Non-fungible tokens (NFTs) are really doing wonders in our world today. Asides from earning profits by selling NFT arts and tokens, one can make passive income with NFTs.
One of the ways to become wealthy is by being involved in businesses that will bring passive income. Stocks and real estates are the most popular ways of earning via passive income. Today, NFTs have also presented opportunities for investors to make passive income.
In this article, we’ll see the different ways of making a passive income via NFTs. For the sake of beginners, let’s learn about NFTs.
What are NFTs?
A non-fungible token is a financial security consisting of digital data stored in a blockchain, a form of distributed ledger. The ownership of an NFT is recorded in the blockchain, and can be transferred by the owner, allowing NFTs to be sold and traded.
Being non-fungible means that it is unique and can’t be replaced with something else unlike cryptocurrencies.
NFTs can be anything digital (such as photos, videos, audio, drawings, code, tweets, and other types of digital files as unique items).
How Does NFT Work?
Most of these NFTs are part of the Ethereum (cryptocurrency) blockchain with the first being ERC-721. Ethereum’s blockchain supports these NFTs, which stored information makes them work differently from, say, ETH tokens.
Asides from Ethereum, some other blockchains such as Cardano, FLOW, Tezos, and so on have also implemented their own versions of NFTs.
Uses of NFTs
Non-fungible tokens have several uses in the digital world. They are used for selling digital artworks. For example, a Beeple piece sold for the US $69.3 million in 2021.
NFTs can be used to represent in-game assets such as digital plots of land. These tokens allow assets to be traded on third-party marketplaces without permission from the game developer.
They also have their use in the music industry as musicians can now tokenize and publish their works (music albums, EPs, etc) as NFTs.
Several projects in the film industry have been making use of NFTs. They have been used to promote films, as well as make brand new projects such as NFT films.
Sporting teams including football sides also have their own NFTs today. They have been able to reach out to their fans and reward them via this means.
Internet memes have been associated with NFTs, which were minted and sold by their creators. One of these is an image of Doge’s Shiba Inu dog whose NFT was sold for $4 million in June 2021.
NFT uses are not limited to medicine, politics, business, and so on.
How to Make Passive Income with NFTs
Let’s take a look at several ways investors and holders of NFT tokens can make passive income.
1. Royalties for Creators
There is no doubt about it, making an income via royalties is one of the easiest ways in making money today. With over $5 billion in profit recorded in NFT trading in 2021, investors have continued to make money via royalties.
You don’t need to be an NFT artist to get this done. Whether it’s music, code, a podcast, or even a poem, creators are now turning all kinds of digital assets into objects of value. You can set your smart contract to generate profits each time someone resells your piece on the secondary market.
As the creator gets paid, investors also get their return on investment on such digital assets. The better part is that you keep earning passively.
2. Staking NFTs on a Long-term Basis
Staking NFTs means that you have to lock or deposit your tokens to drive passive income. This is the most popular passive income stream for NFT holders, allowing them to retain ownership over the token while using it to generate profits.
Whenever your stake, you are committing your tokens to a blockchain network in order to get crypto as a reward. However, while staked, you can’t sell, move, or trade your NFTs – meaning that it’s a great strategy if you’re planning to hold them for a long time.
Crypto platforms look at the rarity of the NFT and calculate an annual percentage yield (APY). So, the rarer the NFT, the higher the APY – and the higher the profits.
3. Renting NFTs
There are passive income opportunities for investors who looked into renting NFTs, especially in gaming.
One of the latest trends in games is players being allowed to rent NFTs to enhance their experience. With this, players can have access to unique tools that unlock new in-game possibilities.
Leveraging the different platforms on the market, you can rent out your NFTs to players, with smart contracts governing the whole process (including the duration of the rental agreement and lease rate).
4. Yield Farming with NFTS
Yield farming is a way of earning rewards with cryptocurrency holdings. This can be done by staking or lending crypto assets in order to generate high returns or rewards in the form of additional cryptocurrency.
Although yield farming has been popular on Defi, it’s now entering the NFT space too. It’s a method where investors look to earn returns on top of returns by leveraging yields from one platform (or an ecosystem like a game) and investing elsewhere.
Here, companies e.g. game producers could set up the system for users to benefit and generate income by participating as yield farmers and liquidity providers. This way, users can participate as liquidity providers and make passive income.
5. Make Passive Income through Utilities
There are NFT tokens that actually encode profit into their very existence. Utilities, always defined by the underlying smart contract, bring the holders diverse benefits.
They can offer some great opportunities for passive income. For example, an NFT collection can be sold and reinvested for the team behind it to share the profits with the NFT holders.
The Bottom Line
NFTs presents a lot of opportunities for investors to make passive income just as it is in real estate and stocks. The opportunities today are just a tip of the iceberg because the metaverse is still in its developmental stages.