4 ways to earn passive income with your NFTs

Source: iStock/rzelich

You probably don’t know it yet, but non-fungible tokens (the NFT) are a way to generate passive income.

NFT stacking

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The NFTX website

The convergence of NFT technology and decentralized finance protocols (DeFi) has given rise to the possibility of stacking NFTs.

Staking is commonly used in proof-of-stake (PoS) protocols where users pledge their tokens to secure a network and validate transactions. But there are also other forms of staking, such as locking crypto-assets into a DeFi protocol smart contract to generate a return in return.

Much like cryptocurrency staking, NFT staking allows you to generate passive income in the form of rewards while retaining ownership of your tokens.

Staking NFTs can be a good strategy if you plan to hold them for the long term, as you cannot trade your staked NFTs. NFT staking platforms often look at the scarcity of NFT and calculate the APY (Annual Yield Percentage) accordingly. The higher the rarity, the higher the APY, and the higher the rewards for staking.

Currently, several platforms support NFT staking, including Kira Network, NFTX, Axie Infinityetc.

The rental of its NFTs

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The reNFT website

Several GameFi platforms allow you to earn passive income from your NFTs by renting your digital collectibles to other players. In particular, you can rent your NFTs to improve your overall gaming experience.

You can rent items such as skins character sets, weapons, and unique tools that can unlock new in-game features. For example, some card games allow you to 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 rental contract and the rental rate.

reNFT, for example, is a rental protocol that allows NFT assets to be rented and loaned. You can lease NFTs by specifying the lease term, paying the stipulated security and receiving your borrowed NFTs.

Earning royalties with NFTs

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The rare website

The NFT industry is estimated to have recorded billions of dollars in revenue in 2021. Creators are looking to get a share of those 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 terms that impose royalties each time your NFT is traded on the secondary market. This way, you can earn a share of the NFT’s sale price over time.

For example, you can set the royalty for your NFT at 5%, which means you will receive 5% of the actual sale price each time your digital artwork is sold to a buyer.

What is fascinating about NFT royalties is that the entire process of enforcing royalty terms, tracking payments, and disbursement is automated by smart contracts. NFT marketplaces such as rare allow creators to collect royalties from works of art.

Providing liquidity with NFTs

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The Uniswap website

Integrating NFTs into the DeFi ecosystem allows you to provide liquidity in DeFi pools and earn NFTs in return.

For example, when you provide liquidity to the decentralized exchange Uniswap V3, you will receive LP-NFT tokens, an ERC-721 token which represents 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.

Other than earning royalties from your own NFTs, all other current passive income strategies involving NFTs carry a relatively high level of risk, as you typically deposit your NFTs into smart contracts on DeFi markets. As with all DeFi and investment activity, there are risks that investors should be aware of before deploying any capital or NFT.

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4 ways to earn passive income with your NFTs

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