How to Make Passive Income with NFTs
|— You can generate passive income in multiple ways using NFTs|
— NFT staking allows you to earn staking rewards on your NFTs, while still owning them.
— You can rent out NFTs to gamers. Gamers can use them in playing blockchain-based games and you can earn passive income.
— Earning NFT royalties is a great passive income method if you are an NFT creator.
— You can even release some liquidity from your NFTs without selling them, to use elsewhere on the market
You may 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 get the most out of your assets.
NFTs have been a hot topic in crypto since they arrived onto the scene. In particular, 2021 was known as “the year of NFTs”, due to the explosive outreach NFTs had across the globe.
According to a report published by Business Research Insights, the NFT market size was $15.53 billion in 2021 and is expected to touch $73.90 billion by 2028. We can find multiple reports like this that show and confirm the rapid growth of the NFT market. Digital artists are also turning into NFT creators and leveraging 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 cashflow from your NFTs without selling them.
You’ll be happy to know that, beyond being collectibles, NFTs in your wallet are also an untapped stream of passive income.
If you are an NFT holder or creator, this article will help you understand how you can earn passive income from your idle assets.
Top Ways to Generate Passive Income with NFTs
The concept of earning passive income through cryptocurrencies has been a huge hit in the crypto 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 amongst holders of digital assets because it allows you to earn money on your existing assets with minimal efforts. And who doesn’t want that?
Strategies such as staking, liquidity mining, etc are already popular ways for crypto holders to earn passive income from their crypto coins and tokens. And you can now apply some of these same approaches to NFTs.
Let’s headstart and discuss the ways to make passive income through NFTs.
1. Staking NFTs
While staking crypto is a known concept, staking NFTs might be new for you. This works similarly to staking cryptocurrencies: you can generate passive income, while still having ownership of your NFTs.
How to stake NFTs
To stake, you would need to pledge your NFTs to a blockchain network or liquidity pool, and lock them for a minimum period, known as the staking period. This would help the network process transactions quickly and increase the network’s security.
In exchange for doing so, you will receive staking rewards in terms of crypto tokens. You can swap, trade, or sell these tokens to convert your income into your preferred assets. The only thing you can’t do is move or sell your NFTs when they are staked.
The amount of staking rewards you receive may vary from one staking platform to another. Your staking rewards depend on a number of factors, including the rarity of your NFTs. The rarer your NFT, the higher will be your staking rewards.
Where to stake NFTs
If this sounds like an interesting prospect to you, you’ll find the majority of NFT staking options on metaverse and P2E platforms such as The Sandbox, Axie Infinity and Decentraland, as well as a few DeFi platforms such as StakeDAO. Here, you’ll be able to grow your portfolio and earn rewards while staying in 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 make income elsewhere (we’ll come back to that). You’ll also benefit from rewards set by the platform itself.
It’s worth noting that on NFTX, you may not get back the same ERC-720 token you put in – for example, in inventory staking, where you contribute your NFT to be part of a temporary marketplace, another user might buy your ERC-720 while it’s 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 return will only ever be equal in value to the collection floor price) but instead to allow you to make passive income on the floor price NFTs in your collection by making them, essentially, liquid assets. Clever, right?
2. Renting NFTs
Renting NFTs is the latest passive income stream for NFT holders.
Play-to-earn style games allow us to monetize our skills, creating a market for gamers seeking to optimize their performance through gaming assets. Meanwhile, the explosion of the Metaverse has created an entire universe of digital citizens seeking to curate a digital existence for themselves, with all the trappings of real life. Naturally, this has given rise to a marketplace of houses, furniture, cars and fashion, all of which take the form of NFTS.
But not all gamers and Metaverse residents can afford to own their own NFTs. This is where the concept of renting NFTs could help you make the most of what’s in your wallet.
How to rent out NFTs
NFT rental platforms allow you to set the lending rate and duration for rental of your NFTs (with some upper limits on both of those 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 get passive income for renting out your NFT, while the gamer will have increased chances of playing and winning the game. Renting out NFTs is a win-win situation for both you and the gamer.
Where to rent out NFTs
Since the concept of renting NFTs is new, there aren’t many NFT rental marketplaces. You can rent your non-fungibles on one of these three NFT rental marketplaces – reNFT, Vera, and Trava NFT. One of the leading digital marketplaces for NFTs, OpenSea is also allowing users to rent their assets. Additional venues start to appear as the demand for NFT rentals increase and gain more popularity.
Renting out NFTs to gamers has huge future potential in the blockchain gaming space and also stands to help you earn extra crypto from your own collection.
3. Release NFT Liquidity – Earn Yield Elsewhere
Unlike fungible crypto, you cannot simply “trim” a little bit off of your NFT to earn yield elsewhere – NFTs are all or nothing, which means that it can be hard to access the underlying value of the token without simply selling it altogether.
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 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 given NFT collection for example there is a vault for CryptoPunks, and another for Bored Apes). In return you’ll receive the platform’s native vToken (ERC20), valued at the floor price of your NFT’s collection.
You can then deposit those vTokens into DEX liquidity pools, such as Balancer and Uniswap, and earn rewards. When you’re done making profit, you simply bring back your vToken, pay a small fee to the Vault and reclaim an NFT from the same collection.
4. Earning Royalties
Another way to earn passive income through your NFTs is by earning royalties. Unlike previous suggestions, this method allows you to earn income through your NFT creations even after other people own them.
NFT royalties work in a similar way to other creative asset royalties such as music, films, 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, they would have to pay you a certain percentage.
How to earn NFT royalties?
After you create digital art, you need to mint the NFT. Minting is a process of making the art a part of the blockchain as an NFT. To do this, you need to create an internal smart contract and program the specifications and royalty rate. Once you’ve done this, you will automatically receive royalties each time your NFT is sold.
Usually, royalties are paid whenever an NFT is sold and the most common royalty percentage would be between 5% and 10%. For instance, if your NFT is sold for $1000, and you have a 5% royalty, you would receive $50 as a royalty payment, and this would be the case every single time the token is sold.
Earning passive income is a great way to maximise your returns on what you already own. And now you know the different options, you can put your NFTs to work in ways you may not have imagined.
No matter how you approach this, it is also important to research every platform thoroughly before you use it, and to 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 secure as you explore the space. Enjoy the ride!
Knowledge is power