Passive income with NFT? In 2022, some people have made big money buying and selling NFTs. But with this growth comes new ways to make money beyond just trading the market. That’s right – we’re talking about passive income.
In this guide, we will look at the main ways to earn passive income with the help of NFTs. This means that you don’t have to watch the market, you don’t have to worry about market prices, and there’s nothing else to keep an eye on when trying to make money with NFT trading.
So let’s get started and learn all about the passive income opportunities in the NFT world!
How to make money on NFTs? Passive income
The easiest way? Buy NFT that generates passive income!
There are a number of NFT projects that offer their owners various ways to earn passive income. The main way is to provide project token holders for stakes (more on this later!) or simply for owning NFTs.
These project tokens can be used within the project for things like mining new collections or in-game features for NFT games. Thus, this utility gives these tokens a value.
One of the first projects to do this was CyberKongz. Genesis from this collection were the first 1,000 NFTs and were mostly minted for 0.01 ETH in March 2021. CyberKongz genesis holders receive 10 $BANANA tokens every day for 10 years (from the moment of mining).
Now it is important to note that the CyberKongz team emphasizes that $BANANA is only a token for the CyberKongz ecosystem and has no economic value. Despite this, the token can be sold on some exchanges.
Of course, the CyberKongz NFT genesis will be beyond the reach of most people (66.69 ETH – about $260,000 – is the current floor price). However, there are a number of new, more affordable designs that work with similar models.
However, buying any NFT that promises passive income through tokens can be quite risky. Some projects promise tokens and never deliver them. Others give tokens that end up worth nothing, if at all. Therefore, as with everything related to cryptocurrencies, it is very important to do a lot of research before deciding to buy.
How to make money on NFTs?
So, all of the various passive income methods that we will now look at fall under the broader concept of “income farming”. Simply put, NFT yield farming is when you use various decentralized finance (DeFi) protocols to get the best possible yield from your NFT without selling it.
Think of a regular bank account. You put money on it, actually lending it to the bank. In return, you receive interest income from the bank. This income depends on how much money you put into the account and on the annual interest rate (APR) offered by the bank.
At a basic level, income farming with NFTs works similarly to this type of lending. You put the NFT somewhere and earn interest on it until you take the asset. More complicated is the way you do it. Not to mention, the various methods of crop farming are interrelated and can be done with a single NFT.
So, let’s describe some of the different ways to generate returns with NFTs.
Passive income through NFT rental/lending
This method is probably the easiest to understand. You rent your NFT to someone for a specific amount of time and you get money from the rent they pay you.
While incredibly simple, this is of limited use in the early stages of NFT development. Of course, if you have an expensive NFT, you can rent it out to an art gallery, for example. But that might not be the best option for the average NFT owner, at least not yet.
Making money betting on NFTs
Earlier we already mentioned that NFTs make bets in order to receive passive income with the help of project tokens. Staking on a token basically means that you lock that token out of circulation. This token can be a cryptocurrency or an NFT.
Passive income with this method is obtained through “staking rewards”. When you bet on a cryptocurrency, it is usually part of the token you are betting on. When you stake on NFT, the reward comes through another token.
The disadvantage of staking a token is that you cannot use it for a certain period of time. On the positive side, the interest rate is usually much higher than on any bank savings account. So, even if you can’t sell your NFT before the end of the staking period, you get a relatively high income during this time.
As mentioned above, some projects allow owners to stake their NFTs on the project itself in exchange for project tokens. Indeed, betting is very popular in play-to-earn NFT games.
There are also several platforms that deal with NFT betting. Some platforms allow you to bet on certain NFTs that you own. They are the ones who decide how much your NFT is worth, and by extension, what the annual interest rate (APR) you will earn by betting. You can even mine or buy tokens representing NFTs that other people have staked on.
One of the popular betting platforms is NFTX. We’ve previously covered that NFTX allows users to buy fractional NFTs from major collections such as The Bored Ape Yacht Club and CryptoPunks. Well, these fractional NFTs are coming from NFT holders who have deposited their NFTs in the NFTX vault.
Mint LP NFTs by providing liquidity
The provision of liquidity actually relies on the staking method we just discussed. Let’s start with how it works in DeFi and then apply it to NFTs.
Decentralized exchanges (DEXs) are platforms that allow users to trade different types of cryptocurrencies. To do this, they need people to provide funds (i.e. liquidity) to be used in foreign exchange transactions.
DEXs receive these funds through liquidity pools. When users stake their tokens in a pool, they become liquidity providers (LPs) and receive an NFT called an LP token. The LP token represents the amount that the owner staked. Moreover, LPs will need to stake two different kinds of tokens in order to join the pool.
LP’s passive income comes from the transaction fees that the DEX receives from people trading tokens. To clarify, every time someone trades on the DEX, they have to pay a transaction fee. Some (or all) of that transaction fee is then returned to LP. The amount of commission you get back depends on how much you have deposited compared to how much is in the general pool.
So in the NFT version, the NFT owner simply invests the NFT and some cryptocurrency, probably ETH or SOL, depending on the NFT and the platform. And instead of a liquidity pool for currency exchange, it could be a pool for buying and selling fractional NFTs.
Passive income opportunities in NFTs continue to grow.
As more and more people become aware of NFTs, there will be more and more opportunities to earn passive income from them. Not only in the ways that we have covered in this guide, but also in those that will appear in the near future.