion in 2021 and is expected to reach $73.90 billion by 2028. We can find several reports like this one that show and confirm the rapid NFT market growth. Digital artists are also becoming NFT creators and taking advantage of the market to generate income through their art.
But unlike fungible liquid crypto, which is the lifeblood of the DeFi system and can benefit from a myriad of passive income opportunities, it’s not immediately obvious how to generate cash flow from your NFTs without selling them.
You’ll be glad to know that beyond being collectibles, NFTs in your wallet are also an untapped stream of passive income.
If you are an NFT owner or creator, this article will help you understand how you can earn passive income from your idle assets.
The Best Ways to Generate Passive Income with NFTs
The concept of earning passive income through cryptocurrency has been a huge success in the cryptocurrency industry. You’ve probably heard of the expression “Make money work for you” and this is exactly the premise of passive income. It has become immensely popular among digital asset holders because it allows you to earn money from your existing assets with minimal effort. And who doesn’t want that?
Strategies like staking, liquidity mining, etc. They are already popular ways for cryptocurrency holders to earn passive income from their cryptocurrencies and tokens. And now you can apply some of these same approaches to NFTs.
Let’s get started and discuss the ways to generate passive income through NFTs.
1. NFT Staking
While gambling on crypto is a familiar concept, gambling on NFT may be new to you. This works similarly to staking cryptocurrency: you can generate passive income, while still retaining ownership of your NFTs.
How to stake on NFTs
In order to wager, you must commit your NFTs to a blockchain network or liquidity pool and lock them in for a minimum period, known as the stake period. This would help the network to process transactions quickly and increase the security of the network.
In exchange for doing so, you will receive staking rewards in crypto tokens. You can trade, trade or sell these tokens to turn your income into your preferred assets. The only thing you cannot do is move or sell your NFTs when they are staked.
The amount of staking rewards you receive may vary from staking platform to staking platform. Your staking rewards depend on a number of factors, including the rarity of your NFTs. The rarer your NFT, the higher your staking rewards.
Where to stake NFT
If this sounds like an interesting prospect to you, you’ll find most NFT staking options on the metaverse and P2E platforms like The Sandbox, Axie Infinity, and Decentraland, as well as some DeFi platforms like StakeDAO. Here, you will be able to grow your portfolio and earn rewards while maintaining control of your assets.
You can also visit specialized platforms like NFTX, where you can stake your NFTs, either in a vault or as part of a marketplace for a given collection. In exchange, you’ll get an ERC-20 token that you can use to earn income elsewhere (we’ll come back to that). You will also benefit from the rewards established by the platform itself.
It’s worth noting that in NFTX, you may not get back the same ERC-720 token you entered; For example, in inventory staking, where you contribute your NFT to be part of a temporary market, another user could buy your ERC-720 while you’re staked. So the idea behind this type of protocol is not to stake your most precious NFTs, since you might not get them back (and the token you receive in exchange will only be worth the same as the minimum collection price), but to allow you to Build passive income on the lowest priced NFTs in your collection by essentially turning them into liquid assets. Smart, right?
2. NFT rental
NFT rental is the ultimate passive income stream for NFT holders.
Play-to-win-style games allow us to monetize our skills, creating a market for players looking to optimize their performance through in-game assets. Meanwhile, the explosion of the Metaverse has created an entire universe of digital citizens looking to curate a digital existence for themselves, complete with all the trappings of real life. Naturally, this has given rise to a market for homes, furniture, cars, and fashion, all of which take the form of NFTS.
But not all players and residents of the Metaverse can afford to have their own NFTs. This is where the NFT rental concept could help you make the most of what’s in your wallet.
How to rent NFTs
NFT rental platforms allow you to set the lending rate and rental duration of your NFTs (with some upper limits on both parameters); The entire relationship is then managed and regulated by smart contracts, which automatically terminate the lease at the agreed time and return the NFTs to your wallet.
You will earn passive income from renting your NFT while the player will have higher chances to play and win the game. Renting NFTs is a win-win situation for both you and the player.
Where to rent NFTs
Since the concept of NFT rental is new, there are not many NFT rental marketplaces. You can rent your non-expendable items on one of three NFT rental marketplaces: reNFT, Vera, and Trava NFT. OpenSea, one of the leading digital marketplaces for NFTs, also allows users to rent out their assets. Additional locations are starting to appear as the demand for NFT rentals increases and they gain more popularity.
Renting out NFTs to players has great future potential in the blockchain gaming space and can also help you earn additional crypto from your own collection.
3. Unlock NFT Liquidity: Earn Returns Elsewhere
Unlike fungible crypto, you can’t just “cut” your NFT a bit to get returns elsewhere – NFTs are all or nothing, which means it can be difficult to access the underlying value of the token without simply selling it outright.
This is another area where NFT liquidity pools can benefit you. NFT liquidity pools allow you to unlock the value of your NFT without selling it; the advantage of this is that you can then use that value on other platforms to generate passive income, while maintaining more or less the same collection.
How to release liquidity from NFTs
Let’s take a look at NFTX to understand how NFT liquidity pools work. You can deposit your NFT into one of the platform’s Vaults (each one is specific to a certain collection of NFTs, for example, there is a vault for CryptoPunks and another for Bored Apes). In exchange, you will receive the platform’s native vToken (ERC20), valued at the lowest price of your NFT collection.
You can then deposit those vTokens into DEX liquidity pools, such as Balancer and Uniswap, and earn rewards. When you’re done earning, simply return your vToken, pay a small fee to the Vault, and claim an NFT from the same collection.
4. Earn royalties
Another way to earn passive income through your NFTs is by earning royalties. Unlike the previous suggestions, this method allows you to earn income through your NFT creations even after other people own them.
NFT royalties work similarly to other creative asset royalties, such as music, movies, art, etc. If you are one of the NFT creators, you can earn passive income from your NFTs long after they are sold. When you create an NFT, every time someone uses or sells your NFT, you will have to pay them a certain percentage.
How to earn NFT royalties?
After creating digital art, you need to mint the NFT. Minting is a process of making art part of the blockchain like NFTs. To do this, you need to create an internal smart contract and program the specifications and the royalty rate. Once you have done this, you will automatically receive royalties every time your NFT is sold.
Typically, royalties are paid each time an NFT is sold and the most common royalty percentage would be between 5% and 10%. For example, if your NFT sells for $1000 and you have a 5% royalty, you would receive $50 as a royalty payment, and this would be the case each time the token is sold.
Bottom line
Earning passive income is a great way to maximize the returns on what you already own. And now that you know the different options, you can put your NFTs to work in ways you might not have imagined.
No matter how you approach this, it’s also important to thoroughly research each platform before using it and fully understand the strategy behind what you’re doing. So do your own research, using resources like white papers, Etherscan, and Ledger Academy, and always remember to keep your private keys safe while exploring space. Enjoy the trip!
