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After acquiring NFTs, there's this unspoken fear over the possibility of not selling or recouping your expenses. This fear is not far-fetched because over 80% of NFT-related earnings are made by only 20% of NFT sellers on the network. There is also the virality of floor prices suddenly going down and leaving a sour taste in the mouth of NFT holders.
These fears are valid, but they do not suffice as enough reasons to abandon the opportunity NFT offers to investors. There's more than meets the eyes. Besides selling NFTs, there are several other ways you can earn passive income from your NFTs. Read on to uncover each in detail.
Keywords: NFT, Passive income, renting out NFTs, NFT owner, NFT yield farming.
Passive income is money earned without actively working to make an income every single time. Much of the work is done upfront, and moving on, minimum work is required to maintain the system.
Sometimes, passive income is as simple as earning dividends on your investments. In the list below, we won't delve into passive incomes in the NFT industry as a whole. Rather, we will stick to the world of NFT owners and how their activities can be influential in generating passive income.
Renting NFTs out is transferring possession of your NFT to someone else at a discounted price from the actual purchasing value. The temporary holder will then enjoy the benefits of holding a particular NFT with an arrangement to offer a one-time payment or share earnings with you in the case of gambling NFTs.
Certain attractive or lucrative opportunities, real-life and virtual, are exclusive to NFT holders. Many people would like to enjoy the utilities attached to such NFTs but find the NFT prices way over their average purchasing power. NFT renting solves this problem.
NFT holders can rent out their NFTs for a period they would have no use for it. At the same time, persons who are interested in enjoying such benefits can do so without breaking the bank.
NFT owners can list their NFTs on an NFT marketplace with lending and borrowing features. Anyone who likes the listed NFT would initiate the borrowing process. Then, the NFT will be placed inside a smart contract.
Subsequently, the terms of the smart contract would be defined by both parties. Once the terms have been set and agreed upon, the renter will pay a certain sum as a rental fee, and the renting process will begin.
Currently, there are two methods of renting out NFTs: collateralized renting and collateral-less renting.
With collateralized renting, the renter will deposit collateral of a higher price point than the NFT. Collaterisation is a move to protect the interests of the NFT owner.
Once the rent contract expires, the NFT will be returned to its original owner, while the borrower will retrieve the funds used for collateral.
In collateral-less renting, the renter never gets the original NFT. Instead, a wrapped NFT with the same characteristics of the original asset, backed by the same, will be minted for the renter. Then, once the contract expires, the wrapped NFT will be burned.
Collateral-less renting minimizes the financial risk for both parties. No collateral has to be placed, and the NFT owner never has to part with their asset.
Only a few platforms currently offer NFT renting services.
ReNFT was founded by Naz V. and Nick Vale. On ReNFT, a lender can set a rental price, the NFT price (which will serve as collateral), and specify the Maximum rental period he allows. ReNFT will then hold the NFT and collateral in Escrow until the renter specifies the duration he would like to rent the NFT for and pays up the collateral. Afterward, he can use and enjoy all the benefits of the NFT.
Vera Labs created Vera. On the Vera NFT platform, you can rent, lend, and mortgage NFTs. As of now, Vera is backed by notable investors such as the Wen3 Foundation and Animoca Brands, a key investor in projects like Axie Infinity, Open Sea, and CryptoKitties. You will find more about Vera here.
NFT lending is similar to NFT renting. The only difference is that in this case, you exchange your NFT as collateral for a loan, or you give out NFT collateralized loans to earn interest. The loan had to be repaid at an agreed time with a predetermined APY, or ownership of the NFT will be lost to the lender.
The NFTs readily acceptable for loaning transactions are generally well-known, stable, and considered excellent long-term investments (blue chip NFTs). Their owners are reluctant to lose them and are deemed, trustworthy borrowers.
As a lender in such transactions, you will be charged a percentage of the interest earned on the successful loaning transaction by the NFT loaning platform.
Staking NFTs is similar to locking or depositing your cryptocurrencies to earn rewards while retaining ownership of your assets. However, unlike cryptocurrencies, not every NFT can be staked.
The passive income earned from staking NFTs is usually in the form of tokens that can be exchanged for fiat, NFTs which can be staked into the platform, or access to governance voting rights in DAOs (decentralized autonomous organizations).
While you can stake the NFTs you already have, some NFT staking platforms like MOBOX insist on users using NFTs native to their platforms for staking.
Depending on your industry of interest, there are several ways of staking NFTs. NFT staking usually happens in Play-To-Earn gaming and metaverse platforms. Think Axie Infinity, The Sandbox, and Decentraland.
Most NFT staking platforms offer rewards on a daily or weekly basis. The amount of reward you can earn from NFT staking depends on factors like:
The annual percentage yield (APY) offered by the NFT staking platform,
The type of NFT staked,
The number of NFTs staked, and
The staking duration.
APY will be allocated based on:
The rarity of the NFT, and
The NFT's capacity to generate a stable income through royalties.
After identifying the staking platform you want to use, you need a crypto wallet compatible with the NFT you wish to stake and the NFT staking platform you've chosen.
Here's a list of popular NFT staking platforms in the Crypto market:
Doge Capital offers a staking program where investors can stake NFTs in its 5000 pixel-art collection and earn daily rewards in DAWG, the platform’s native utility token. For each NFT skated, users can be rewarded 5 DAWG tokens daily.
The Doge Capital NFT collection consists of 5000 pixel-art minted on the Solana blockchain.
These NFTs on Polychain Monsters are nicknamed Polymons and can be acquired from digital booster packs. The holders of Polymons can stake them and earn weekly rewards in the form of PMON, Polychain Monsters' native cryptocurrency.
Polychain Monsters is an interoperable ecosystem for animated digital collectibles and gaming NFTs with varying traits and levels of scarcity.
You can buy music NFTs on Band NFT and stake them in royalty pools to get a share of the revenue generated by albums. As the music library increases in size, the royalty income stream will increase.
Band NFT is a music NFT exchange platform, the world’s first music NFT company.
NFTs are not limited to artworks. Nfts could be in the form of intellectual property like code, music, video, podcast, films, etc.
Just as you can earn royalties when your creative is shared in real life, you can earn royalties in fungible tokens, i.e. actual cryptocurrencies, on your NFTs when sold in the secondary market.
When creating an NFT, you can define the royalty rate you want to earn on subsequent transactions on that particular NFT or NFT collection. Royalty rates usually fall between 5-10%.
NFT royalty payments are set up to last for an unlimited time even after the NFT is no longer in your possession. The royalty payments are also executed by smart contracts automatically.
The amount of money you can make on royalties is dependent on the market demand for the utility of your NFT.
Finally, a standard NFT marketplace offers a feature for setting the terms of royalty payments before minting.
Like yield farming in DeFi, you can lock up your NFT to provide liquidity in a trading or lending pool to earn rewards. Rewards could be in the form of the platform's native token or NFTs that can be resold in the internal marketplace.
NFT yield farming is somewhat similar to NFT staking, but it has evolved into a strictly gamified structure to encourage good market conditions and stable access to liquidity.
With NFT yield farming, active players in a game can acquire in-game currencies or NFT items that can be sold to other players for money.
NFT yield farming-friendly platforms include Bunicorn, MOBOX, Zookeeper, and Pulsar Farm.
6). Share Utility NFTs
Some NFTs give holders access to a percentage of revenue generated from the offline financial investments with the profit from the initial NFT launch sale. It's like being a shareholder in the company. A good example is Foundation Club NFT in the Real Estate industry.
Share Utility in NFTs is not the same as fractional NFTs or NFT stocks. Fractional NFT is shared ownership of a particular NFT. In contrast, NFT stocks are stocks of companies serving the NFT market.
As with traditional investment opportunities, the potential for passive income in NFT is heavily dependent on the NFT you own and its market structure. Nevertheless, you can make passive income from NFTs without owning NFTs as a lender.
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