What are semi-fungible crypto tokens?
Semi-fungible tokens, or SFT, were developed in order to address the limitations of non-fungible tokens (NFTs), which, even though they're trending and have a number of use cases, have some limitations. SFTs are a combination of FTs and NFTs.
They are uniquely positioned as they are able to retain their fungibility until they transition to an NFT, and vice versa. In their lifecycle, they can start out as a fungible item that can be traded with another identical SFT, and then become non-fungible when the holder redeems the SFT, or the opposite. When an SFT becomes an NFT, it is indivisible, verifiable, and indestructible. And when it is fungible, it is highly liquid and can be exchanged easily with anyone.
Each blockchain has a set of rules, called standards, that define the nature of tokens and how they will behave within the ecosystem. Initially built on the Ethereum blockchain (ETH), SFTs emerged from Ethereum's ERC-1155 standard, which was created by blockchain gaming developers Enjin, Horizon Games and The Sandbox in 2017, and is essentially a combination of the ERC-20 (fungible token) and ERC-721 (non-fungible token) standards. Video games now represent the majority of the ERC-1155 standard's application cases. However, SFTs have many other use cases in the crypto market and token standards have been developed on other blockchains to accommodate SFTs.
Cryptocurrencies like Bitcoin and Ether, as well as fiat money such as US Dollars, are fungible tokens (FTs). A fungible item is one that can be replaced by another identical item with no practical difference, for example, every Bitcoin is interchangeable with another Bitcoin.
Non-fungible tokens (NFTs) use smart contracts to provide proof of ownership of unique assets. There are many different types of NFTs, such as art collectibles, virtual real estate, music, videos and many more. NFTs can be created on different blockchains.
What are semi-fungible tokens use cases?
Semi-fungible tokens are widely used in the gaming industry and in metaverse games for in-game assets. Video games may have fungible items such as in-game currency (think gold bars or game dollars), as well as non-fungible assets such as collectibles and weapons.
You may see a token that begins as an NFT, for example an object, that can be harvested to obtain ten game dollars. The gamer may then trade that currency to others, or build something out of it, turning it back into an NFT. The digital asset the gamer built out of the ten game dollars may then turn into something else when they reach a certain level. These changes are dictated by the SFT's inbuilt smart contract, as created by the developer. As an example, the flexibility of ERC-1155 tokens is extremely useful for virtual items used in games in The Sandbox's metaverse. Creators can mint any number of copies of the same digital ASSETs.
Games like Clash Royale have also popularized buying and selling tokens in fractions (which is not possible with FTs or NFTs): players collect various pieces for their decks instead of just one card with full value on it.
Vouchers and coupons
SFTs are also used for vouchers and coupons. For example, an SFT that represents a $10 Amazon voucher would have the same value as an identical voucher with the same expiration date and amount. They would therefore be interchangeable. However, because these types of tokens are semi-fungible, they lose their face value when they're redeemed, making the expired tokens non-fungible and insuring that those vouchers won't be used more than intended.
Tickets to events and concerts
Another example representing the possible use of SFTs is concert tickets. Tickets to popular events tend to get sold out fast, and almost 40% of ticketing traffic now comes from ticket bots. The sold out tickets are resold at higher prices on secondary markets, robbing organizers and artists, and leading to fraudulent activities, with more and more buyers getting scammed with fake tickets. The use of semi-fungible tokens can help with with this problem. The public nature of the blockchain technology allows for the use of smart contracts, traceability, and transparency.
Let's say you'd like to go and see Arctic Monkeys next month. Your ticket would have a face value, and could be exchanged for another identical one provided it's for the same concert (same band, same date, same city). Once the concert has passed, the token becomes a collectible and has a new value. It can no longer be exchanged for a valid concert ticket of the same face value to see a different bad.
What are the advantages of SFTs?
Greater efficiency for app developers: the concept of semi-fungible token development allows for the use of a single smart contract for a token that is both fungible and non-fungible, as well as faster transaction times and lower gas fees.
Reduction of transaction costs and time spent, by enabling batch transfers and multi-transfers referring to more than one address in one smart contract.
Atomic swap, which means swapping any number of tokens in two-step.
A more stable in-game economy would have been possible with SFTs in the case of, for example, the free "mutant serum" that was given to some paid holders of the Bored Ape NFT created additional costs for the developer, pushed up the price of the "free" serum on NFT marketplaces and inflated prices all around.
A smoother gaming experience for gamers
More flexibility and tradability than FTs and NFTs.