What are Semi-Fungible Tokens?

- Fungible tokens are traded daily, and NFTs have dominated the crypto market for quite some time now, powering different innovations and representations of ownership of digital assets on the blockchain.

- The massive growth in the sales of NFTs last year has made it the center of attention for artists, traders, and investors but also a subject of research.

- The downsides of the ERC 217, the standard for NFTs which does not allow for batch transfer, and the slow and inefficient method of transferring an entire collection of NFTs gave rise to ERC 1155.

- ERC 1155 is currently used to create a new type of token that possesses the features of both fungible and non-fungible tokens and corrects the downsides of NFTs.

- SFTs are being adopted in the gaming sector of the metaverse and decentralized applications to facilitate the exchange of play money for a piece of gaming equipment and vice versa, with more potential use cases in the decentralized web 3.0.

Keywords: token, exchange, value, NFTs, SFTs, ERC

Tokens in web 3.0 primarily began as digital currencies such as Bitcoin and Ether. They perform the significant functions of money, one of which is serving as a medium of exchange. The concept of a token can therefore be traced to old economics. In the early modern era, traders in the British Isles and North America employed fungible tokens, which represented a pledge exchangeable for goods in times when state coins were scarce. Blockchain altered the concept of token and tokenization, making it possible to convert tangible assets into digital assets or represent ownership rights in a purchase with a digital token. Such tokens can later be used to redeem stakes, goods, or services.

In exchanging tokens, two common types have dominated the crypto-verse for some time. The fungible and non-fungible tokens which are popularly known as NFTs. A token is fungible if one unit is equivalent to another unit of the same token at the same time and place. For example, 1 Ether is equivalent to another 1 Ether and can be exchanged for it without diminishing the value of either of the two. Therefore, the cryptocurrency traded in the market daily, such as Bitcoin, Cardano, Ethereum, Algorand, and many others, are fungible tokens. Based on this premise, fiat currencies are also fungible because their values do not reduce or increase after transactions.

Some assets are non-fungible because of their unique qualities that may appreciate or depreciate after a transaction. Examples of such assets are lands and diamonds. NFTs in the crypto world are tokens minted on the blockchain to represent ownership of unique and digital valuables like virtual real estate, artworks, music, and so on. Since different people create the NFTs, their values are not the same and may not remain the same after transactions. Blockchain technology makes it possible to use NFTs to represent the ownership of an asset in a verifiable, secure, transparent, and immutable way. The swell in the sales of NFTs from the beginning of last year attracted the interest of traders and investors to this unique medium of owning digital assets and collectibles. As the NFTs continued to gain unprecedented traction, new use cases arose that warrant a shift in the standard on which they are based. This shift gave birth to a new type of token known as semi-fungible tokens.


What are semi-fungible tokens?

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NFTs are indivisible, meaning you cannot sell a part of them. SFTs, as a new multi-token standard, support batch token transfer and offer a middle course between fungible and non-fungible tokens. Making batch transfer of tokens easier solves the slow and inefficient problem of transferring a whole collection of NFTs. From the preceding, semi-fungible tokens SFTs can be described as tokens that share the attributes of fungible and non-fungible tokens. They act as fungible tokens at a time and could later become an NFT. They are tokens with dual-use instances that traverse the crypto world, adapting to both the use case of the fungible token at the expiration of which they may become non-fungible. They can be kept as a treasurable digital asset to represent a memory after their initial use. For example, a token created as a ticket to a community meet-up is exchangeable like a fungible token for a meet-up ticket of the same value for the same event. After the event, the ticket may serve as an NFT, becoming the attendees’ item or a sort of memorabilia.


Semi-fungible Token and ERC 1155

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ERC 217 has been the standard for creating NFTs, albeit with some downsides. For instance, in ERC 217, only one token can be transferred at a time, making it costly. These downsides are corrected in ERC 1155, which is used to create SFTs. ERC 1155 is a design that supports multiple token types. It allows for the faster transfer of fungible and non-fungible tokens. It merged the fungible tokens ERC 20 and the non-fungible ERC 217 standard and can do the function of each or both simultaneously while improving on their functionalities.


Some features of ERC 1155

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Some of the features of the ERC 1155, which serves as the bedrock of SFTs, include:

1. Batch transfer: it allows for the transfer of a fraction of a token just as it is in the fungible token but with some improvements.
2. NFT support: the standard further supports NFT by making any token that is one in supply an NFT.
3. Safe transfer: it improves existing rules and sets new ones for safe and secure transfer.


Use cases of SFTs

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The dual features of SFT position it for some use cases in the crypto and NFTs industry. Although SFTs are yet to receive wide adoption, they have begun to make inroads into the gaming sector of the metaverse. Some game providers that have adopted SFTs include The Sandbox, Horizon games, and Enjin. Some of the current and potential use cases of SFTs include:

- Exchange of play money for a piece of gaming equipment: SFTs are used in the gaming sector to facilitate the exchange of play money for a bit of gaming equipment, weapons, and other collectibles. A weapon that is initially an NFT is used to create play money- a fungible token. The play money is exchanged for additional equipment and reverts to a non-fungible token- an NFT.


- E-commerce coupon: An e-commerce coupon can also serve as a real-world use case of an SFT. The coupon meant to serve as a discount on goods is fungible and can be exchanged for a similar coupon of the same value. At the expiration of the coupon period, it will become an NFT.

- Lottery: SFT can also find use in the lottery sector. A lottery ticket created as an SFT may serve as a fungible token and become an NFT after winning.

SFTs hold some promise for the metaverse and crypto world. The functionality to enable the batch transfer of multiple tokens in one transaction reduces the time and cost involved in the transfer process of NFTs. SFTs, therefore, generally make transactions faster and less costly. SFTs also shield against the accidental loss that may occur during the transfer of NFTs with the new secure and safe transfer feature.

The fact that SFTs have inherent support for NFTs will surely bring more growth to the NFTs community and enhance the development of the industry if widely adopted.






Author: Gate.io Observer: M. Olatunji
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