Why NFT staking is overhyped
NFT staking is an overhyped model for a number of reasons. The sheer number of projects that are using it, with no real value, means that staking often ends up becoming little more than a marketing ploy to lure in uninformed investors. We’ve also seen a trend developing wherein projects will implement some form of NFT staking, wrapped up in appealing (and sometimes misleading) buzzwords, just to entice investors. If a project makes staking its primary focus, that’s a red flag. If ‘breeding’ is the only staking utility, that’s a red flag too. Vague tokenomics and no clearly listed utilities? Red flag.
This might come as a surprise considering most current and upcoming NFT projects place staking high on their list of prioritized utilities. This is not meant to alienate staking aficionados, but it must be made clear that the staking model is far less glamorous than it has been made out to be thus far. To understand why, we must first explore what staking even is in the first place.
What is Staking?
Staking works like a savings account in traditional finance - you make a deposit into your account, for which your bank pays you interest. You get a small payout for adding to, and maintaining, the bank's 'liquidity'. Stock market dividends work the same way - a company is giving you a reward for holding their stock.
What is NFT staking?
Staking an NFT involves locking it into a smart contract, in return for which you receive rewards. While the nature of these rewards can vary greatly from project to project (usually it’s tokens of the said NFTs), they all serve as long-term passive income for long-term holders.
What is Liquidity?
Simply put, liquidity refers to how easily an asset can be converted into cash, or another cryptocurrency, without affecting its market value. Cash is the most liquid of all assets, although we'd like to see this change in the future.
Let us give you a real life example to grasp the idea in a simpler way :
You want a pair of shoes. They cost $100. Great! In this universe you happen to have the equivalent of $100 in rare stamps- but the store owner can't really do anything with rare stamps. You are told to either give them cash, credit or a currency that they accept.
So how do you go about making the trade? If you have the time for it, you can go about finding a buyer for your stamps, who will give you the $100, which you can then give to the store owner for the shoes. If you don't have the time, you might end up selling the rare stamp collection for a lower price than it was initially worth. The stamp collection in this example proves itself to be an illiquid asset. Cash on the hand, is a highly liquid asset
Why is NFT staking good?
NFT staking has a lot of upsides for investors and the long term holders. If you bought the NFT believing in the long term success of the project and you get rewards for just staking it, what’s there not to love? Here’s some of the pros of holding a NFT for the investors and the founders of a project.
REWARDS! It’s the ultimate utility for the long term holders, getting passive income (rewards) for just holding the NFT is such a game changer. For example, Stoned Ape Crew, one of the top NFT projects on Solana rewards their stakers with $PUFF, their own token, which in return you could use within the SAC ecosystem or convert it into another currency or cash as long as someone is willing to buy it. Doge Capital is another example - you can use the coins you get from staking their NFT to customize your ‘Doge’.
Another advantage of staking your NFT is airdrops. Some projects do randomized or systematic airdrops to reward the stakers on top of the staking rewards which could be worth a lot. Keep in mind that some projects don't require your NFT to be staked to be eligible for airdrops. You can gain access to airdrops without staking but most projects do it to incentivise their investors to stake their NFT.
A big reason why most projects implement staking into their project is to increase their floor price. When most holders stake their assets it creates a lower supply in the secondary market, hence boosting the floor price. It’s basic supply and demand. This also increases the potential of higher secondary market royalties, which projects can use for further funding their project.
Why do we think it’s overhyped?
If it’s so good for the investors and the team, why do we say it’s overhyped? Well, there are a few reasons for it and we hope you understand the point we’re trying to make.
Tokenomics, tokenomics, tokenomics. Tokenomics is the science around and of a token which most NFT projects give as rewards for staking, ($PUFF, $SHDW etc.) We believe that 95% of these tokens stakers get from the projects they’re staking in will lose value in the long term if they don’t have proper utility.
No matter how much said tokens you get from staking, if they don’t hold any value to it, it could all go to 0. What’s the supply? What can be done with the tokens? Where and how can it be used? Is it a utility, governance or any other type of token? Why and how can the value of the token go up? These are important questions you should look into before investing in a project that has its own token.
Staking staking everywhere. It has become a ‘trend’ to integrate staking into projects, It has become another marketing ploy by most projects to trick people into investing in their projects. It can come wrapped in fancy names to make it look like more than just staking. For most of them that’s their only ‘utility’. Don’t invest in projects just because they have integrated staking which is actually not hard to do, make sure the project has proper utility to back the staking rewards. For most projects it’s completely unnecessary. Don't fall for the tricks that evolve day by day. Always do your own research.
What’s a project with good staking?
GenesysGo is one of few projects that uses staking to its maximum use. Every NFT staker gets 10K of their $SHDW tokens rewarded daily within a course of a year and only 10K, which makes the token more valuable because there’s only a finite number of them. To get everyone to stake their NFT, they have implemented a method where to get the most out of the daily rewards, all 10K NFTs must be staked. Meaning, if there are only 5000 NFTs staked from the 10,000 supply, you will be only getting half of daily rewards from what you could have gotten from having all 10K NFTs staked. This also effectively boosts their floor price due to the low supply in the secondary market. They also have tokenomics that have actual utility within their ecosystem that could potentially take the value of the token up if the project keeps delivering. Of course it still could go to 0 no matter how sophisticated the methods are - it all depends on the deliverables of the project and how far they succeed in achieving the deliverables. This report is not about GenesysGo but you can take a deep dive into this and learn more about the tokenomics and staking from this medium article they have put out. (FYI - We’re not getting paid by GG, NFA)
What’s a project with bad staking?
We are not going to name any projects because we want to give them the benefit of the doubt. Most projects that we have taken a look at makes it look like staking is a huge utility to have but in reality it’s not. Anyone with an understanding of blockchain development could get it done and there are even services you can buy to implement staking to your project.
It goes like this - If they make staking as a main point in their project that’s a red flag. If the only staking utility is ‘breeding’ that’s a red flag (breeding has become an overhyped utility as well, but that's a topic for another research paper). If their tokenomics are vague and don’t list out the utilities straight up, that’s a red flag as well. Sure, you can make some profits short term but most of these projects will be worthless in due time.
Is NFT staking game changing? Yes. Does it have good incentives to both the project and the investors? Yes. Can the staking ‘rewards’ have no value in the long-run? Yes. Is it too hyped up as a marketing ploy to show mediocre projects that they have something ‘technical’ going on? YES. Will most of these projects be nothing in the long-run? Also, YES. Will Club Nirvana implement staking in the future? If we can back it up with proper utility, we might.
If a project has staking as one of their utilities, always do your research into how it works, how reward distribution works and especially the tokenomics. We think it’s overhyped due to the sheer number of projects implementing staking with no real value just to lure in misinformed investors as a marketing ploy.
NFA. DYOR. Ohmmm