What are semi-fungible tokens? A guide with examples
Semi-fungible tokens combine the features of NFTs and regular fungible tokens (cryptocurrencies). However, there is no standard definition and you can read wildly different things about SFTs on the internet. We’ll break it down for you as clearly as we can.
Fungible vs. non-fungible
Why do we call NFTs ‘non-fungible’? The definition of ‘fungible’ is ‘mutually interchangeable’, ‘one that can be replaced by an identical item’. But the thing about an NFT is that it can’t be directly swapped for another blockchain asset; it has unique characteristics that make it not mutually interchangeable with anything else.
By contrast, all the units of a certain cryptocurrency are fully interchangeable: any USDT token is equal to any other USDT token, just like two-dollar notes. In other words, they are fungible.
What, then, is a semi-fungible token (SFT)? One that is fungible in some way and non-fungible in another way. This vague definition leaves a lot of room for interpretation, because SFTs are a very mixed bunch, with many use cases.
SFTs as ‘tickets’
The easiest example of an SFT is a ticket to a digital event, such as a metaverse concert. Imagine that there are 1,000 tickets altogether, and each gives the right of entry. Every ticket has a unique identifier, but its price and benefits are the same.
Before the concert, you can swap one ticket for another, as they are interchangeable (fungible) among themselves. You can’t, however, swap a ticket for an NFT from some other collection. Another difference is that SFTs cannot be fractionalized: you can buy 1 ticket, 2, 3, and so on, but not 2.15 tickets, for example.
There can be many examples of such ‘tickets’: gift vouchers, discount coupons, SFT subscriptions to a service, etc. Another use case would be limited editions of merchandise: imagine that a luxury brand issues just 1,000 identical couture bags, each with a serial number and accompanied by an SFT. The bags are all sold for the same price, and there is no difference between the SFTs, either — though, once again, each has its own number.
SFTs as evolving tokens
Let’s go back to the concert ticket example and imagine that after the show, each SFT turns into a unique collectible object. This can be achieved by a so-called reveal: the URI (universal resource identifier) that points to the SFTs’ metadata set is changed so that now each ‘ticket’ is suddenly displayed as a unique image.
These images can be a real generative NFT art collection, with different traits and rarity ranks. In other words, an SFT turns into an NFT, and now you can’t directly swap one ‘ticket’ for another, either, because each has its own value.
As we wrote in the article about NFT reveals, it’s an increasingly popular way to market NFT collections. As you mint an NFT pre-reveal, all you’ll see on OpenSea is a dummy image, but at a certain predefined point, the metadata URI will be replaced and you’ll finally see the actual NFT picture. It’s more of a marketing move than anything else, but the point we want to make here is that an asset that starts as a dummy image and is later ‘revealed’ is essentially an SFT.
SFTs as NFTs minted in large quantities
A classic NFT is 1:1 — one picture, one token. But what if you mint many NFT tokens pointing to the same picture? Call them as you like, but in essence, they will be SFTs.
The best use case for such SFTs is crypto gaming. Games usually feature large supplies of basic items like magic potions, gold coins, daggers, and so forth. A single player can carry several bottles of the same potion, for instance, and there can be thousands of them issued in the game overall.
Example: RMRK Kanaria eggs
RMRK is an NFT protocol built on Kusama, the canary network for Polkadot. As a way to raise funds, RMRK launched a collection called Kanaria, which — unlike all the NFTs on Ethereum, etc. — doesn’t use any smart contracts.
The creators never used the term SFT, but that’s what Kanaria was at launch: a collection of bird eggs. Some of them had little golden stands and others didn’t, but mostly they looked the same and sold for the same price.
Owners could either keep their Kanaria as an egg or make it hatch to reveal the unique bird within. At this point, you could say that an SFT truly turned into an NFT.
Examples: SFT Crystals and Seeds in Genopets
Genopets is a Move-to-Earn NFT project on Solana. It focuses on physical and mental health by encouraging users to take care of themselves by taking care of their virtual pets. Players will need to lead an active lifestyle (e.g. jog) and bond with the pet — and get rewarded in the process.
What do SFTs have to do with it? Well, Genopets has two types of semi-fungible assets: Crystals and Seeds. Both are needed to mint new Habitats. Importantly, you can buy both on Magic Eden and SolSea — one of the first examples of SFTs being traded on a major marketplace.
SFTs as ERC-1155
One thing that most SFTs issued on EVM-compatible blockchains have between them is that they use the ERC-1155 token standard, developed by Enjin. ERC-1155 has quite a few advantages over ERC-721:
- tokens can be transferred in batches (even as many as a thousand at once) to minimize gas consumption
- can use the same contract address for fungible and non-fungible assets
- can retrieve an NFT/SFT if it’s accidentally sent to a wrong address
- can link a single smart contract to several URIs.
On Solana, there is also an SFT standard, used by Genopets. Such SFTs have much lower minting fees than NFTs, and you can sell or send them in batches for the gas cost of one transaction.
XP.network already supports semi-fungible tokens, though so far most projects we are working with are using ERC-721, as it’s a universally supported and battle-tested standard. However, ERC-1155 could really be the future of NFTs on EVM chains like Ethereum, Polygon, Avalanche, etc. We will keep you updated — follow XP.network on Twitter and Telegram to learn about our upcoming experiments and new partnerships!