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Passive Income with NFTs [Full Guide]

Passive Income with NFTs

Passive income has been always an interesting subject for mankind. A quick search in the newborn NFT market shows us that there are thousands of NFTs available in the digital market while they are collecting digital dust! Although blockchain technology promises the security of the NFT collections, the more important issue seems to if these collections could make a profit for their owners.

As the NFT hype continues to grow even larger in 2022, high gas fees may cost a lot to the artists and creators. Some creators and investors may decide to offload their NFTs on secondary marketplaces to make up for the costs. Though, many believe it is essential to find ways to make passive income, a term used to describe money you earn continuously with little effort, with NFTs.

A part from the large investments to mint your NFTs, buying NFT real estates in Decentraland Metaverse or building a space in the Metaverse to trade it later, there are also some simple ways to make passive income with NFTs. In the following, we will take a look at different ways to earn passive income from NFTs.

How to create passive income with NFTs?

1. Renting out or delegating NFTs

Passive Income with Renting out or delegating NFTs

The NFT world has already gone beyond merely digital works of art. Online gaming and music have quickly adapted to The NFT world by offering virtual concerts and wearables and weapons. Both fun and profit with cryptocurrencies one may earn!

Among GameFi platforms, card game players can earn tokens in form of NFTs while playing and, then, rent it to other players to boost their chance of winning. Or games like ICE Poker in Decentraland Metaverse allow its users to rent out their digital collectibles, including wearables, to others and earn a cut of all-game rewards.

Some platforms such as reNFT allow users to rent or lend NFTs. The platform helps players set maximum borrowing periods and set daily rates all based on Ethereum. this new trend in the gaming blockchain space offers attractive income opportunities for NFT owners since almost all types of NFTs such as avatars, skin, weapons, wearables and even cars can be rented to improve the overall gaming experience and unlock new in-game features.

The procedure for renting an NFT is quite easy. Players need to reach an agreement with an NFT owner and, then, the NFT temporarily moves from their wallet to the player’s wallet. The advantage by renting NFTs is that smart contracts provide the opportunity to find a renter and keep a secure and auditable record of the transactions. The income is immediately added to a digital wallet when the agreement is fulfilled.

2. Staking NFTs

Passive income with Staking NFTs

Staking NFTs is a great way to earn passive income. Thanks to decentralized finance (DeFi), NFT owners now can pledge their NFTs to a blockchain network while the blockchain pays them cryptocurrencies as a reward. Therefore, staking refers to the process of depositing or locking away digital assets into a DeFi protocol smart contract in return for a given reward.

Staking NFTs helps blockchains secure the network and validate transactions. You can, then, trade or collect these cryptocurrencies. The earning rate is usually 10% or 20% per year. However, when your NFTs are staked, you are not allowed to sell or move them across wallets according to the contract made for the staking. Some platforms that facilitate NFT staking are Kira Network, NFTX and Splinterlands.

There are two main types of staking:

  • Proof of stake (PoS) relies on the amount of cryptocurrency or its equivalent in form of NFT you have in your wallet.
  • Proof of Burn (PoB) relies on burning tokens. Tokens must be sent to an address with no known private key. Sometimes, the payout is two or three times higher than what is burnt.

Staking NFTs is a perfect strategy since throughout the process NFT owner keeps the full ownership of the NFT pledged. Besides, it is a good way to make passive income If NFT owners plan to hold their digital assets long-term as they cannot sell the staked NFT. An important feature of staking NFTs is their rarity which directly influences the annual percentage yield (APY). Staking rewards increases with the rarity of an NFT.

3. Earning royalties from NFTs

Passive income with Earning royalties from NFTs

The concept of royalties is widely known in the world of arts, music and films. Now, blockchain technology allows artists to earn royalties from their NFTs. It offers the opportunity for artists to set their own preferred royalty terms in the smart contract when they mint new NFTs. Therefore, artists can earn passive incomes every time someone resells their NFTs or even use it according to royalty agreements. The smart contract guarantees the instant execution of transactions.

Royalties usually range from 5 to %10. It means that if the royalty for a digital artwork is set at %10, the original creator of the NFT receives %10 of the total sale price each time the NFT is resold in the NFT market.

The main advantage of NFT royalty is that the process of enforcing royalty terms, including transactions and payments, is automatic and all is done by the smart contract so that the creator does not need to enforce or track the sales and payments. All secondary markets such as OpenSea, Rarible, Foundation, etc. allow creators to earn royalties from their NFT artworks.

4. Provide liquidity with NFTs

Provide liquidity with NFTs

Another advantage of the integration of NFTs and DeFi is that it is possible to provide liquidity and receive NFTs as you establish your position in a given DeFi pool. A liquidity pool that is an essential component of decentralized exchange (DEX) acts as a bank to keep digital assets off-chain and provide tokens that represent the assets.

Therefore, buying or selling a token in a pool requires transferring it to the pool and it is the pool that handles the trade instead of the owner. Liquidity pool also works with smart contracts and, thus, ensures the trades and number of sellers at any time. It allows multiple parties to create their collections which everyone can buy or trade at the time they wish.

More precisely, if one wants to provide liquidity on a certain project, the automated market maker (AMM) issues an ERC-721 token or LP-NFT that includes the details of the share from the total amount locked in the pool. It also provides information about deposition, token symbols and pool addresses.

5. Farm for yields with NFT-powered products

The other possibility to earn passive income using NFTs is yield farming. It means leveraging multiple DeFi protocols and producing the highest possible yield with NFT-powered products. It is unique in the sense that the passive income is automatically added to the owners’ wallets as someone buys the NFT.

In this method, LP-NFT tokens are issued as liquidity rewards. A good example is Uniswap which allows yield farming and the LP-NFT tokens are used as collateral or staked on other protocols which lead earning additional yields. Therefore, it is like a yield on top of another yield-generating protocol. The whole idea provides a layered income model which attracts yield farmers.

6. Passive Income with NFT coins

Passive Income with NFT coins

NFT coins are a form of cryptocurrencies that are mainly used to support NFT-based ecosystems. Most blockchain-based platforms include their own native NFT coins. As an example, Axie Infinity makes use of its native token AXS. AXS is used in the game for NFT staking and decision-making or voting for any chance in the game. You may already know that these decisions directly influence the game’s economy. Unlike NFTs, NFT coins provide the opportunity to be exchanged for another NFT of the same value. This characteristic makes NFT coins not only a valuable investment tool but also a way of generating passive income.

NFT coin owners can earn passive income by staking the in-game coins they receive as a reward and using them to lock up their tokens, just like the interest-bearing saving account in the real world. Some other good examples of NFT coins that can provide passive income are MANA (Decentraland), SAND (The Sandbox), MATIC (Polygon) and many more.

Conclusion

As we already discussed, there are many safe ways to make more on NFTs rather than the traditional minting and trading. Such passive income should be considered by all NFT owners as way to earn cryptocurrencies with little effort. Make careful research before making any investment.

About Nicolle

She is an Indian Freelance writer. She loves thinking, learning, and writing about all things Web3.

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