How to Make Passive Income with your NFT Collectibles
The goal of investing is to create wealth, and earning passive income is one of the best ways to do so. In layman’s terms, passive income is the process of making your money work for you by investing in assets such as NFTs. Are you surprised to hear the words “NFTs” and “passive income” in the same sentence? You’re not alone. While NFTs are currently selling like hotcakes, they are not the only way to earn returns.
The truth is that blockchain-based assets, such as NFTs, can generate passive income in more than one way, thanks to principles borrowed from traditional assets, such as bank deposits and real estate. In this article, we will reveal the 5 most effective ways to earn passive income from your NFT collectibles.
How Do NFTs Work?
NFTs are digital assets that can be purchased and sold using blockchain technology. However, they are classified as a different type of asset as they are not fungible. A Non-Fungible Token, or NFT, is a one-of-a-kind way to own digital assets, such as art, music, literature, or even Tweets! The irreplaceability of NFTs is what makes them valuable.
For example, you can exchange one Bitcoin for another and get exactly the same thing — a Bitcoin. You cannot exchange one NFT for another and expect to receive the same NFT; they will be different. Now let’s have a look at the 5 most effective ways to earn passive income from your NFTs.
#1 NFT Staking
NFT staking is a new way for NFT holders to earn passive income in the crypto world. NFT staking allows NFT holders to lock their assets in DeFi platforms and receive rewards without having to sell their NFT collections. NFT staking uses a Proof of Stake (PoS) mechanism to reward participants. Users who lock up their NFTs can earn rewards based on the annual percentage yield (APY) and the number of NFTs staked.
The rewards for staking an NFT vary depending on the NFT and the platform on which it is staked. They are typically distributed in the form of a platform’s native token on a daily or weekly basis. NFT staking provides NFT holders with a new way to monetize their assets, which may entice more people to participate and drive upmarket demand for stackable NFTs.
For instance, you can stake your gym membership for five years, demonstrating your loyalty to the gym. In exchange, the gym chooses to reward you with some shares from their revenue or offer you some exclusive services.
#2 Renting Out NFTs
Several GameFi platforms enable NFT owners to earn passive income by renting out their digital assets to NFT gamers in the ecosystem. Smart contracts govern these rental agreements. While NFT owners have the ability to set the lending rate and duration, many platforms have a maximum for both. As you can see, this is a developing concept with a lot of future potentials.
People on a tight budget can rent NFTs for a low cost and actually use them. Those who own them can earn passive income from the rents without having to sell their NFTs. Instead of holding an NFT for ten years in the hope that its value will increase, you can now earn daily returns on your NFT collectibles by renting them out.
#3 Royalties from NFTs
NFT royalties are payments made to original NFT creators in exchange for the use of their NFTs. In business, royalties are typically paid as a percentage of sales or profits to the creator. Royalties on NFTs are set by the owner during the minting process.
When an NFT creation is sold on a marketplace, the original owner receives a percentage of the sale price. The creator can choose their royalty percentage in most NFT marketplaces, and payments are automatically made upon each subsequent sale in the secondary market.
#4 Liquidity Pools
Several platforms have been known to reward users who provide liquidity with NFTs in exchange. The owner of this NFT reward can sell it to exit the liquidity pool quickly. A liquidity pool is simply a collection of digital assets that have been locked in a smart contract and pledged by multiple investors. The platform can use the locked pool of assets to make loans.
#5 Yield Farming
Yield farming with NFTs is a strategy in which investors seek to earn additional returns by leveraging yields earned on one platform and investing them in another via methods, such as staking.
As a result, there is more liquidity and usefulness for NFTs, which may or may not have existed previously. Furthermore, NFT farming allows you to make money by betting tokens on the future success of an app’s development team.
With the help of Cardano, Paribus is taking DeFi to the next level. Cardano’s interoperability removes the constraints imposed by an isolated ecosystem, allowing value to flow freely and increasing the protocol’s and its users’ potential. You can now borrow against your digital assets with a DeFi perspective, thanks to Paribus running on Cardano. Whether it’s an NFT or a synthetic asset, Paribus provides a platform for safe and quick borrowing against your digital assets.