NFT farming blends concepts of DeFi with NFTs to allow holders to earn a return on NFTs.
Posted May 25, 2023 at 6:37 am EST. Updated May 25, 2023 at 6:37 am EST.
NFT farming is a new concept in Web3 that brings together DeFi and NFT technology, allowing NFT holders to earn a yield from their tokens. Read on to learn what NFT farming is, how it works, and where you can farm.
What is NFT farming?
Before we discuss what NFT farming is, let’s first define what NFTs are and briefly describe yield farming.
NFTs are digital tokens recorded on a blockchain that represent unique digital or physical assets like digital art, music or even physical assets like real estate. Yield farming, on the other hand, is the practice of depositing crypto assets into a decentralized liquidity pool for rewards that are paid out in tokens.
Given the boom that NFT and yield farming experienced independently, it wasn’t long before developers blended the concepts of NFTs and yield farming to create NFT farming (or NFT yield farming) as a way for NFT owners to get by using their products to generate income NFTs on the DeFi market.
NFT farming uses NFTs in exchange for a reward in the form of tokens, or alternatively uses tokens to receive NFTs as a reward. Unlike traditional yield farming, where you have to deposit crypto assets into a liquidity pool to get tokens as a reward, NFT farming uses NFTs instead of fungible tokens.
NFT yield farming enables NFT holders to create liquidity and utility for their NFTs that would otherwise be considered illiquid digital assets.
When DeFi meets NFTs: How does NFT farming work?
The NFT farming process differs slightly from platform to platform, but generally it involves wagering an NFT in exchange for tokenized rewards or depositing tokens to earn rewards in the form of NFTs.
To start NFT farming, you need a crypto wallet and an NFT that you wish to deposit in order to generate income. Next, deposit your NFT into an NFT farming pool of your choice. Once your token is deposited, you can earn rewards.
Alternatively, you deposit fungible tokens (usually the platform’s native tokens) into an NFT farming pool and earn rewards that are paid out in NFTs.
The most common place to farm NFTs is in blockchain games. Here, users can wager in-game items (in the form of NFTs) and in return earn the game’s token. On the other hand, they can also pledge their tokens and receive NFTs.
Axe InfinityFor example, is one of the most well-known blockchain games that offers NFT farming as a feature. In Axie Infinity, players can earn SLP tokens that can be used to mint NFTs in the form of new Axies.
Examples of NFT farming platforms
Let’s take a look at two examples of NFT farming platforms.
- Aavegotchi: Aavegotchi is an Ethereum-based crypto collecting game that allows players to buy and breed their own Aavegotchis, which are NFT avatars that allow them to explore the Aavegotchi ecosystem. Aavegotchi features the Rarity Farming feature, which allows players to earn GHST tokens – the most important utility tokens in the Aavegotchi ecosystem – by using their Aavegotchi Ghost NFTs.
- mobox: mobox is an NFT driven gaming platform that combines yield farming and NFT farming. In-game, users can use MOBOX (MBOX) tokens to unlock NFTs, called MOMOs. MOMO NFTs have different levels of rarity and can be used as characters in the game. By staking MBOX tokens, holders can also earn the veMBOX governance token, which can be used to participate in the protocol’s governance decisions.
There are several other NFT farming platforms on the market today. However, before using any NFT farming platform, do your research and only stake a lot of tokens that you can afford to lose.
Pros and cons of NFT farming
The main benefit of NFT farming is that it allows holders to earn income from their non-fungible tokens. In addition, it is ensures benefit and liquidity to an otherwise illiquid crypto asset class.
However, just like other aspects of blockchain, it is not risk-free.
Most NFT farming protocols are relatively new and have yet to establish themselves as secure DeFi protocols. therefore, the Possibility of loss of funds due to operational errors due to bugs in the code or Cyber theft due to vulnerabilities in the protocol’s smart contract poses a real risk for NFT yield farmers.
Additionally, protocol tokens are typically used in NFT farming platforms very volatilesimilar to the values of NFTs, meaning that overall NFT farming is one of the riskier ways to generate returns in the crypto markets.
For now, NFT farming remains a niche concept, but as more platforms emerge that offer the service, more capital could flow into these protocols.
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