NFT sets almost always talk about utility and its importance to the community. Actually, utility means as much as giving benefits or benefits.
What benefits can you offer as a team to your community that will make the members, hodlers, or perhaps diamond hands? This is possible by offering the possibility to earn passive income with tokens.
What should you pay attention to if you want to earn money with tokens?
Where last year the Art and the close-knit community were the most important factors for NFT sets, today it is Utility. Sets increasingly have to do their best to bind their community and come up with revenue models to keep the project going.
They have combined those last 2 factors in the form of issuing tokens.
What are Tokens?
You often come across the term tokens in the NFT world and that of Web 3.0 and the Metaverse.
It often refers to different things. In this case, Token stands for coin or currency. In the NFT scene, we are of course talking about a cryptocurrency. Tokens or coins are issued by sets to allow their community members to earn a passive income.
With this, they bind the members and make them into hodlers or diamond hands, important for the continuity of the set!
Each set has the option to issue its own tokens. They often do this under their own names, such as the Apecoin from BAYC, the Alpha coin from Alpha Kongs, or $world from NFTWorld.
Spending new money is extremely complex and complicated. I won’t go into too much detail about this.
To be able to spend a new coin, on the one hand, you need an existing one on the other to get a rate. IRL coins are often linked to the value of gold. You could say that gold serves as ‘collateral’ for a currency.
In the case of coins on the Ethereum blockchain, the ETH stands as collateral for the various tokens. If you spend 1000 coins as a set and you ‘insure’ it with 100 ETH, then you give the coin a value of 1000/100, so 0.1 ETH.
The above is usually done in a so-called Liquidity Pool or LP.
In this LP, someone, often a member of the team, is depositing Ethereum. This amount of ETH then determines the value of the coin at issuance.
Let’s say in the ratio as above, 1000 is to 100, which gives a value of 0.1. By multiplying this proportionally, you determine the value of the Liquidity Pool. In order to be able to keep the coin’s value in the future, it is important that the LP is supplemented.
This can be done, among other things, by depositing money that is earned with transactions from NFTs, but also, for example, by using the income from P2E games for this. And if the coin becomes very popular, members will also automatically top up the LP with ETH.
Many sets will be issuing tokens in a limited edition. This ensures that the value of the coin can remain stable in the future. If you continue to add unlimited tokens, this will undermine the value in the long run. What should you pay attention to as an NFT holder to earn money passively with tokens?
When a set issues a token, you often see that the floor price goes up. This has to do with the fact that the holders decide to withdraw their NFT from the sale.
This way they can start using the NFT for staking or getting tokens. In addition to the floor price that goes up, you often see that the value of the issued coin or token rises quickly in the beginning. This is the result of the hype that almost always arises after such a launch.
Usually, that value will drop again after a few days. So do not focus on the value of the coin in the beginning.
How can I earn tokens?
If you are not that familiar with tokens and the ways to earn money with them, it is good to read this article carefully.
You will also find a lot of information about tokens and utility in the Discord of the different sets. So you really have to read up on this matter in order not to make unnecessary mistakes. You will also learn how to make the best use of tokens in your set.
In the discord you can communicate with the team members and they will tell you exactly how the process works. Often the community on discord is also very important to put your questions away.
The helpfulness is very great and there is always someone who can answer your question.
The active and passive method
There are 2 ways in which you can start earning tokens, an active and a passive method.
The active method Earning tokens
The active method includes Staking your NFT. Many sets offer the possibility to stake or actually ‘lock’ your NFT.
This removes the NFT from your OpenSea wallet and transfers it to the staking site. This is done on the basis of a contract and your NFT will therefore remain linked to your wallet.
If you are going to stake an NFT, you can no longer sell it at that time. You always pay a gas fee on the Ethereum network for staking (and also unstaking) an NFT, and these costs can be rather high if the network is congested. It is therefore important that you keep a close eye on the rate of the gas fee in order to avoid high costs. A good website to track the price of Ethereum GAS is ETH Gasstation. Or the Chrome extension “Ethereum Gas Price”
You often see that if a lot of NFTs are staked from a set, the floor price goes up. This is because fewer NFTs are left for sale and thus scarcity arises.
Because your NFT is now staked, you can earn tokens. Each set has its own way of doing this. Sometimes the number of coins to be earned is determined by the rarity of your NFT, other sets give a certain number of coins per day that you have the NFT in your possession.
You will understand that with multiple staked NFTs you also earn more coins.
The passive method of earning tokens
There are also sets that have the option of passively earning tokens. Often the team hands out coins to all its holders.
Via the Ethereum blockchain they can see which NFT is in which wallet. This way the tokens always end up in the right place. It even happens that sets of tokens are issued retroactively.
If the launch of the tokens takes place long after a set has already been spent, the holders of the 1st hour are rewarded extra for their trust.
How can I start using my tokens?
In order to use your earned tokens, you must first transfer them from the staking site to your MetaMask wallet.
For this, you use the function ‘add a token to MetaMask wallet’. This way you can start claiming your tokens. Sometimes you have to manually transfer them to your wallet for which you use the ‘add custom token’ function.
Your tokens are now visible in your wallet and ready to use or even sell. You should keep in mind that claiming and moving your tokens also costs a gas fee. Keep an eye on the gas price for this and only transfer or claim when the amount in relation to the gas is large enough!
Tokens are an opportunity to earn passive income over time. If you have found a set that offers a lot of value, you can enjoy it for a long time. If you also commit to the set for a longer period of time by discontinuing your item, you will be rewarded for this.
Sometimes extra bonuses of 50% are paid out if you leave your NFT fixed for several months.
I would like to emphasize once again that transaction costs/gas fees are often charged when staking and claiming tokens.
There are ways to get around this for the most part, but for now, you’ll have to settle for this. There are voices that the Ethereum network will come up with a cheaper alternative sometime in the second half of this year.
New sets and tokens
You see more and more that new sets to be launched already come out with a revenue model. Beautiful promises are made if you buy the tokens or if you want to stop NFT immediately after the reveal. Of course, there are exceptions, but generally, it is better to wait and see what the set will actually do.
It is rarely too late to get in, rather too early, and watch out for the red flags when you get into a new set ;-)!