What Are Yield Bearing NFTs And How Do They Work?

NFT farming is one of the newest trends in DeFi (NFTs). It is a way to combine yield farming with the world of non-fungible tokens. This article will explain yield-bearing NFTs, how they operate, and how you can participate in this exciting new way to earn cryptocurrency.

What Are Yield Bearing NFTs?

While the term “yield-bearing NFT” can refer to a variety of different things, in the context of Lunaverse, it refers to a constructing NFT linked to an investment in a DeFi protocol which enables a yield to be given to the NFT holder. In contrast to Lunaverse, the yield is created in the DeFi protocol. The yield-bearing NFT, therefore, pays a passive yield to its owner.

NFT holders can also participate in developing new projects like games and partake in profitable gaming-related activities by upgrading their gaming credentials and using game features for commercial purposes. It runs on a foundation provided by the DeFi protocols, and tokens are utilized to generate passive income.

The enthusiasm for DeFi has transferred to the NFT market, creating an atmosphere akin to a Weird DeFi moment that grows stranger as communities emerge to create rare digital artifacts that may be obtained in unusual ways and monetize their ownership. DeFi platforms’ liquidity increases due to this type of activity in the decentralized financial services industry. It’s vital to highlight classic, modern, game-like approaches to NFT farming. Although the two are based on slightly different principles, the former has gained far greater notoriety. Users can earn tokens for that portal’s rewards system, which can be redeemed for NFTs.

How Does Yield Bearing NFTs Work?

In the case of yield-bearing, NFTs purchased originally via Lunaverse, 90% of the purchasing cost will be allocated to a DeFi protocol. Therefore, in the case of “Anchor,” which gives a consistent APY of around 20%. The remaining 10% is utilized to fund Lunaverse activities, with 30% going toward buying back tokens from the market and rewarding long-term stakers (known as the “Buy-Back and Lock Model”).

In doing so, a connection will be forged between the distribution of the token LUV, the acquisition of yield bearing NFTs, and Lunaverse’s dedicated users. To ensure that the NFT holder’s deposit in Anchor continues to grow in value over time. The Yield generated by the deposit is shared 50/50 between payout to the bearer and investment back into the protocol.

PancakeSwap is the most popular AMM on Binance Smart Chain. It requires users to place two BEP-20 tokens in a trading pool to acquire a liquidity pool (LP) token, which may then be staked in a farm to collect yield farmed returns in CAKE tokens. Beginning in the middle of 2020, when it was first discussed on the most popular DeFi platform, Compound yield farming has gained massive popularity. Since then, hundreds more yield farming decentralized applications (DApps) have been released on blockchains like Binance Smart Chain and Ethereum, allowing investors to generate double-digit returns on their crypto assets.

Risks Of Yield Bearing NFTs

The practice of yield bearing NFT is brand new to the cryptocurrency industry. That’s why it’s one of the most precarious cryptocurrency investments. Numerous prospects for Yield bearing NFT are still in their formative stages, and it is still being determined whether or not this novel method of generating crypto earnings will survive. Risks abound in high-yield farming. Some examples of such dangers are as follows:

Volatility: One measure of an investment’s volatility is how much its value shifts. In finance, a volatile asset is one whose value fluctuates widely over a short amount of time. While your tokens are locked away, their value could either plummet or skyrocket.

Fraud: Some yield farmers may fall victim to scams or bogus initiatives that steal their money. Indeed, fraud and misappropriation make up the bulk of the $1.6 billion in cryptocurrency crimes in 2020, based on a report by CipherTrace.

Rug pulls: A rug pull is a form of an exit scam in which a cryptocurrency developer solicits funding from investors only to disappear without ever delivering the promised product. According to the CipherTrace mentioned above analysis, yield farmers are especially vulnerable to rug pulls and many other exit frauds, accounting for over 99 per cent of the significant fraud that happened in the year’s second quarter.

Yield Bearing NFTs Examples

Using games and vaults is a viable option for generating yield on NFTs. Below is a handpicked collection of popular NFTs that have shown to be particularly profitable.

Charged Particles

You may turn a pool of rare NFTs into a yielding collection of NFTs with the help of Charged Particles, a slick NFT minting platform. With Charged Particles, members of platforms like Aave can convert any ERC-20 token or NFT together into a new NFT with yield. Similar to how Charged Articles hands out bags (the new NFT) to store your other collectables, this bag will also generate interest.

Newly created NFTs can be charged (assets backed by Aave’s aTokens can be swapped, and their liquidity accessed) and time-locked (assets cannot be withdrawn before a specific period). Interest in assets might also be predetermined.

CyberKongz 

The 1,000 pixelated apes NFTs that make up CyberKongz were developed in March of 2021. The project gained a lot of attention fast, and its NFT collection is now among the most valuable in the world, placing it in the top 20 on the price floor. Subsequently, a BANANA token was integrated, allowing Kongz NFT owners to earn dividends passively. For the next decade, each Genesis CyberKong will create 10 BANANA daily, making them a simple source of passive NFT income. While only the initial 1,000 Genesis Kongz is productive, all Kong holders have access to free CoberKongz minting and can breed Baby Kongz.

Bunicorn

The yield farming rewards in Bunicorn, a DeFi RPG, can be earned from NFTs and vested over time. Bunicorn uses a conventional liquidity mining technique to disperse its BUNI token, in which token pool participants can stake their tokens or contribute liquidity. Bunicorn opted to package their farming rewards in NFT collectibles to prevent token dumping. Users can trade their NFTs, secured by the underlying assets, when a vesting period has passed.

NFTs are valued because of the rewards associated with farming, even if they do not produce any output themselves.

Final Thoughts

Locking up or staking your bitcoin in return for interest or additional cryptocurrency is at the heart of yield farming. Growing cryptocurrency markets will drive widespread adoption of yield farming. It’s the same basic idea behind lending with interest to make a profit for investors that have existed for as long as banks have.

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