Blockchains which started as digital ledgers for record-keeping digital currency transactions are becoming used in other settings. Currently, blockchains show significance in decentralized finance and NFTs. There is also the rise of staking NFTs, a combination of NFTs with finance.
NFTs have become a common feature in the crypto world; anyone familiar with crypto will likely understand the technology and the inner workings behind NFTs. Many NFT projects are launched daily on various blockchains such as Ethereum, Solana, Polygon, etc.
But the novelty factor behind NFT artwork is now redundant. In the early to the middle part of 2021, a collection with lovely generative artwork would suffice for a successful NFT project. Now an NFT collection with great artwork as the main selling point will flop. The market has decided that JPG artwork stored on the blockchain has little value. There is endless art flowing in the blockchain with little appetite to become worth thousands. Artwork by a well-known artist or celebrity is the exception; such a collection will sell quickly.
This has led to projects releasing utilities as a significant part of the road map. Utilities come in many forms, one of which is the member communities. The hugely successful VeeFriends offer a community, holders can access seminars and events by Gary Vee. Bored Ape Yacht Club (BAYC) is a social club with parties and events held for members and other benefits. Or the Nike-owned RTFKT enables holders to access the physical version of the NFT represented as sneakers. Real-world utilities combined with confidence from the market ensure the NFTs hold value.
There are two main reasons why people purchase NFTs. Firstly the novelty factor, NFTs are a recent phenomenon; people are keen to buy a new product. The second reason is the investment possibilities. People purchase NFTs hoping the asset price goes up, leading to profits.
The majority of NFT projects are flops. It is not unusual for NFT projects to sell out or mint a reasonable quantity of NFTs within the collection. But following the launch, the value of the asset falls. It's a good situation for the founders; the initial mint can quickly raise six figures or as much as a million dollars within a few short months. The investor has an NFT worth less than the initial price.
Investors can mitigate such situations by researching projects that offer staking opportunities. Staking is a common feature in the crypto and blockchain ecosystems that use the "proof of stake methodology." For carrying out transactions, adding blocks to the chain, and validation, the participants are awarded native tokens of the blockchain. The participants must stake Crypto coins; the more significant the stake, the greater the likelihood of becoming chosen. The holders can pool together to create a node system to carry out the necessary work. This system offers a way to earn a passive income and ensure the coins are used.
It has become possible to utilize NFTs for staking purposes. The holders offer the NFT to the project or external sources; it's held in return for staking rewards.
The most prominent proponent of staking directly into projects is NFT play-to-earn (P2E) games. One of these is Axie Infinity. Players purchase the Axie Infinity NFT; it enables them to participate and earn in-game assets that generate a profit. Players can stake in the governance token Axie Infinity Shards ($AXS), giving yields as much as 80% annual percentage rate (APR). Another P2E game is Splinterlands, where holders of the native token have access to rewards, governance of the game's DAO, and other special offers.
External platforms allow NFTs to work with Decentralized Finance (DiFi) to enable staking. The NFTs are locked away in return for a yield. Platforms that facilitate staking include Kira Network and NFTX. Kira Network is a blockchain protocol that enables NFT holders to stake assets in return for tokens. NFTX has been explicitly created for NFTs to generate liquidity without selling NFTs. Holders can stake their NFT in return for NFTX tokens which act in the same manner as altcoins.
Staking NFTs on external platforms is a new phenomenon; the infrastructural foundations are taking shape. It has a great deal of volatility as a new protocol but will evolve. NFT projects can succeed by offering broader investment possibilities within the road map, and staking is one way to achieve that.
Note: This is not financial advice; everyone should research before investing in NFTs or other assets.