5 Ways to Earn Passive Income From NFTs
The non-fungible token (NFT) market will grow into a major crypto-industry sector, with total NFT purchases exceeding $ 12.6 billion, compared to $ 162.4 million at the beginning of the year.
And while most NFTs are produced, bought, and sold with Etherum, high gas costs can make the process even more expensive. Data from Raribleanalytics estimate that printing the NFT at Ethereum costs about $ 98.69 in gas costs while printing the NFT collections costs you an average of $ 900.
To cover these costs, many investors and creators are simply trying to downgrade their NFTs to secondary markets such as OpenSea and increase revenue. However, there are more ways to generate revenue from the NFT than to sell it at a higher price than you paid or generated for it.
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What are NFTs?
For those unfamiliar with the NFT concept, think of them as commercially available digital receipts stored in a publicly distributed database called a blockchain that can be viewed and verified independently by anyone at any time. These digital receipts contain unique information that can be used to prove who owns certain items, whether tangible or intangible.
However, it should be noted that NFTs do not store the digital object they represent. However, they will only list the location of the file that is elsewhere on the Internet.
Because no two items represented by NFTs are the same, it means that NFTs cannot be traded in the same way if you exchange one bitcoin for another. That is why they are called “non-fungible”/”unmistakable” tokens.
5 ways to generate passive income from NFTs
One way to earn a passive income is to rent your NFT, especially those that need it most.
For example, some card trading games allow players to borrow NFT cards to increase their chances of winning. As expected, the terms of trade between the two parties involved will be governed by smart contracts. Therefore, NFT users are usually free to set their preferred lease term and NFT rent.
An example of a platform that users can rent or borrow NFT with is reNFT. It allows lenders to set maximum loan periods and daily rates, which are currently on average between 0.002 and 2 packed ethers (WETH).
WETH is an ERC-20 version of the native cryptocurrency Ethereum, ether (ETH).
The core technology that powers the NFT allows creators to set terms that impose royalties each time their NFT changes owners in a second market. In other words, creators receive passive income even if they sell their creations to collectors.
In doing so, they will forever receive a share of the sale price of the relevant NFTs. For example, if the license fee for digital artwork is set at 10%, the original creator will receive 10% of the total sale price each time his work is resold to a new owner. Yes.
Note that manufacturers often set these preset percentages when extracting NFT. In addition, smart contracts – even startup computer programs that implement contractual agreements – control the entire process of allocating royalties. This means that as a creator, you don’t have to manually enforce your license fees or fees because the process is fully automated.
One of the advantages of the connection between the NFT and the Decentralized Financing Protocols (DeFi) is the ability to deploy the NFT. Staking refers to the process of storing, as a “locking,” digital assets in a DeFi smart contract to generate revenue.
While some platforms support broad NFTs, others require you to purchase a native NFT to receive rewards for token hits (usually also listed in the platform’s native token.)
Examples of platforms that facilitate an NFT stake include:
Provide liquidity to get NFT
Thanks to the continuous integration of the NFT and the DeFi infrastructure, it is possible to provide liquidity and receive NFTs in exchange for creating your position in a given liquidity fund.
For example, if you provide liquidity to Uniswap V3, the Automated Trader (AMM) will issue the ERC-721 token, also known as LP-NFT, with details of your share of the total amount blocked in the fund. . Additional information engraved in the NFT is the few tokens you dropped, the token symbols, and the pool address.
You can sell this NFT to liquidate your position in the liquidity pools immediately.
Adoption of revenue management based on NFT
As NFTs are fast becoming a major part of AMM, users can now claim revenue with NFT-powered products. Yield farming refers to the method of using multiple DeFi protocols to generate the highest possible yield with the digital assets you have.
From our example above, LP-NFT tokens issued as Uniswap liquidity provider tokens can still be used as collateral or embedded in other protocols to generate additional revenue. Think of it as looking for revenue over another revenue-generating protocol. This capability opens up a low-income generation model that is ideal for harvest farmers. Keep in mind, however, that NFT and core smart contract technologies are relatively new. Many applications that offer opportunities are therefore highlighted in the design phase in this article. For this reason, it is appropriate to exercise due care and understand the risks involved before adopting any of the above strategies.