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A Beginner’s Guide to NFT Staking

The market generally associates NFTs with digital reproductions of art that might potentially grow in value over time.

In general, this is true for most NFT projects. However, new use cases for NFTs are emerging as the market grows. The notion of staking tokens is well-known among cryptocurrency fans. Still, the idea of using this mechanism in the NFT realm is less common.

Our guide will explain how developers thought of merging the features of NFTs with those of the staking system. 

Understanding How NFTs Work

Identifiable tokens are digital assets relying on smart contracts. Their peculiarity is that traders cannot exchange one NFT for another identical one.

These assets are “non-fungible,” which is another way to express the concept mentioned above. You can think of the matter in this way: they are not interchangeable because you can’t have two identical NFTs.

As a comparison, you can consider a fungible token such as Ether (ETH). You can send a single ETH to someone, and this person can send you another ETH with no loss in value.

In general, you cannot split an NFT. Consider owning a flight ticket for New York: splitting it would make it worthless.

In recent months, several investors have experimented with fractionalized NFTs (or fNFTs). However, fNFTs remain in a legal gray area, and the market is still learning how they might work.

What Is Staking?

With staking, cryptocurrency owners may put their digital assets to work. Specifically, stakers can generate passive income without having to sell these tokens.

It’s easy to compare staking to placing money in a high-yield savings account in the crypto world. The money you are giving the bank will go to someone who needs to borrow it. While this operation happens, you can collect an interest rate.

You receive a share of the interest gained from lending that money in exchange for locking it up. This simple explanation summarizes how crypto staking works if you replace banks with DAOs.

Applying the Staking Mechanism to the NFT World

Just like cryptocurrencies, tokenized assets like NFTs can enter a staking process. Remember: you cannot stake any NFT, which is also true for cryptocurrencies.

Keeping your NFTs secure on NFT staking platforms is possible since they are tokenized assets. A smart contract on the suitable blockchain technology may do this.

Even though this notion is fresh, NFT holders are thrilled about this new opportunity. Due to an NFT’s uniqueness, holders are generally unwilling to part with it. Consequently, NFT staking can appeal to many traders.

When it comes to cryptocurrencies, you may purchase and sell them with ease. The wallet you use must be compatible with the NFT in question if you want to use it.

Make sure your preferred wallet is compatible with the NFT. In other words, check if your wallet can connect to the blockchain where the NFT was born. As a second step, make sure you can connect your wallet to the staking platform before locking your NFTs.

Apart from these differences, staking your coins is a good analogy for this process. If you have already staked your crypto, you won’t have problems understanding how the system applies to NFTs.

Collecting Rewards

To get the best staking benefits, NFT holders must choose the right platform and the right NFT. Most NFT staking systems provide periodic payouts, which the system distributes either daily or monthly.

These prizes consist of the platform’s utility token most of the time. However, you may find some exceptions to the rule from time to time. Keep in mind that you can trade the staking reward tokens into other crypto or fiat money.

In addition, it is essential to remember that DAOs play a central role in staking systems. Locking your assets into a DAO pool allows you to participate in the platform’s governance.

If you believe in the future of a project, influencing it can sound appealing to you.

In practical terms, staking often allows you to vote on new project developments, and you may also submit your suggestions. However, this system may differ from DAO to DAO.

Final Thoughts

In its infancy, the idea of NFT staking is gaining traction. It is easy to see why NFTs have a hard time with liquidity. Many investors acquire NFTs with a long-term investment strategy in mind, contributing to the problem.

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Despite this, the excitement around NFTs has attracted newcomers to the crypto industry. Staking is becoming increasingly popular among NFT traders. This system lets you learn more about NFT platforms and earn rewards.

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