In 2021, the market for non-fungible tokens (NFTs) will approach $12.6 billion, up from $162.4 million at the beginning of the year, becoming a significant component of the cryptocurrency business.
And while the great majority of NFTs are created, acquired, and sold using Ethereum, the process can be prohibitively expensive due to hefty gas fees. According to data from Raribleanalytics, minting a single NFT on Ethereum costs approximately $98.69 in gas expenses, while minting NFT collections costs an average of $900.
To compensate for these expenses, many investors and developers sell their NFTs on secondary markets, such as OpenSea, for a profit. However, there are other ways to gain cash from NFTs besides selling them for more than you purchased or generated them.
[toc]What are non-financial transfers?
NFTs are tradable digital receipts maintained on a publicly distributed database known as a blockchain, which everyone can view and independently verify at all times. These digital receipts contain unique information that can be used to establish who the single owner of tangible or immaterial goods is.
Notably, though, NFTs do not save the digital entity that they represent. They just point to the location of the file, which exists somewhere on the Internet.
Because no two goods represented by NFTs are identical, NFTs cannot be traded in the same manner that one bitcoin can be exchanged for another. Therefore, they are known as “non-fungible” tokens.
Methods for producing passive revenue from NFTs
Rent out NFTs
You can generate passive revenue by renting out your NFTs, particularly those that are in high demand.
Some card trading games, for instance, permit players to borrow NFT cards to increase their chances of winning. As expected, smart contracts manage the terms of the agreement between the relevant parties. Therefore, NFT users typically have the option to determine the length of the leasing agreement and the lease rate.
reNFT is a prominent example of a platform that allows users to rent or lend NFTs. This enables lenders to establish maximum borrowing periods and daily rates, which range from 0.002 to 2 wrapped ethereum (WETH) on average.
WETH is the ERC-20 implementation of ether, Ethereum’s native coin (ETH).
NFT remuneration
The technology underlying NFTs enables authors to establish terms that impose royalties whenever their NFTs are traded on the secondary market. In other words, producers might continue to generate passive revenue after selling their works to collectors.
With this, they can receive an indefinite portion of the sales price of the relevant NFTs. For instance, if the royalty rate for a digital artwork is set at 10 percent, the original artist will receive 10 percent of the total sale price whenever their work is resold to a new owner.
Note that while minting NFTs, authors frequently set these fixed percentages. Moreover, smart contracts – computer programmes that automatically execute and enforce contractual agreements – oversee the entire process of royalty distribution. As a result, as a creator, you are exempt from enforcing your royalty terms or manually tracking payment, as the process is totally automated.
Stake NFTs
The ability to stake NFTs is one of the benefits of the union of NFTs and decentralised finance (DeFi) protocols. Staking refers to the process of depositing digital assets into a DeFi protocol smart contract in order to produce a return.
While some platforms enable a variety of NFTs, others demand the purchase of native NFTs in order to collect staking token rewards, which are typically denominated in the platform’s native utility token.
Among the platforms that facilitate NFT stakes are:
- Kira System
- NFTX
- Splinterlands
- Only1
In some instances, a portion of stakeholder incentives are paid in governance tokens. Such protocols grant these token holders voting powers over their ecosystems’ future evolution. Usually, it is possible to reinvest coins generated through staking NFTs in other yield-generating protocols.
Offer liquidity to acquire NFTs
Due to the growing integration of NFTs and DeFi infrastructures, it is now feasible to create your position in a specific liquidity pool by providing liquidity and receiving NFTs in exchange.
When you offer liquidity on Uniswap V3, for instance, the automated market maker (AMM) will issue an ERC-721 token, also known as an LP-NFT, that represents your portion of the total amount locked in the pool. Other information etched onto the NFT includes the token pair you placed, the symbols of the tokens, and the address of the pool.
You can sell this NFT to liquidate your stake on liquidity pools rapidly.
Adopt NFT-enabled yield agriculture
Users can now cultivate crops utilising NFT-powered items, as NFTs are rapidly becoming a major component of AMMs. Yield farming is the process of utilising several DeFi protocols to get the maximum potential yield from the digital assets you possess.
The LP-NFT tokens provided as liquidity provider tokens on Uniswap can be used as collateral or staked on other protocols to generate additional yields, as demonstrated in the preceding illustration. Consider it as earning a yield in addition to a technique that generates yields. This option enables a multi-tiered paradigm for yield producers to generate cash.
Notably, NFTs and the underlying smart contract technology are still in their infancy. As a result, a significant number of the applications providing the prospects outlined in this article are in their infancy. Before implementing any of the above-mentioned solutions, it is advisable to conduct thorough research and fully comprehend the associated dangers.
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