Explained: How to earn a passive income through NFTs

NFTs burst on to the scene last year. And within no time, these digital assets attracted the attention of celebrities, brands and some of the biggest names in the crypto industry. As such, their prices reached astronomical, borderline-absurd levels, with some NFTs commanding million-dollar price tags. However, a lot has changed since then.

The NFT market is seeing a slump in sales, with major trading platforms like OpenSea experiencing spiralling trading volumes. The prices of these digital assets have also begun to plummet; NFTs that sold for millions last year are now worth a few thousand dollars. This has forced NFT creators and holders to look outside the box and find new ways to capitalise on these digital assets.

For NFT holders, there are plenty of ways to do this. One can opt to stake, rent, and even earn royalties on these digital assets. Sound interesting? Tag along as we explain these revenue avenues and how they work. Let’s go.

Staking NFTs is pretty similar to staking cryptocurrencies. You lock up your NFT with a blockchain network or liquidity pool for a fixed amount of time. By doing so, you will help the network process transactions and boost the security of the platform. In exchange, the network will provide you with staking rewards in the form of crypto tokens.

Most platforms that offer this feature allow you to stake a wide range of NFTs, while others may require you to purchase their native NFTs to begin staking. Further, most of these NFT staking platforms are metaverse or P2E gaming platforms such as Splinterlands, The Sandbox, Decentraland, etc. Some DeFi protocols, such as StakeDAO and NFTX, also offer this feature.

The rewards you receive for staking are usually denominated in the platform’s native cryptocurrency. Sometimes, you may receive governance tokens as a staking reward as well. You can hold on to these tokens, trade them for other assets, or reinvest them into a liquidity pool to earn even more rewards.

NFTs are a massive part of the GameFi industry. Most platforms have replaced in-game items such as wearables, weapons and tools with NFTs. This adds to the gaming experience as the digital assets earned in-game have value outside the platform. Sometimes, these NFTs are very important, and one can only progress through the game with the right NFT.

For instance, in the M2E game, StepN, users need to purchase a set of NFT sneakers to earn tokens on the app. However, these sneakers can be expensive and are often out of reach for most players. In this case, one can rent out their sneaker NFT to other players and earn a passive income.

In most cases, a smart contract will automatically find you a renter and keep a secure, auditable, tamper-proof record of ownership. You will be rewarded as per a fixed agreement or earn a cut from the renter’s in-game rewards. Either way, you will receive a decent passive income.

NFTs are all-or-nothing assets. It is almost impossible to access the underlying value of an NFT without selling it altogether. Fortunately, several platforms have sprung up to address this problem. For instance, a platform known as EverGrow allows you to borrow funds against your NFT. You can receive a loan-to-value of 70-80 percent and then use these funds to enter a liquidity or staking pool. You can then use a portion of these returns to cover the interest payments while earning passive income from your NFTs.

Another platform that offers a similar feature is NFTX. This Ethereum-based protocol allows you to deposit your NFT in a vault and gives you a bunch of its native vTokens in return. The number of tokens you receive will equal the floor price of your NFT’s collection. You can deposit these vTokens into liquidity pools and earn rewards. Finally, when you’ve made your profits, you can return the vTokens and free your NFT from the vault.

This last point applies primarily to NFT creators. Artists, singer-songwriters, and other NFT creators can set royalty payments to ensure they continue to receive a passive income from their NFT, even after it is sold. To do this, they need to set up a royalty feature in the smart contract while minting the NFT. Then, every time the asset changes hands, they will receive a percentage of the sale proceeds, usually 5 to 10 percent of the amount.

Thanks to these novel investment avenues, NFT holders can continue to earn a passive income without selling their assets despite the NFT bubble going bust. However, most of these platforms are relatively new, and one should exercise due diligence before locking their NFT into such protocols