Web3 technology offers a ton of earning possibilities. It’s integrated into its core game theory and economics to decentralise the blockchain yet encourage collaboration. As money makes the world go round, in the form of token incentives, it stitches together the different pieces of web3 together.

Bitcoin, the widely accepted proof of concept for the blockchain technology, leverages reward systems to achieve its Proof Of Work (PoW) consensus algorithm. This consensus algorithm can be fundamentally sectioned into two parts; transactions collation and verification and on-chain communication and validation. The first section of the PoW is a race between computers to earn a mining reward. 

This is the first earning possibility era of decentralised networks brought us. Secure the network with your machine and earn some coins. This has inspired a lot of other business models in the web3 sphere including Stake-to-Earn, Move-to-Earn, Play-to-Earn, Write-to-Earn and lots more. For this article, we’d be considering one of the implementations of Stake-to-Earn, called NFT staking.

From Proof of Work to Proof of Stake

The PoW consensus algorithm consumes a monstrous amount of energy. It is reported that the Bitcoin network specifically consumes more electricity than the country of the 2022 FIFA world cup champion.  This is primarily because as the network grew, it became more computationally difficult to solve the puzzle or in technical terms, hash blocks, to maintain block time. 

More energy intensive machines, ASICs, were needed to mine a single block as a result. Environmental experts argue that it is harmful to the environment because of the means by which energy used by these miners are generated. As a result, the second most prominent consensus algorithm was designed - Proof Of Stake (PoS). The proof of stake consensus algorithm for blockchains transaction verification was the first ever use case for this mechanism. Eventually, this mechanism evolved, so that it could have various other use cases, and one such use case is NFT staking.  

‍Proof Of Stake (PoS) - Its Origin and Transformation to NFT Staking

The strength of the PoW consensus algorithm is also its achilles heel - the computational cost. The PoS consensus scheme was designed to mitigate this. For Proof of Stake, the security of the network is provided by nodes who’ve “locked up” a portion of their resources to the network. The theory behind this algorithm is: if you have something to lose or at stake, you’d maintain good intentions protecting the network. The network also rewards you too for good behaviour according to how much you have at stake.

The first functioning implementation of the Proof Of Stake consensus algorithm was in 2012, by a project named Peercoin. Even up to 2017, the PoS algorithm wasn’t popularly known but other projects already implemented it or a variant of it, including notable ones like Cardano and Algorand. On the 22nd of September, 2022, Ethereum, the second largest blockchain by market cap transitioned from using Proof of Work to using Proof of Stake with the merge event. 

Very early on many projects realised that the staking model invented by proof of stake could be used for community incentives and rewards. The ability to reward someone for staking tokens or staking NFTs essentially allowed projects to provide people with a financial incentive for holding their project’s tokens.

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What is NFT Staking?

Simply put, NFT Staking refers to depositing your NFT assets in a smart contract for fixed or flexible terms. In exchange for NFT Staking, and locking your NFT up the project will reward you with some tokens. Usually, these tokens that are distributed as rewards for NFT Staking aren’t actually more NFTs, and instead are just regular crypto tokens. In most cases these crypto tokens are related to the NFT project, and are minted by the team behind the NFT project specifically to reward those community members who are actively NFT staking. 

Keep in mind, NFT staking doesn’t have any direct implication on the security of that NFT or the network it was created on, because NFT staking does not fulfill the same end goal as PoS token staking. The only similarity between NFT staking and PoS token staking is that they both reward token holders for locking up their assets in a smart contract. 

While it's true that NFT staking was inspired by PoS token staking, the two are not the same things, and they both achieve completely different end goals. The primary objective of NFT staking is simply to reward people for buying and holding onto a certain NFT. The most important objective for PoS token staking is facilitating the validation of blockchain transactions, and keeping the blockchain safe. 

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Staking In Proof Of Stake vs NFT Staking

Staking at the consensus algorithm level means committing blockchain tokens to secure that particular blockchain. No longer do you need to prove your computational prowess to be the network participant who gets the reward from adding blocks to the chain. 

On the other hand, while NFT staking also requires committing your Non-Fungible Tokens, it is for the sole purpose of earning yields on them or gaining access to a community or ecosystem. NFT staking does not protect the blockchain on which it is minted on. 

Earnings from NFT staking are passive. Stakeholders are not required to do anything further after NFTs have been staked. Just claim daily or weekly rewards for NFT staking. Staking in PoS on the other hand is active. PoS blockchains require nodes that are validators to still validate transactions before they earn minted rewards. Stakes on PoS blockchain only qualifies you to do the work, not earn the reward, because those are still earned for the computational work.

Rewards in PoS staking come in the form of more of the same cryptocurrency staked. The rewards of NFT staking are rarely ever more NFTs. It’s usually the staking platform’s tokens or the NFT collection’s token, if it has any.

Staking in Proof of Stake blockchains enables a penalty structure to punish bad actors. A validator’s locked up tokens are slashed or entirely lost if found to have any malicious intent. This is the PoS disincentive to discourage validators from harming the network. It’s not the same for NFT staking. NFT staking doesn’t get to the core protocol or contracts of the blockchain. They are usually held by Dapp smart contracts already programmed to distribute rewards based on some pre-specified parameters. The platform on which NFT staking is done, handles security differently. In short, NFT staking has no role in blockchain safety, but PoS staking does. 

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How NFT Staking Works

NFT staking involves temporarily transferring the token ownership to another on-chain account; wallet or smart contract, in fixed or flexible terms, to earn rewards for as long as NFT staking is maintained. NFT Staking is directly analogous to yield farming in DeFi. Depending on its nature, centralized or decentralized, the tokens are locked up in a smart contract already pre-programmed to issue out rewards at intervals.

Rewards in NFT staking are often the staking platform’s token or any other token associated with the NFT project. Unlike staking in PoS blockchains which also requires some high device requirements to validate and add on-chain blocks in addition to token staking, the only requirement for NFT staking is your wallet with the NFT to be staked in it and the NFT platform where it will be staked. It doesn’t discriminate between mobile or PC devices. Also, KYC’s are usually not necessary. Hence, it’s a passive income stream that can be set up anonymously.

Although Step App supports the staking of one of its crypto tokens, KCAL, NFT staking cannot be done on the Step App. However, its Move-to-Earn model is inspired by it. To earn rewards on the Step App you need to hold and use Step App’s native NFTs, called SNEAKs. They can be purchased using FITFI tokens or received from another user. 

Step App’s  innovative approach to NFTs has some similarities to NFT staking, but it takes the passivity out of NFT staking. The reason for this is because Step App’s move to earn model is also inspired by the play to earn model, so in a sense the move to earn model combines aspects of both play to earn as well as NFT staking, and then adds onto it a bit. The model is created primarily to promote exercising, walking and running, but it also rewards NFT holders. It also promotes using the Step App, which makes it possible for the Step App to earn some revenue, and sustainably offer rewards to people who utilize its move to earn model. 

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Reasons Why You Should Care About NFT Staking

Besides the obvious one, there are a number of reasons why you should care about NFT staking. It’s speculated that NFTs will bring the tokenization of everything. Starting with the obvious, some great reasons include;

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1. NFT Staking Yields Staking Rewards  

If you’re into NFT staking for the money and not the tech, this reason will catch your attention. NFT Staking is simply putting your idle assets to work to earn some passive token rewards. How much you earn depends on the platform where it is staked, the collection staked and the amount of NFTs staked. 

The rewards could also fluctuate based on the floor price of the NFT collection you are NFT staking. These rewards are paid out periodically (daily or weekly) in the platform’s cryptocurrency or the parent NFT’s utility token. You can then convert it to another cryptocurrency or cash. Make sure you Do Your Own Research (DYOR) before staking your NFTs on any platform. There are a lot of NFT staking platforms that promise high yields to get people to buy their NFT collection, but it could be a rug pull.

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2. NFT Staking Drives Artificial NFT Scarcity 

This is the closest to securing a blockchain network that NFT staking comes close to. Staking NFTs reduces the number of NFTs in circulation. If demand for the NFT in circulation stays the same, the NFTs will be perceived as being more valuable. All things being equal, you could earn tokens by NFT staking, and still maintain ownership of a now more valuable NFT. To drive scarcity is one of the reasons why NFT projects either make staking a default part of their NFT tokenomics or partner with an exchange or NFT-agnostic platform to begin one on their behalf.
NFT utility and reducing circulating supply from the artificial scarcity initiated by NFT staking are some healthy signs that collectors lookout for.
Step App’s Move to Earn model,  similar to the NFT staking model, requires its SNEAKs to be held in order to earn rewards as you walk, jog or run. This means Steppers are most likely to hold on to their SNEAKs and not sell. This drives up the scarcity of SNEAKs available in circulation giving them some value. 

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3. NFT Staking in DAO Governance

Organisations of the future will be decentralised. The proof of concept of how such organisations will be operated is demonstrated in Decentralised Autonomous Organisations (DAOs) today. DAOs are institutions without central leadership enabled by blockchain technology. In some regions, they are already legally recognised as limited liability companies. They are set up towards a particular purpose like any traditional company, but unlike traditional companies, DAOs break down the hierarchical management structure. NFT staking has been implemented in NFT projects that became DAOs to determine voting rights, establish governance and apportion organisation dividends.

As DAOs continue to penetrate mainstream attention and find more use cases, its stakeholders literally become “NFT stakeholders”. NFT staking is on the verge of potentially transforming how organisations are administered. 

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4. NFT Staking To Amplify Gaming

If you’re not interested in Stake-to-Earn or Stake-to-Govern, you might care about Stake-to-Play. A number of the NFT-specific staking platforms are blockchain games. Play to Earn and NFT staking go together hand in hand. The biggest play-to-earn blockchain games  like Axie Infinity, Splinterlands, Decentraland & Sandbox all utilize NFT staking at some point to access different levels of gameplay in order to earn exclusive in-game assets which may also be NFTs or Semi-Fungible Tokens (SFTs) - SFTs retain the traits of both Non-fungible and fungible tokens. It’s most often applied as in-game items.

The trend seems to be just getting started. Blockchain games already generated more than $2B in the third quarter of 2022. More mainstream games like Final fantasy, The walking dead, Ghost recon, Gods unchained are beginning to adopt NFTs within gameplay. In-game assets are being tokenized to power more immersive and rewarding gameplay. 

Exciting is exactly what Step App is making fitness and exercises to become. Unlock the possibility to earn every time you break a sweat by either taking a walk, jogging or running. Holding SNEAKs in your Step App wallet unlocks one of the first gamified fitness experiences.  

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5. NFT Staking Ascending Digital & Physical Culture 

Call it social interaction 2.0, call it building digital communities and clans, one clear thing is NFTs are changing how we collaborate digitally. From verified Twitter NFT PFPs to identify as the real owner of an NFT to building a personal brand around a cryptopunk or BAYC PFP NFTs. Artists, Celebrities and Athletes are building more tightly-knit and exclusive communities which require their limited NFTs to be staked to gain access into closed groups on Discord. For example, VeeFriends NFT were used by GaryVee for ticketing into his VeeCon. Access NFTs, as they are now called, serve as key cards to token-gated experiences in reality or the metaverse. 

Step App is not only building a fitness economy, it’s building a fitness metaverse which will bring fitness culture to the virtual world. On Step App’s Metaverse fitness enthusiasts, joggers as well as people who casually work out can communicate, workout, and even participate in fitness challenges with each other. With an augmentation of virtual and physical realities, SNEAK NFTs are positioned to be the access cards to the new frontier of fitness culture. 

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Move to Earn: An Evolution of NFT Staking

Similar to how NFT staking is an evolved form or derivation from the Proof of Stake consensus mechanism, Move to Earn seems to have evolved from NFT staking as well. Unlike NFT staking, which offers passive token rewards from locking up your NFTs, Move to Earn does things somewhat differently. To earn some rewards, you still need to HODL up your NFTs in your wallet, but you also need to get active (either by walking, jogging or running) and use the DApp. 

What’s most important to note is, both Move to Earn and NFT Staking manage to proportionally distribute rewards to NFT holders and encourage them to hold. However, the process of doing so is very different, but it makes Move to Earn a more sustainable model. Having people earn the rewards by holding the NFTs and then using the App associates some real value to the token rewards people receive from the Move to Earn model. 

Step App’s Move to Earn Model also makes the proportions of distribution fairer than NFT staking, since it rewards people based on how much they exercised, and used the App. This way the project’s users along with the community are given preference over whales as well as institutions who simply rely on their capital to earn rewards. 

The reward models in the web3 space are evolving to more sustainable ones. The advancement of staking on PoS blockchains to NFT Staking and now to Move to Earn highlights this evolution. At the same time, this evolution brings more real world use cases to the web3 world. Get your running shoes, move, and earn for breaking a sweat!

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