Non-Fungible Tokens (NFTs): 5 Ways to Earn Passive Income.
Over the course of 2021, the non-fungible token (NFT) market will have evolved into a significant part of the crypto business, with total spending on NFTs exceeding $12.6 billion, up from $162.5 million at the start of the year.
While Ethereum is being used to create, buy, and sell the vast majority of NFTs, the process can be prohibitively expensive due to high gas fees. Minting a single NFT on Ethereum costs roughly $98.69 in gas fees, according to Raribleanalytics, while minting NFT collections will put you out of pocket by $900, on average.
To offset these expenses, many investors and developers simply try to sell their NFTs on secondary markets like OpenSea and profit. However, there are a variety of ways to profit from NFTs other than selling them for more than you paid or developed them for.
What are NFTs?
For those unfamiliar with NFTs, consider them tradable digital receipts maintained on a publicly distributed database known as a blockchain that everyone can access and independently verify at all times. These digital receipts contain unique information that can be used to verify who the only proprietors of certain tangible or immaterial goods are.
However, it's important to note that NFTs don't save the digital entity they represent. Instead, they just direct you to the file's location, which is elsewhere on the internet.
NFTs cannot be traded in the same manner that bitcoins can be traded since no two goods represented by them are ever the same. It's for this reason that they're referred to as "non-fungible" tokens.
NFTs can be used to generate passive income in a number of ways:
Rent out NFTs
Renting out your NFTs, especially ones in great demand, is one way to generate passive income.
Some card trading games, for example, allow players to borrow NFT cards to increase their chances of winning. Smart contracts manage the parameters of the arrangement between the two parties involved, as intended. As a result, NFT users typically have the choice to choose their chosen rental agreement period and NFT leasing rate.
reNFT is an leading example of a platform that allows users to rent or lend NFTs. This gives lenders the ability to establish maximum borrowing periods and daily rates, which currently vary from 0.002 to 2 wrapped ethereum (WETH) on average.
The ERC-20 version of Ethereum's native coin, ether, is known as WETH (ETH).
NFT creators can specify terms that impose royalty costs anytime their NFTs change hands on the secondary market thanks to the underlying technology that powers them. In other words, even after selling their masterpieces to collectors, the makers can earn a passive income.
They will be able to receive a part of the NFTs' sales price indefinitely if they do this. For example, if a digital artwork's royalty is set at 10%, the original creator will receive 10% of the total sale price each time the artwork is resold to a new owner.
It's worth noting that these predefined percentages are frequently specified by the authors while minting the NFTs. Smart contracts, which are self-executing computer programmes that enforce commercial agreements, also regulate the entire royalties distribution process. As a result, as a creator, you won't have to worry about enforcing your royalty terms or keeping track of payments because the process is totally automated.
The possibility to stake NFTs is one of the advantages of the marriage of NFTs and decentralised finance (DeFi) protocols. Staking refers to the process of depositing, or "locking away," digital assets into a DeFi protocol smart contract to create a yield.
While some platforms allow you to use any NFT, others require you to buy native NFTs in order to gain staking token incentives (which are usually priced in the platform's native utility token).
Platforms that facilitate NFT staking include the following:
- Kira Network
Part of the benefits provided to stakeholders is denominated in governance tokens in some situations. These protocols provide token holders voting rights over how their ecosystems develop in the future. Most of the time, coins obtained through staking NFTs can be reinvested into other yield-generating protocols.
To earn NFTs, provide liquidity.
It is now feasible to contribute liquidity and get NFTs in exchange to establish your position in a specific liquidity pool, thanks to the ongoing integration of NFTs and DeFi infrastructures.
When you offer liquidity on Uniswap V3, for example, the automated market maker (AMM) will issue an ERC-721 token, also known as LP-NFT, which represents your part of the total amount locked in the pool. The token pair you placed, the tokens' symbols, and the pool's address are also etched into the NFT.
You can quickly liquidate your liquidity pools position by selling this NFT.
Adopt yield farming powered by NFT
Users can now farm for yields utilising NFT-powered products, as NFTs are quickly becoming a core component of AMMs. Return farming is the practise of combining several DeFi protocols to create the maximum possible yield from your digital assets.
The LP-NFT tokens provided as liquidity provider tokens on Uniswap can be used as collateral or staked on other protocols to generate additional yields, as shown in our example. Consider it as a way to earn a yield on top of a yield-generating protocol. This potential opens the door to a multi-tiered income-generation approach that is appropriate for yield farmers.
However, keep in mind that NFTs and the underlying smart contract technology are still in their infancy. As a result, many of the apps that provide the potential discussed in this article are still in the early stages of development. As a result, it's a good idea to complete your homework and grasp the hazards before implementing any of the above-mentioned strategies.