You may not be aware of this, but non-fungible tokens (NFTs) represent an untapped passive income generation opportunity.
Read on to learn how you can earn passive income with NFT using a variety of methods that really work.
The convergence of NFT technology and decentralized finance (DeFi) protocols has led to the potential of NFT staking.
Security is commonly used in proof-of-stake (PoS) protocols where users pledge their tokens to secure the network and validate transactions. But there are other forms of staking as well, such as locking cryptocurrency files in a DeFi protocol smart contract to generate returns in return.
Similar to crypto staking, NFT staking allows you to generate passive income in the form of staking rewards while retaining ownership of your tokens.
NFT staking can be a good strategy if you plan to hold them for the long term as you cannot trade your deposited NFT. NFT staking platforms typically study the rarity of the NFT and calculate APY (percent annual return). The higher the rarity, the higher the APY and the higher the staking reward.
Currently, there are several platforms that support NFT staking, including Kira Network, NFTX, Axie Infinity, and more.
Renting out NFTs
Some GameFi platforms allow you to earn passive income from your NFT by renting out your digital collections to NFT players. This is a new trend in the blockchain gaming space as the utility gained from NFT games offers attractive income opportunities. As a player, you can hire NFTs to improve your overall gaming experience.
You can rent items like character skins, innovative weapons, and unique tools that can unlock new features in the game. For example, some card trading games will let you rent NFT cards to increase your chances of winning. Smart contracts are used to govern the terms of the agreement such as the length of the lease and the rental price.
reNFT, for example, is a leasing protocol that allows the rental and lending of NFT assets. You can rent an NFT by specifying a rental period, pay the specified collateral, and receive your borrowed NFT.
Earn royalties from NFT
It is estimated that the NFT industry will record billions of dollars in revenue by 2021. Creators are looking to earn a share of the profits by pushing their digital artworks to market. One way to do this is to generate passive income through NFT royalties.
As a creator, you can set the terms that apply royalties any time your NFT is traded on the secondary market. This way you can earn a permanent part of the NFT sale price.
For example, you can set your NFT royalties to 5%, which means you’ll receive 5% of the actual sale price each time your digital artwork is sold to a buyer.
The attractive thing about NFT royalties is that the entire process of enforcing royalty terms, tracking payments, and disbursing is automated through smart contracts. NFT marketplaces like Rarible allow creators to earn royalties from artwork.
Provide liquidity with NFT
The continuous integration of NFTs in the DeFi ecosystem allows you to provide liquidity in DeFi pools and earn NFTs in return.
For example, when you provide liquidity to Uniswap V3 decentralized exchange, you will be issued with LP-NFT tokens, which are ERC-721 tokens that record 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 tokenized royalties from your own NFTs, all other current NFT-related passive income strategies carry a relatively high level of risk because you normally deposit your NFTs into smart contracts on the DeFi marketplace.
As with all DeFi and any investment, there are risks that investors need to be aware of before deploying any capital or NFTs.