If you haven’t heard about staking at this point, then you are probably a newbie in crypto, and that is fine because this article will walk you through it all. After reading, you should be able to stake NFTs for passive income.
What is NFT Staking?
Staking can be thought of as investing. Whereas investing in traditional financial systems means depositing your funds into a savings account—for example—and earning interest on the amount you deposited. In DeFi, staking means adding crypto to a staking pool to validate transactions in proof-of-stake networks such as Ethereum 2.0. The staker is rewarded in the native ETH token for validating transactions.
The unique advantage of proof-of-stake consensus adopted by most blockchains is that it requires less energy to secure the network. Consensus mechanisms like proof-of-work, for example, require electricity and highly sophisticated mining equipment to give miners a higher chance of solving the puzzle required to add a block to the blockchain.
With proof-of-stake, however, miners have no unfair advantage, irrespective of the level of sophistication of the hardware used. Smaller miners can also pool their resources together to form a mining pool which considerably increases their chances of being selected to validate blocks and earn rewards. However, other criteria, such as the staking age of the validator, the number of tokens staked, and the tokens’ inflation rate, determine whether a validator can be selected.
NFT staking incentivizes users to lock up their NFTs in an external staking contract, while stakers receive a utility token often tradeable on exchanges for staking NFT. Stakers transfer their NFTs to a vault or holding account that lets them retain ownership of their NFTs while the NFT generates the reward token for as long as it is staked on the staking platform. Staked NFTs are locked, which means they are not tradeable in the open market during the staking period.
How NFT Staking Works
At a fundamental level, NFTs are smart contracts on the blockchain written in specific standards, which makes it impossible to exchange them on a 1:1 basis. So if you hold a BAYC or Bored Ape Yacht Club NFT, you cannot exchange that token for another token as you do with Bitcoin, which can be traded for the same amount on most exchanges. The question here is not about the amount. If you think about it, you can sell 1 ETH and receive 1 ETH or 100 UNI tokens in return, but a Cryptokittie is not the same as another Cryptokittie.
Consequently, when users stake their NFTs, the staking contract written in Solidity interacts with the NFT collections contracts as soon as the user calls the staking function by clicking on the staking button in the DApp. The staking function also triggers an event that ascertains the wallet address, the value of the NFTs, the staked token ID, and the rewards to be received by that address. When this is successful, users can start earning rewards in BEP20 tokens for locking their NFTs in the staking contract. The solidity contract also includes clear instructions to return the NFT to the owner’s wallet when they call the unstake function by clicking the unstake button in the DApp.
NFT Staking Rewards
NFT staking rewards are paid in tokens such as BEP20 tokens on BNB Chain, which are tradeable on exchanges. The longer the staking period, the higher the number of tokens earned, assuming there is a fixed amount in APY due to be received over time.
Staking rewards are claimable on the staking platform, and the reward token goes straight to the user’s wallet as soon as the reward is claimed. Users can then sell these tokens in the open market and use the earned reward for whatever they want in DeFi or the real world.
The source of the reward varies according to the method used by the staking platform. A DeFi project can get users to stake their NFTs to reduce the supply, which puts pressure on the price and earns the platform returns for selling their own NFTs. Some staking platforms also create the NFT collections they want users to stake and use staking rewards to incentivize users to purchase their NFTs. These platforms, in turn, use the paid staking rewards to buy validator slots on proof-of-stake networks to earn interest, out of which the reward is paid to stakers.
Pandora – The Best Platform for NFT Staking
Pandora is the first high-yield gamified decentralized exchange on the BNB Chain committed to rewarding users from day one. While users of some other platforms lost all or part of their deposits or couldn’t earn during the bear market, Pandorans were sharing success stories made possible by a range of unique investment products in the Pandora ecosystem. One such product is Pandora NFTs or DroidBots, which can be staked for up to 300% APY.
Poised to do more, Pandora also launched the first decentralized bonds backed by traditional investment—the highly sought-after NFT Securities. You can think about NFT Securities like government bonds, except that it is more flexible, with interest paid every second. You can also stake to earn up to 300% APR accruable by ordinary NFTs. If you are thinking about earning 11.5% APR and 300% APR from the same investment, then you certainly understand what this is about. You can get your NFT Securities starting from as low as $100 if you want to try it. Although you should keep in mind that a bigger investment will earn you more in the long run.
Is NFT Staking a Good Investment?
We discussed how you could invest in NFTs in a previous article, and NFT staking was at the top of our list for a good reason. Instead of speculating on the value of your NFTs or trying to flip NFTs, which could require a range of complex strategies, NFT staking on the right platform is straightforward, and the returns are guaranteed. Staking NFTs doesn’t mean the owner can not sell their NFTs whenever they want as speculators do, but by this time, they must have earned so much from the asset.
NFT Securities, for example, are claimable for their face value anytime, and users who sell before the expiration date only incur a small fee. So if you compare leaving your money in a bank with geographical limitations that puts so many restrictions on what you can do with your money, only to pay you around 7% annually, you would already know why NFT staking stands out.
Conclusion
Staking is a concept that originally started with tokens on the Ethereum blockchain. As proof-of-stake networks and the green crypto movement became popular across the globe, most proof-of-work blockchains gradually evolved, as we have seen in the recent Ethereum proof-of-stake upgrade.
To secure a proof-of-stake network and prevent malicious actors from exploiting the system, validators are needed to validate network transactions. These validators lock their tokens to show their commitment to the network and why they are the best to decide on behalf of other participants. Based on the staking date, the amount staked, and other important metrics, the network randomly selects a validator who validates blocks and receives the rewards.
NFT staking uses a similar model to lock stakers’ NFTs in smart contracts that pay out a reward token according to the fixed APR defined in the contract of the issuing platform. Reward tokens are valuable and can be traded on the platform and other exchanges. Reward payments are automated using smart contracts written in Solidity for BNB Chain and Ethereum, Polygon, and Avalanche-based platforms, while Rust is used for platforms on the Solana blockchain.
NFT staking is one of the best ways to earn in DeFi. Holders of staked NFTs remain the owners of the asset, and the staking terms are far more flexible than traditional investment alternatives. With an NFT Security on Pandora, users can earn up to 11,5% APY paid every second alongside an extra earning boost for actual NFT staking.
These contents are for general information purposes only. They are not investment advice, a recommendation, or solicitation to buy, sell, or hold any digital asset or engage in any specific trading strategy. Some crypto products and markets are unregulated, and you may not be protected by government compensation and/or regulatory protection schemes. The unpredictable nature of the crypto asset markets can lead to loss of funds. Tax may be payable on any return and/or on any increase in the value of your crypto assets, and you should seek independent advice on your taxation position.
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