Earning passive income is one of the best ways to create wealth as it yields consistent rewards with little involvement.
When one thinks of NFTs, passive income isn’t always the first thing to come to mind, however, collecting and trading aren’t the only ways to monetize NFTs. Generating passive income in the NFT market is quickly becoming an option for holders.
An NFT or Non-Fungible Token is a unique way to own digital assets. The fact that they are inimitable is what makes them valuable.
NFTs hold a certain valuation that can rise or fall based on what another person is willing to pay for it. Because trade is rising due to high gas fees, most platforms are offering insane passive income potential with NFTs.
Staking is the nature of locking or depositing an NFT on a decentralized platform to earn rewards. Some of the rewards distributed are in governance tokens. These tokens allow holders access to voting rights for future development.
Staking provides the holder the opportunity to monetize their collection and earn passive income while still maintaining ownership.
Platforms that support staking typically use proof of stake (PoS) to authenticate transactions before the data is added to a new block on the chain. These validators or miners are rewarded in the native cryptocurrency of a particular blockchain for their resources.
How NFT Staking Works
The blockchain protocol locks up the funds in a staking pool and then randomly chooses miners to confirm transactions.
Every time a new block is added to the chain, new tokens are minted and distributed to the miners as staking rewards.
A staking platform determines the worth of the NFT based on its scarcity in which collectors will receive rewards based on the annual percentage yield (APY) and the number of NFTs staked.
Some platforms allow users to purchase fractionalized NFTs that come from owners who have staked their NFTs in a vault. Fractionalization divides the ownership of an NFT into smaller fractions making it possible for more people to own a single NFT.
There are several platforms that allow NFT owners to earn passive income by renting out their digital assets allowing people to try them out before committing to owning them.
Owners are able to set their lending rate and duration but many platforms have a limit on both. These deals are governed by smart contracts.
Most platforms require collateral in the form of crypto to rent NFTs. In most cases, the cost of collateral outweighs the true value of the asset which may defeat the purpose of renting. To offset this, some platforms offer rental without collateral by allowing the borrower to mint an expirable version instead of the actual NFT.
Borrowers pay interest fees to rent the NFT, providing the opportunity for the owners to generate passive income. Instead of simply holding the asset, owners can lend their NFTs into a renting pool, where interest accumulates from the borrowers’ fees.
NFT Royalty Fees
NFTs have been one of the most important aspects of the community that Web 3.0 is building toward. The fact that NFT creators can earn royalties through certain NFTs even after they’ve sold their art lends to increased monetization.
When selling NFTs, passive income is generated by the royalty fees whenever the creator’s NFT is traded in the secondary market. These royalties are determined by the NFT creator themselves.
Royalties offer highly valuable benefits for the creator not only through passive income with NFT collection but engagement and exposure as well.
Liquidity pools enable users to buy and sell NFTs on decentralized exchanges and other DeFi platforms without the need for centralized market makers. They are locked in by smart contracts which allow users to deposit their NFTs for the purpose of purchasing other NFTs or swapping for cryptocurrency.
Multiple platforms are known to reward users who provide liquidity with NFTs in return. This NFT reward can be sold by the owner to exit the liquidity pool quickly.
The purpose is to stabilize the floor price of NFTs.
Yield farming with NFTs is a method where investors earn rewards for on-chain activity on a platform through processes such as staking or trading your NFT.
Farming has easier rewards which allow for more liquidity in the NFT. Collectors are able to earn a passive income by staking their tokens in a pool and earning rewards based on their proportion of the total pool.
Why Platforms Offer Opportunities
Yield Farming allows firms to offer a clear added value that provides value to the end-user. When it comes to NFT farming, results may vary but the rewards are usually collectibles and utility-based NFTs. NFT farming may give people the same advantages as projects that don’t provide staking or yield production.
Farming allows users to make money from NFT assets that are only available on the platform. As a result, developers’ communities are strengthened, and consumers can gain real value by holding the extra tokens which are not already on the market.
NFT Profit Sharing
Not all NFT projects provide holders long-term utility which can decrease the value of the token. This can be offset through a revenue-sharing system which will incentivize their holdings for both long and short-term gain.
When a collector invests in an NFT they normally have two options; flip quickly for an immediate profit or hold to flip later once the value has significantly increased. Because the value of collectible NFTs is placed on the popularity of the token, profiting in either aspect isn’t guaranteed.
Introducing a utility to the NFT could decrease the profit gap depending upon the nature of the utility but it’s value is still dependent upon influencer support. Profit-sharing offers a better alternative to maximizing the profit margin.
Pairing a utility with profit-sharing increases the profitability of the NFTs value. The creator will determine the % of profit allocated and to whom it is allocated. For instance, a project can share a portion of the revenue generated in the secondary market but then also allow for certain changes to be made to the NFT creating an entirely different structure which is the utility. This incentivizes holding through the merger at least for the short term.
For a longer hold, a utility that may reflect a membership could appeal to investors but is tricky in the sense of long-term valuation. If the NFT loses momentum, the value will decrease regardless of the utility.
An innovative approach to profit sharing is through e-commerce. First Gen Industries created an NFT project called Quantum Society which will allow holders to grow their wealth alongside profitable e-commerce brands offering holders the potential to get thousands of dollars in monthly passive income. 100% of the profits are reinvested back into amenities, events, or holder rewards.
Each NFT serves as a key to the future roadmap, in which holders gain access to exclusive tech, licensing rights, events, pre-sales, and discounts for DAOs and NFT, giving users thousands in passive income that Quantum Society builds and incubates.
As the project grows, financially empowering the community and becoming a bridge for valuable companies as a key asset in that space, so does the potential for the holder to earn highly valuable benefits.
NFT Dollar Drops
Once an NFT project is launched alongside a native token, NFT holders gain access to a set amount of tokens usually daily just for keeping them. If the token price rises, this becomes profitable for the holder.
For example, holder X receives ten tokens daily currently valued at $10 each. They continue to receive ten tokens per day but as time progresses that $10 valuation increases. At any time, the holder has the ability to sell the tokens resulting in a profit.
The key to generating passive income with NFTs is heavy research and a deep understanding of the community. You always want to minimize your risk and assess the income potential before committing to anything. In either aspect, these are definitely promising times when it comes to innovative ways of making a living.