What is NFT staking?

You probably know the benefits of staking your cryptocurrency by now. But did you know you can earn a passive income by locking up your NFTs, too?

NFT staking is an increasingly popular pursuit in the crypto world, but what exactly does it involve? Let’s take a look.

How does it work?

NFT staking is a way of earning rewards and benefits by locking your NFTs in a DeFi platform or protocol. This can be done without the need to sell your assets, so you can have your virtual cake and eat it, too.

Like DeFi yield farming, the process relies on a Proof-of-Stake (PoS) mechanism to generate rewards - they’re earned based on the annual percentage yield (APY), the staking duration and the number of NFTs staked.

In case you need a refresher, the PoS mechanism is when a blockchain relies on a network of transaction validators to secure it. The validators verify the authenticity of each transaction, then add the data to a new block. They’re then rewarded in crypto for their work.

NFT staking is still a relatively new concept, compared to DeFi yield farming. But with several of the big names in DeFi offering the opportunity to take part in it, it could soon catch up. Since many of the NFTs out there are in-game items, most current staking opportunities can be found on play-to-earn gaming platforms such as Axie Infinity and The Sandbox.

Why do people do it?

Until recently, NFTs have only been regarded as digital representations of art and other collectibles. Staking, therefore, offers a brand-new use-case.

While most NFT holders tend to HODL them and use them for more long-term speculative purposes, staking offers an innovative new way for them to monetise their assets straightaway. It’s been said that this new application has the potential to significantly drive NFT market interest.

Of course, the rewards earned are the main reason people choose to participate. These are often paid daily or weekly and are typically offered in a platform’s native token. Some NFT staking projects pay their rewards in NFTs, which often involve some kind of exclusive ownership that gives you further benefits.

So, what’s the verdict?

NFT staking might still be in its infancy, but it has plenty of potential. The fact that you can hold onto your favourite assets while staking them is a major advantage - not only can you earn a passive income in the short-term, but your NFTs are still yours to sell - hopefully for a profit - once the lock period is up.

So, what do you think - do you like the sound of NFT staking?