NFT Staking

The primary economic incentive where stakers earn rewards for locking their NFTs. Rewards are typically paid in the platform's native token or other project assets. Mechanisms include:

• Fixed-rate APY: A predetermined annual percentage yield.
• Dynamic rewards: Yield based on pool participation, NFT rarity, or protocol fees.
• Real-world example: Bored Ape Yacht Club holders can stake their Apes to earn $APE tokens.

Staking an NFT often grants the holder exclusive utility or access rights within an ecosystem, beyond simple yield. This can include:

• Governance voting: Staked NFTs may confer voting power on protocol decisions.
• Gated experiences: Access to minting allowlists, IRL events, or premium content.
• Enhanced gameplay: In GameFi, staked NFTs might unlock character abilities or resource generation.

The technical foundation where NFTs are custodied by an immutable, audited smart contract. Key security considerations include:

• Non-custodial model: Users retain ownership; the contract holds a temporary custody receipt.
• Audit requirements: Contracts must be professionally audited to mitigate risks like reentrancy attacks.
• Withdrawal guarantees: Contracts must reliably return the exact staked NFT upon unstaking.

The core trade-off between earning rewards and asset availability. Staking involves a lock-up period where the NFT is illiquid and cannot be traded. Protocols manage this via:

• Flexible unstaking: Immediate withdrawal, often with a cooldown or fee.
• Fixed-term staking: Higher rewards for committing to a specific lock duration.
• Liquidity impact: The staked NFT is removed from marketplace circulation, potentially affecting floor price dynamics.

Advanced models where rewards are weighted by NFT attributes or combined with fungible tokens. Common structures include:

• Rarity-based tiers: Higher rewards for NFTs with rarer traits or higher collection floor prices.
• LP Staking (Liquidity Provision): Staking an NFT/FT liquidity pool token (e.g., a Uniswap V3 LP NFT) to earn trading fees and additional incentives.
• Bundle staking: Staking a set or "bundle" of specific NFTs to unlock bonus rewards.

The strategic use of staking to align user behavior with protocol goals, crucial for tokenomics. This includes:

• Reward emission schedules: Controlled token release to manage inflation and long-term engagement.
• Fee sharing: Stakers may earn a portion of the protocol's revenue (e.g., marketplace fees).
• Vote-escrow models: Tokens or NFTs are locked to gain governance power, as seen in systems like veTokenomics.

The most common use case, where users lock NFTs to earn passive income. Rewards are typically paid in the project's native token or other cryptocurrencies.

• Mechanism: A smart contract verifies ownership and distributes rewards based on staking duration and rarity tiers.
• Example: Bored Ape Yacht Club holders can stake their Apes to earn $APE tokens, which can be used for governance or sold on the open market.

Staking NFTs often grants voting power in a project's Decentralized Autonomous Organization (DAO). The weight of a vote can be tied to the staked NFT's rarity or the quantity staked.

• Purpose: Allows holders to influence treasury management, feature development, and partnership decisions.
• Example: In the DeGods ecosystem, staking a DeGod or DeadGod NFT grants points used for voting on community proposals.

Staking can act as a key to unlock gated experiences, physical goods, or digital content. The smart contract acts as a verifiable proof-of-ownership gate.

• Utility: Provides ongoing value and strengthens community engagement.
• Examples:
  • World of Women stakers received access to exclusive artist collabs and merchandise drops.
  • Gaming projects like Axie Infinity use staking to grant access to competitive seasons or special in-game areas.

Staked NFTs can be used as collateral to borrow fungible tokens in decentralized finance (DeFi) protocols. This provides liquidity without requiring a sale.

• Process: The NFT is locked in a lending protocol's vault. If the loan isn't repaid, the NFT may be liquidated.
• Protocol Example: Platforms like NFTfi and BendDAO enable peer-to-peer and pooled lending against high-value NFTs like CryptoPunks.

Rewards are often scaled using a tiered system where rarer NFT traits (e.g., background, clothing) earn a higher yield. This mechanism directly ties an NFT's market value to its staking utility.

• Implementation: The staking contract reads the NFT's metadata to calculate a multiplier (e.g., 1.5x for a rare trait).
• Example: The Cool Cats project implemented a system where different attribute combinations yielded varying amounts of $MILK tokens.

In decentralized exchanges (DEXs) for NFTs, users can stake NFTs to provide liquidity in automated market maker (AMM) pools, earning trading fees.

• Function: Similar to Uniswap V3 concentrated liquidity, but for non-fungible assets.
• Protocol Example: Sudoswap allows users to deposit NFTs into liquidity pools for specific collections, earning a share of the swap fees generated by traders.

The most prevalent mechanism, where stakers earn the protocol's native utility or governance token over time. This creates a direct incentive to participate and can bootstrap a token's initial distribution and liquidity.

• Example: Staking a Bored Ape Yacht Club NFT might yield a continuous drip of the associated project's $APE tokens.
• Purpose: Aligns holder and protocol success, as token value is tied to ecosystem growth.

Stakers receive a portion of the protocol's generated revenue, such as trading fees, minting fees, or royalties. This transforms an NFT from a static asset into a yield-generating instrument.

• Mechanism: A percentage of all secondary market sales on the platform is distributed pro-rata to stakers.
• Real-World Use: NFT marketplaces like LooksRare historically used this model to reward stakers of their platform NFTs with a share of trading fees.

NFTs are staked to provide liquidity for associated fungible tokens in decentralized exchanges. Rewards come from trading fees and often additional token incentives.

• Process: An NFT project might allow stakers to deposit their NFT alongside its native token (e.g., NFT/ETH LP tokens) into a farm.
• Outcome: This deepens liquidity for the project's token while rewarding NFT holders, creating a stronger financial feedback loop.

Staking an NFT grants exclusive access to features, events, or physical goods, acting as a non-monetary reward. The staked NFT serves as a verifiable membership pass.

• Examples: Access to token-gated Discord channels, IRL events, exclusive mint passes for future collections, or airdrops of companion NFTs.
• Value Proposition: Enhances community cohesion and perceived value of holding, beyond pure financial yield.

In blockchain games, staking NFT assets (characters, land, items) generates in-game currency or resources. This is a core loop of the GameFi sector.

• Dynamic Yield: Rewards may be influenced by the NFT's rarity, attributes, or how it's used within the game's economy.
• Example: Staking a land plot NFT in a metaverse game might generate resources used for crafting or building, which can be sold or utilized.

Staking an NFT can delegate voting power to the holder, allowing them to influence protocol decisions. The weight of votes is often tied to the quantity or rarity of staked NFTs.

• Mechanism: Acts as a sybil-resistant way to align governance with committed, long-term holders rather than token whales.
• Outcome: Ensures stakeholders with "skin in the game" guide the project's future direction, from treasury management to feature development.

Staking typically transfers custody of the NFT to the staking contract, creating counterparty risk. Users must trust the contract's withdrawal function will remain operational. Risks include:

• Permanent locking due to bugs preventing withdrawals.
• Rug pulls where malicious developers drain the contract.
• Impermanent locking during high network congestion, delaying access.

Protocols using non-custodial staking or voucher systems mitigate this by keeping NFTs in the user's wallet.

The economic design of the reward token introduces financial risks:

• Hyperinflation: Excessive token emissions can collapse the reward token's value.
• Dumping Pressure: Large stakeholders selling rewards can depress prices.
• Sybil Attacks: Users creating multiple wallets to farm disproportionate rewards.
• Governance Attacks: If staking confers voting power, it can lead to protocol takeover.

Sustainable models use emission schedules, vesting periods, and fee-sharing from protocol revenue.

Some NFT staking protocols implement slashing, where a portion of staked assets is confiscated for malicious behavior. This introduces new risks:

• False positives from buggy slashing logic.
• Centralized slashing where a single entity can arbitrarily penalize users.
• Oracle failures triggering incorrect slashing events.
• MEV (Maximal Extractable Value) attacks where validators are slashed to capture their position.

Transparent, on-chain, and decentralized slashing conditions are crucial for fairness.

Transactions to stake, claim rewards, or unstake are visible in the mempool and vulnerable to exploitation:

• Sandwich attacks: Bots can manipulate reward token prices around claim transactions.
• Front-running: A bot sees a large unstaking transaction and unstakes its own position first to avoid a price impact it will cause.
• Transaction failure griefing: Spamming the network to cause a user's unstaking transaction to fail, keeping their assets locked.

Using private transaction relays or commit-reveal schemes can offer protection.

NFT staking relies on external infrastructure and standards:

• NFT Standard Risks: Bugs in the underlying ERC-721 or ERC-1155 contract can affect staked assets.
• Bridge Vulnerabilities: If staking occurs on an L2 or alternate chain, the bridge securing assets is a critical point of failure.
• Frontend Attacks: Malicious code injected into the project's website can steal wallet approvals.
• Metadata Centralization: If the NFT's art/metadata is stored off-chain (e.g., HTTP), it can be altered or lost, affecting value.

Decentralized storage (IPFS/Arweave) and immutable metadata mitigate some risks.