For the last few years, three words have dominated the crypto scene: non-fungible tokens. In fact, they’ve become so popular that Collins Dictionary’s even made it word of the year in 2021.
And while they've been traditionally associated with digital artworks and artists such as Beeple, the unique technology behind NFTs is allowing it to become a great opportunity well beyond this art industry alone.
As they’ve become increasingly popular, many musicians, creators and celebrities have turned to NFTs to monetize their work. But even if you don’t have a particular skill or talent, there’s you can still use these tokens for your advantage.
Today, we are exploring the top five best ways of earning income with NFTs and the best strategies you can start following today.
What Is An NFT?
Non-Fungible Tokens (NFTs) have emerged from the world of cryptocurrency and blockchain technology. But what is an NFT, really?
Simply put, non-fungible tokens are unique digital assets that represent ownership of a specific piece of content or media, such as artwork, music, or video. As these tokens are stored on a blockchain, this makes them immutable and verifiable.
While some may see NFTs as just another digital fad, they have become a serious advancement as they offer a number of advantages over traditional physical and virtual assets, including:
Unique Ownership: As mentioned, NFTs are unique and can be verified on the blockchain, making it easy to prove ownership. This eliminates the possibility of duplicates or fraud. A number of industries have taken advantage of NFTs for this reason, including major luxury fashion houses, in a bid to address rampant counterfeiting.
Scarcity: NFTs are scarce, meaning that there is a limited supply of them. This makes them more valuable and desirable to collectors.
Transparency: The blockchain provides a transparent and public ledger of all NFT transactions. As such, all transactions are secure and traceable.
Potential for Value Appreciation: NFTs have the potential to appreciate in value over time, especially if they are created by well-known artists or are part of a limited series.
Access to a Global Market: NFTs can be sold and bought on NFT marketplaces from anywhere in the world, providing access to a global market for creators and collectors.
Programmability: NFTs can be programmed to have specific functionalities, such as unlocking content or granting access to exclusive events or experiences.
Royalties: NFTs can also be programmed, through smart contracts, to automatically pay the original creator a royalty fee every time they are traded, providing a recurring income stream for creators.
Versatility: NFTs can represent a wide range of digital and physical assets, including art, music, videos, virtual real estate, and more.
Now that you know just how advantageous these tokens can be, let’s dive into the best strategies to consider when it comes to earning passive income with NFTs.
Top 5 Ways To Earn Passive Income From NFTs
Earning passive income with Non-Fungible Tokens can be achieved in several ways, including:
1. NFT Royalties
As mentioned earlier, NFTs can be programmed to pay the original creator a royalty fee every time they are sold on a secondary market. This means that creators can earn passive income by collecting royalties associated with each time an NFT is resold, without having to be actively involved. Royalties are paid automatically, making it a rather hassle-free option. Many NFT marketplaces offer this feature, making it easy for creators to earn passive income. To earn NFT royalties, you need to get your work minted and then set the royalty fees you want to receive for every secondary sale.
Staking NFTs has become a very popular way of generating passive income with crypto.
This is how it works: NFT staking involves holding non-fungible tokens in a specific smart contract that rewards users with additional tokens for holding their NFTs for a set period of time. Sounds familiar? There’s a reason why. Staking is very similar to having money in a traditional savings account and getting an interest for letting it “sit” while it works for you.
With NFT staking, you’ve guessed it, users stake NFTs and let others trade the NFT until the staking period is over. Once the staking period ends, the user can claim their rewards, which are typically paid out in the form of a new token or the original token used for staking. Some NFT projects allow users to stake their NFTs in a liquidity pool, which earns them a portion of the transaction fees generated by the platform. A liquidity pool is a collection of digital assets locked in a smart contract pledged by multiple investors and used by a crypto platform to hand out loans.
This is a passive income strategy that provides a way for NFT holders to generate money from the platform's activity.
3. NFT Farming
Similar to staking, NFT farming provides passive income opportunities. This particular strategy involves providing liquidity to a pool of NFTs and earning a portion of the platform's revenue in return. This requires more active participation than staking, but can also result in higher returns.
Let’s take a closer look: Users start by staking their non-fungible tokens in a decentralized finance (DeFi) platform, by depositing their NFTs into liquidity pools. In return, for creating liquid, users get rewards in the form of new NFTs or the original token used for staking. NFT farming works similarly to yield farming in DeFi, but instead of staking tokens, users stake NFTs to earn rewards.
This NFT passive income strategy can be a profitable one, as the rewards earned from farming can be sold for a profit or reinvested into other NFT or DeFi platforms. It can also be a way to increase the value of NFTs by providing liquidity to the market, as well as a means of supporting dApps and contributing to their growth.
4. Renting Out NFTs
Did you know that you could rent NFTs? That’s right, these tokens can be borrowed to other users, allowing them to use your NFTs for a set period of time in exchange for a rental fee. As such, renting NFTs can be a way to generate passive income.
Imagine real estate and how you would rent a house - well, that’s pretty much the same process for NFTs, but instead of renting out a physical property, you’re renting out a digital asset. In fact, metaverse land and real estate NFTs have become quite the hot commodity and they can be rented out between users who want to use the space for their own virtual events or activities.
There are various platforms that allow NFT owners to rent out their NFTs, including Nifty Gateway, SuperRare, and RENFT. The process of renting out NFTs typically involves setting a rental price, specifying the rental period, and providing terms and conditions for the rental agreement.
To generate income from renting NFTs, you can either hold onto the NFTs and rent them out periodically, or purchase NFTs with the intention of renting them out for profit.
Of course, it’s important that you consider the type of demand there could be for your NFTs and their potential rental value. One industry in particular where NFT renting has become quite in-demand has been gaming.
5. NFT Index Funds
While not the most common strategy, some platforms offer NFT index funds, which allows investors to passively invest in a diversified portfolio of NFTs.
This way, you’re able to get exposure to the NFT market without the need to actively manage individual NFTs. Similar to traditional index funds, NFT index funds aim to track the performance of a specific index or market segment of NFTs, such as a collection of rare and valuable artwork or a type of collectible.
To invest in an NFT index fund, you’ll typically need to purchase shares in the fund through a broker or investment platform that specializes in NFTs. The shares represent a fractional ownership of the underlying NFTs held in the fund, and the value of the shares will fluctuate based on the performance of the NFTs.
As with any other asset class, there are risks to the NFT market and we advise that you always conduct a thorough research on the index fund and the NFTs held in it, as well as to understand the risks involved before investing. In addition, you should also keep an eye out for investment fees.
Earning passive income with non-fungible tokens can involve different strategies and today we had a closer look at some of the easiest and most intuitive ways of getting you started.
However, as the NFT market continues to evolve, new passive income opportunities are likely to emerge, creating new ways for crypto users (and newcomers) to explore this growing digital asset economy.
By keeping up with the latest NFT developments, you’re more likely to be in a more comfortable position to identify innovative avenues of generating income with NFTs and taking advantage of future rewards.