NFTs are taking the world by storm and every day big companies are proclaiming that they too are investing in the metaverse and NFTs. Besides the fact that famous figures like Paris Hilton, Jimmy Fallon, and Justin Bieber own NFTs, it can also be lucrative for the average investor. With the explosive increase in NFT trading, you can just trade it and earn hundreds of dollars on it.
With the development of DeFi, we see that yield farming is very popular. Thanks to yield farming you can put assets in a pool and get very attractive interest rates for this, which we know as APY. This gives you a nice passive income. And what could be better than that you can also use your NFTs to generate passive income? Discover everything about NFT farming in this blog.
What is NFT Farming
NFT Farming is the process of adding your NFTs to a liquidity pool in order to receive additional rewards for it. For this, you get native tokens of the protocol, or you get the opportunity to mint extra NFTs with this. This is thanks to the development of Decentralized Finance (DeFi). Thanks to DeFi, we already know yield farming, where you maximize your return thanks to the often very attractive APYs. But now you can also receive rewards thanks to your NFTs. As a result, you not only own an NFT, but these unique tokens also get an extra application.
Liquidity is a core concept that makes trading in DeFi possible. Only when enough tokens or coins are added to an AMM, users can also enable trading here. Everything stands or falls with good liquidity. With the explosive trading of NFTs, the team wants to make the protocol all the more interesting by integrating NFTs and giving them as rewards.
New protocols and platforms promote themselves by offering very attractive interest rates. Specific? By adding your tokens, often in a certain trading pair, as liquidity to the platform, you receive more than attractive rewards. Not surprisingly, many investors are eager to take advantage of this, hoping to double their investments in no time.
But adding liquidity is more than just getting rewards. Sufficient liquidity is required to allow trading in the protocol. If we look at Automated Market Makers (AMMs) such as UniSwap or PancakeSwap, this trade is only possible if there is sufficient liquidity. If there are not enough coins, they can of course not be traded.
By capitalizing on the hype of NFTs, more and more people are willing to add liquidity in order to receive free NFTs that they can later sell. In addition to attractive interest rates, you also have a chance to win beautiful and rare NFTs!
How does NFT farming work?
We know NFTs as digital art or in other variants, but in the source code each NFT has a certain token standard, like an ERC20 token is a standard on blockchain the Ethereum. Depending on the blockchain used, this standard is different. For example, an NFT on the Ethereum blockchain is an ER721 token and a BEP721 on the Binance Smart Chain blockchain. By this construction, you can also send NFTs in a particular network as you would with any other crypto that is compatible with the network. This also allows you to farm NFTs.
NFT farming is very similar to yield farming. In this way, there are different liquidity pools and options, each with different interest rates.
With yield farming, you receive LP tokens as a reward. These are a representation of your share of the pool. With this deed of ownership you can withdraw your liquidity from the pool or in some cases you can also discontinue your LP tokens so that you can compound your rewards.
With NFT farming this principle is the same, only you can unlock NFTs with these LP tokens. Each NFT is for sale for a certain number of LP tokens that you can buy on the integrated marketplace. You can then trade these on popular NFT marketplaces such as OpenSea or Rarible.
Game NFT farming
The gaming industry is a multi-billion dollar business that soon found its way into the blockchain and the world of NFTs. Especially with the development of play-to-earn, where players also earn crypto and even a nice passive income thanks to various blockchain games.
Due to the nature of NFTs, virtually any unique item can be mined as an NFT. In games, this means that every avatar, weapon, and other in-game applications are all NFTs. This way your avatar gets extra value. The popular game Axie Infinity allows players to earn SLP tokens. They can use these tokens to mint NFTs on the platform. These NFTs are Axies that players can use to earn extra money in the game in various ways. The better your NFT, the faster and more efficiently you can earn money. That is why these NFTs are traded at higher prices so that players can earn more money this way.
NFT Farming Platforms
NFTs have become an important part of DeFi and the way protocols ensure adequate liquidity. After adding liquidity, users can earn NFTs thanks to LP tokens. But investors may also have to purchase NFTs first, which they can then farm. The use of NFTs is just a boost for yield farming.
NFTX’s platform is designed to create ERC20 tokens. This platform is supported by the use of NFTs. Users of the platform can therefore add their NFT to a certain vault and start staking it. For this, you will receive vTokens. These LP tokens can be used again to do yield farming and thus receive extra rewards.
You can use these vTokens to add liquidity to the Automated Market Maker so that you also get an extra return on every transaction that is made with this token.
The music industry also sees the advantages of NFTs and makes smart use of them. BAND NFTs are tracks that you can buy as a unique token. The platform is an NFT exchange where you can buy music-related NFTs and add them to a farming pool. For this you receive royalties and you, therefore, receive a part of the proceeds, every time this song is played. The larger the platform, the higher the revenue stream thanks to royalties for these NFT holders.
ZooKeeper Finance is a Gamified Yield Farming platform on the Wanchainblockchain where users can stake their NFTs and receive high rewards for doing so. By staking your ZOO Tokens and/or WASP Tokens, you will receive LP Tokens which entitle you to NFTs.
The MOBOX combines yield farming with NFT farming to create a free gaming platform where users can also earn money thanks to play-to-earn. The ecosystem where all this happens is what they call the MOMOverse, a direct reference to the metaverse.
By adding liquidity, you receive rewards for this. With these LP tokens, you can open a Mystery BOX where you receive an NFT. You can add these back to the platform so that you will receive MBOX tokens as a reward again. Each NFT has a value of between 20 and 300 dollars.
Each NFT has a certain mining power. The higher this is, the more rewards you receive. The more unique your NFT, the higher your mining power and therefore the more rewards. Currently, MOBOX has 3 different NFT games where players can play and earn NFTs in the process. In the first week, more than $5 million worth of NFTs were traded on the platform.
Risk NFT farming
NFT farming, just like yield farming, is part of DeFi. There are many more possibilities here, but this also comes with more risks where you have a greater responsibility.
Adding liquidity to a protocol is always accompanied by the risk of impermanent loss. This value can be quite extreme in a volatile market. When your assets are fixed for a certain period of time, you cannot trade them in a timely manner to minimize your loss.
The process of receiving NFTs in exchange for your LP tokens also comes with this risk. Often you need a certain number of LP tokens to claim these NFTs, which means that you have to have your tokens locked in the protocol for a certain period of time.
DeFi is based on the use of smart contracts. These smart contracts are created by the platform’s team, but this doesn’t mean you can trust them blindly. In any smart contract, unconsciously or not, there may be an incorrect coding. These minimal erroneous codings can have the greatest consequences.
In a decentralized environment, anyone can launch a platform and advertise attractive APYs. Unfortunately, this is not always done with the best of intentions. We have seen more back pulls in the past. This is an event where the team will run off with all the currency that is currently locked into the protocol. They promise exceptionally high APYs that make many investors take their chances, with all the consequences.
Such back pull can also occur when you entrust your NFT to a protocol to farm it. Be aware of this!
NFT Staking rewards
Owning an NFT is not entirely without risks. The value may decrease, but with good research, you can easily achieve a nice return on having an NFT. DeFi’s ecosystem is popular because of the high-interest rates and APYs you can get by providing liquidity, it’s no different with NFTs. But what can you get for this?
As mentioned before, the protocol here can choose which staking rewards they offer. They can provide you with LP tokens that you can use again to generate compound interests. But they can also choose that you can mint extra NFTs thanks to your NFT. You can then trade, track or use these in various in-game applications.
Thanks to the use of decentralized applications (dApps) on one particular blockchain, these NFTs are interoperable in different environments. For example, you can use a certain game NFT in different games.
Although NFTs are taking the market by storm, NFT Staking is still a new concept. We see that many investors carefully choose their NFT with a view to long-term investment. Seeing some prices skyrocket, it just might be a wise choice.
Nevertheless, there are already plenty of opportunities with which you can earn a nice passive income by owning an NFT. Thanks to various NFT platforms, you can stake your unique token, ranging from in-game applications or music-related NFTs, to get rewards for it. These rewards come in the form of the platform’s native tokens, or royalties.
The principle is the same as the staking of crypto itself but is not yet as popular. But as the market develops and NFTs become a regular part of the ecosystem, many more people are said to be exploring the possibilities of generating additional income with their NFTs as well. This also gives it new use cases for NFTs that have never been used before.
NFT staking is a way to combine the world of DeFi with NFTs. GameFi . and the play-to-earn gaming industry, in particular, have a lot to gain from the NFT strikeThis makes these in-game NFTs all the more valuable, making them all the more attractive. Instead of just showing off your NFT, you can now also use it to get extra rewards.