NFT Staking in 2024: What To Know Before Staking

Non-fungible tokens (NFTs) exploded onto the crypto scene in 2021, with NFT sales volume surpassing $25 billion. The hype led to skyrocketing prices for sought-after collections like Bored Ape Yacht Club and CryptoPunks. But after the frenzied bull market of 2021, prices for many NFTs have cooled off in 2024 as the market matured. This leaves many NFT holders sitting on assets that aren’t actively generating value.

Enter NFT staking – a way for investors to earn yield on their NFT holdings without having to sell the underlying assets. The staking concept took off in 2024, with over $8 billion worth of NFTs staked across various platforms as of September 2022 according to DappRadar data.

But how exactly does NFT staking work, and what should you know before committing your valuable JPEGs to a staking pool? This guide will walk you through the NFT staking landscape in 2024 so you can make informed decisions.

What Is NFT Staking?

NFT staking allows you to earn rewards on your NFTs by depositing them into staking pools or platforms for specific lockup periods. It works similarly to locking up crypto assets like ETH or SOL to participate in network validation and earn yields.

With NFT staking, you approve your NFTs to be locked into a smart contract, pooling them together with other users’ staked NFTs on that platform. Rather than sitting idle in your wallet, they become productive assets earning rewards from the protocol or other users.

For locking up your NFTs and providing liquidity to the platform, you earn yield over time in the form of governance tokens, stablecoins, or even additional NFTs depending on the platform’s rules. You don’t have to sell your NFTs to realize their value.

For example, say you own a Mutant Ape Yacht Club NFT currently valued at around 8 ETH. Instead of just HODLing, you could stake it on a platform like NFTX for a year. Over the staking period, you might earn the equivalent of 1 ETH in $NFTX governance tokens. So your NFT generated 12.5% yield without you having to give up ownership.

The rewards provide a way to gain passive income from your NFT assets. The yields may even outperform HODLing if the NFT price stagnates or drops during the lockup period. Top projects generate significant revenue through royalties, and staking opens up ways to distribute that to the community.

NFT Staking Step-By-Step Walkthrough

While exact mechanics vary, NFT staking on the popular Ethereum platforms generally works as follows:

1. You connect your crypto wallet like MetaMask or Coinbase Wallet to the platform’s website. This allows it to view and access your NFTs.

2. In your wallet, you’ll see the NFT tokens that are eligible for staking on that platform. You select which ones you want to stake and approve the transactions.

   

3. The NFTs are deposited into a staking pool or vault, locking them up via a smart contract. This pools your NFT together with other users’ staked NFTs to provide liquidity.

   

4. As an NFT owner, you immediately begin accruing rewards based on the platform’s specifications. Most calculate rewards based on the rarity tier of the NFTs and the length of the lockup period.

   

5. You can monitor how much in rewards you’ve earned to date. When the staking period ends, you can withdraw your original NFTs back to your wallet, along with the reward tokens you’ve accumulated.

A few key advantages emerge from NFT staking:

• Generate yield on assets just sitting in your wallet without having to sell them
• Earn tokens that may appreciate in value if the project succeeds
• Take part in governance via staking if the tokens have voting rights
• Reduce risks compared to active NFT trading strategies

Now that you understand the basics of how NFT staking works, let’s look at some key factors to evaluate.

6 Factors to Research Before Staking Your NFTs

Staking offers clear rewards, but it‘s not without its downsides and risks. As with any crypto activity, you need to do your own research before committing assets. Here are some key factors to investigate:

1. Lockup Periods and Liquidity

Most platforms implement lockup periods ranging from 30 days up to 1 year or more. You will not be able to withdraw or sell your staked NFTs until the lockup expires.

Consider your liquidity needs, as staking greatly reduces your flexibility compared to holding NFTs in your wallet. If you may need access to your NFTs for sale opportunities in the next 6 months, avoid longer lockups.

However, normal lockup terms of 3-6 months may make sense if you plan to hold the NFTs long term anyway. The yields provide added incentive on top of your long-term bets.

2. Yield Sustainability

Advertised yields and APY for staked NFTs can be enticingly high, but make sure they are sustainable in the long run. Some platforms may offer inflated short-term yields of 100%+ to attract capital that are lowered over time to more reasonable levels.

Study the tokenomics and reward model to gauge sustainability. And historical data can show whether high yields held up or dropped steadily. There’s no free lunch in DeFi!

3. Platform Reputation and Security

Vet any platform thoroughly before depositing your NFTs into its contracts. Look for clear signs of credibility like audited smart contracts, reputable and identified development teams, fair token distribution policies, and overall community engagement.

Avoid “flash-in-the-pan” platforms that seem more focused on quick cash grabs than building a durable, decentralized ecosystem. Locking up your NFTs with them is extremely risky. Reputation and track record matter in such a nascent industry.

4. NFT Utility and Attributes

Consider if staking may affect the NFT’s utility in the future, like access to a DAO or metaverse. Some project roadmaps might airdrop rewards or enable capabilities for holders that would be affected by staking the NFT elsewhere.

Also research whether certain NFT traits or attributes might boost yield. Historical sales data shows that more valuable or rarer NFTs often earn higher staking returns. So those zombie apes may generate more yield than lower rarity miner apes.

5. Tax Implications

Depending on your jurisdiction, earned staking rewards and governance tokens may constitute taxable income. While the crypto tax landscape is still evolving, it pays to be aware of potential tax obligations depending on your local regulations.

Staking complexity may increase at tax time. Consult crypto-savvy accounting professionals about your particular situation before committing to a platform.

6. Withdrawal and Termination Risk

Smart contracts are never 100% foolproof. Review the platform’s documentation about withdrawal procedures at lockup end to ensure you can redeem your NFT smoothly.

Relatedly, some platforms reserve the right to terminate staking contracts immediately for any reason. While rare, this could lead to loss of rewards. Understand your rights as a staker upfront.

Where You Can Stake NFTs

Dozens of NFT staking platforms now exist, but these five rank among the most popular and reputable:

NFTX – One of the first NFT staking platforms built on Ethereum, NFTX remains highly regarded due to its focus on blue chip NFTs and highly engaged community. Offers yield farms for collections like CryptoPunks, BAYC, and Azuki plus newer Web3 brands. Unique vault model and $NFTX token drives platform governance.

Higher APY for rare/high value NFTs incentivizes locking up blue chips. Over $1.4 billion staked; rewards historically 5-15%+ APY. No lockup periods.

Phantom – A multi-chain staking platform, but especially popular for Solana NFT projects like Degenerate Ape Academy. Backed by big names in crypto venture capital. Fixed 30-day staking terms with yields from 5-20% APY paid in $PHM tokens. Already supports staking for top Solana NFTs like SolPunks and DeGods.

Rarible – One of the original NFT marketplaces, Rarible launched staking for its in-house $RARI token and governance. Solo stakers earn 2.5% APY and can increase yields by joining liquidity pools. No lockup periods. Integrated directly into a top marketplace gives it advantages.

LooksRare – A new marketplace challenging OpenSea, LooksRare aims to share fees more fairly with its LOOKS token. NFT stakers earn dual token rewards in $LOOKS and $WRARE, distributed based on trading volume and staked NFT rarity. Unlocking periods are 7 days or indefinite. Rewards at launch were 50-100%+ APY but lowered since.

Quartz by Unique Network – Layer 1 blockchain designed specifically for NFTs, using Polygon for transactions. Quartz offers Ethereum NFT staking with flexible 3 month to 12 month lockups. No upfront fees. Yields estimated between 15-30%+ APY paid in the native QUARTZ token.

Each platform serves different niches and risk profiles. For the lowest risk options, established players like NFTX and Rarible with battle-tested models work well. Higher risk tolerance opens up new opportunities with nascent but rising platforms.

Downsides and Risks of Staking NFTs

While enticing on the surface, NFT staking does come with downsides and risks to be aware of:

• Impermanent loss – If NFT prices change a lot during the lockup, you may miss out on gains compared to selling at the right time. Your staked NFTs don‘t benefit from market price swings.

• Platform risk – Centralized platforms bring smart contract risks, admin key dangers, and rug pulls by anonymous founders into play. Even "safer" platforms could suffer breaches.

• Liquidity reductions – Lockup periods ranging from 30 days to 1+ years significantly reduce your NFT liquidity. Sitting assets start generating yield but cannot be sold.

• Market volatility – Most rewards are paid in proprietary governance tokens, which can fluctuate in value like any other speculative crypto asset. $SUSHI rewards may be up or down 60% at withdrawal.

• Evolving tax policy – Staking yields and reward token distributions may create tax obligations depending on your jurisdiction. Consult professionals about potential tax impacts for your situation.

• Staked NFT transparency – Certain platforms reveal which NFTs are staked and by whom publicly, reducing privacy. Users seeking anonymity may prefer alternatives.

The risks mean staking may be inappropriate for NFTs you anticipate needing to liquidate shortly. And sticking with established brands lowers risks substantially compared to chasing sky-high yields on unproven platforms.

Tips for Selecting NFTs to Stake

Assuming you’ve researched platforms thoroughly and are comfortable with the staking model, here are some tips for picking which NFTs in your collection may be good candidates:

• High-floor blue chips – Target established, high-value collections like BAYC whose prices have stabilized after falling from peaks. These generate steady royalties and are unlikely to crash further.

• Iconic collectibles – Historic and iconic NFTs like early CryptoPunks carry prestige and less risk of declining floors over longer staking periods.

• Scarce attributes – Data shows NFTs with rarer attributes and provably lower mints tend to earn higher yields on platforms factoring in rarity.

• Future utility – Upcoming roadmap utility like metaverse access or DAO rights may accrue exclusively to unstaked holders, so review this.

• Longer-term holds – If you plan to hold an NFT for 6+ months regardless, staking through that period boosts yields. Just beware withdrawal protocols.

• Breedable avatars – Breedable collections like Moonbirds with staking advantages may offer more yield potential through breeding while staked.

Conclusion – A Tool for Long-Term Holders

NFT staking unlocks opportunities for committed long-term holders to generate yield without having to sell the assets they believe in. But understanding the risks and tradeoffs is critical – it‘s not a risk-free money glitch.

Thorough vetting, picking established platforms, targeting blue chips, and sticking to transparent teams maximizes the upside while limiting downside potential. Staking allows true believers in a project to reap more benefits.

Approach staking as a long-term set-and-forget strategy rather than a way to make a quick buck. The allure of high yields may be tempting, but reasoned evaluation pays off in this fast moving space. With prudent strategy, NFT staking can provide value-add for HODLers in 2024 and beyond.