How To Earn Passive Income From NFTs 101

NFTs have been creating quite a stir in the world of technology ever since they skyrocketed in popularity in 2021. Boasting a dazzling array of use cases from gaming to haute couture, NFTs has permeated pretty much every major industry. Big brands like Gucci and Taco Bell, too, have explored the offerings NFTs provide. Apart from serving as collectibles, NFTs have also been used in marketing strategies and as ways to promote loyalty programs.

And, of course, one of the most popular uses of NFTs is in the gaming industry. Play To Earn NFT gaming has taken the gaming world by storm, allowing players to earn a passive income simply by playing. Apart from gaming and branding, NFTs are particularly useful for creators. Artists can mint NFTs of their work and sell them on NFT platforms where they are bought at a price set by the creator. Without the interference of middlemen. And to top it all, NFT grants the owner immutable ownership. They also allow one to verify the authenticity of a piece of art, leaving little to no scope for piracy or fraud.

Therefore, it’s clear to see that the nascent technology already has several applications to its credit. Owning an NFT, too, comes with a host of benefits. Sure, NFTs have immense value for collectors, but even otherwise, they can be used to generate passive income in a variety of ways. Here are a few ways in which you can make your NFTs work for you.

1. Royalties

If you are a creator and you are looking to mint your own NFTs, this is a huge advantage for you. We hear so many instances of exploitative middlemen and record labels who take a huge chunk of a creator’s earnings. Sadly, this is all too common in the music and art worlds, making creators incredibly frustrated. And understandably so! But with the NFTs, you completely eliminate any third party.
More importantly, you can generate smart contracts with a predetermined percentage which will allow you to earn royalties. For instance, you sell your NFT for $500 dollars and set your royalties for 10% of the selling price every time it is resold. The smart contract would ensure that you get $50 every time ownership changes hands. This way, you keep earning indefinitely, which may not always be possible when physical assets are in the equation.

2. Renting

One of the biggest draws of NFTs is that they provide the buyer with all the rights of ownership. Whether it’s a jersey signed by your favourite cricketer or a meme, there is a lot of value attached to the ownership aspect of NFTs. However, with the high gas fees, NFTs are pretty far beyond the reach of a number of people. To remedy this, several NFT platforms allow users to get NFTs on rent.

This is actually very useful in NFT gaming platforms. A gamer may just want to try the game before committing to a solid investment. In such cases, the owner of an NFT can get passive income by simply renting out the NFT to the player. The player, too, gets the chance to play the game with upgraded NFTs. Talk about a win-win!

So you must be wondering. How does one rent out NFTs? Once again, the answer lies in smart contracts. NFT rental platforms allow you to set the rate and duration of the rent, and this entire transaction is regulated and managed by a smart contract. Smart contracts automatically return the NFTs to your wallet once the rental period is up.

3. Staking your NFTs

No, not the vampire kind of staking. Staking an NFT is similar to staking cryptocurrency. In this process, one would “lock away” or deposit their NFTs and earn a passive income for doing so. You can pledge certain NFTs to a blockchain platform or a liquidity pool for a minimum period. Doing so increases the network’s transaction speed as well as its security.

As a reward, the platform would reward the NFT owner with NFT staking rewards in the form of crypto tokens. Some platforms also offer voting rights which gives the owner a say in the development of a platform. Different platforms also have different reward amounts. But by and large, the rarer the NFT you stake, the greater the reward.

However, during the staking period, you cannot move or sell your NFT. And not all NFTs can be staked. Some platforms require the purchase of native NFTs for the owner to reap the rewards. But all things considered, this is a good way to make passive income.

4. Yield Farming

Yield farming refers to the process wherein investors can maximize their investments. This is done by leveraging the yields one has already gained from a platform and investing them in another. By leveraging a number of DeFi protocols, you can increase your return on investment with the assets you already own.

For instance, earned liquidity tokens can be reinvested by staking on other protocols to maximize your yield. You can easily imagine why this is so attractive as a means of generating passive income!

5. Providing Liquidity

With NFTs and DeFi developing rapidly, there is now a provision to provide liquidity and then earn NFTs. These NFTs are rewarded by liquidity pools. Later, you can sell these tokens on other platforms generating additional passive income. This method could easily be a step in the yield farming process as well. A combination of the two would be poised to give you the maximum return on your existing investment.

Some popular liquidity pool providers include Uniswap, Curve, and Balancer. As is generally the case with DeFi, liquidity pools use smart contracts, ensuring that all transactions are secure. However, given the volatility of crypto, it is best to do the due research before going all in.

Final Thoughts

NFTs are extremely famous at this point in time for their ability to provide owners with a steady stream of passive income. Whether you are a creator or a gamer, NFT platforms are equipped with a wide range of options that allow you to monetize what you love. Owners of NFTs, too, are finding increased value in NFTs for reasons beyond their collectibility.

However, it has often been said that NFTs are not really affordable to everyone. With renting options becoming available, this problem may soon find a solution. The other ways outlined above can also be a great way for owners of NFTs to make money on their assets without ever having to sign away their ownership through the sale. These methods allow owners to still enjoy their collectibles while finding additional utility, making the most of their investment.

However, it is important to keep in mind that these technologies are still in their infancy, so, a word of caution would not be amiss. Be sure you have done all the research you can before going all in. But with all the developments afoot, it is highly probable that these are as safe as safe can be.