A simple introduction into the space where DeFi and NFTs come together
NFT farming is an emerging concept which involves staking NFTs for a reward, or staking tokens for an NFT as a reward. It’s the merger of NFT technology and decentralized finance (DeFi). In short, picture NFT farming similar to yield farming, but instead it involves NFTs as either a reward or the staked token. Ultimately NFT farming creates liquidity and utility for NFTs that would otherwise hardly do anything.
Before we continue talking about NFT farming, keep in mind that this article touches upon other technological innovations. Terms like DeFi, yield farming and NFTs need to sound natural to you. If you want to learn more about any of these terms, please refer to the informational sources below.
How does NFT farming work
NFTs, or non-fungible tokens, exist on multiple blockchains, including Ethereum, Polygon and Binance Smart Chain. These digital assets follow certain standards, and can therefore be used in a variety of applications. This means that an NFT is interoperable. Interoperability means that different systems can connect with each other, or in this case one digital assets can connect with multiple programs or smart contracts.
To get started in NFT farming, users will need a cryptocurrency wallet. Metamask would be the one we’d advise to connect with the Ethereum blockchain, Polygon or Binance Smart Chain. In that wallet they will need a certain token, dependent on the platform. They then need to stake this token in a pool. Users earn rewards based on their proportion of the total pool.
A common concept in this scenario is the staking portal. A staking portal is where you can turn compatible NFTs into vaults from which you earn rewards. A good example of a staking portal would be the $MEME Genesis Farm. Here, users are allowed to stake free MEME tokens to farm limited edition NFTs which can then be sold on NFT marketplaces such as OpenSea or Rarible. The MEME tokens allow a user to generate rewards inform of pineapples which can then be used to claim the NFTs.
Gamified NFT farming
An upcoming trend in yield farming and NFT farming, is the gamification of the process. Gamified yield farming or NFT farming adds a a video game layer to the process of yield farming. Products like Alien Worlds and Cometh add a gaming element and sense of competition to the concept of yield farming. Even more interactive is the game Axie Infinity, where players earn in-game SLP tokens that they can then sell for money or use to create new NFTs. These new NFTs will be Axies, and players can monetize these creatures in different ways.
Players can use Axies in battles and generate more Smooth Love Potions (SLP), which are tokens with real value. Or they create more Axies to breed more Axies. In addition players can simply sell their newly created NFT on the marketplace.
On Binances Smart Chain we’re seeing many yield farming platforms that tap into NFTs. In the examples below, users will first need to acquire an NFT with a certain power before they can start farming and token. In these cases NFT serve as a yield farming boost. It’s another way of combining NFTs and DeFi.
The risks of NFT farming
NFT farming is a great way of growing your crypto portfolio, but like almost every other aspect of blockchain, it has its risks. Composability which is one of its greatest advantages is also a big disadvantage. Since NFT platforms are build-up blocks there is the risk that if one block fails all the other blocks could also come tumbling down. Smart contract bugs are also a note-worthy risk. Most of this technology is in its early developmental stages. In case of a bug in the system, the results would be catastrophic for crypto traders.