Semi-fungible tokens (SFT): A revolution between fungibility and uniqueness

The tokenization of assets is progressing at a remarkable pace within the blockchain ecosystem. Following the emergence of non-fungible tokens (NFTs), a new class of assets called semi-fungible tokens (SFTs) is gaining importance. Unlike purely unique NFTs, these semi-fungible tokens offer new flexibility by combining properties of fungible and non-fungible assets, opening up previously unexplored possibilities.

Understanding Fungibility and Non-Fungibility

To grasp the stakes of semi-fungible tokens, it is essential to understand these two fundamental concepts.

Fungibility refers to an asset’s ability to be exchanged on a 1-to-1 basis with an equivalent asset without loss of value. A $1 bill, whether new or crumpled, retains the same monetary value and can be exchanged freely. Cryptocurrencies and fiat currencies fall into this category.

Non-fungibility characterizes unique assets whose distinct properties make them non-interchangeable. Each non-fungible token has a unique identity, characteristics, rarity, and value. Two NFTs cannot be directly exchanged, even if created by the same artist.

From NFTs to Semi-Fungible Tokens: An Evolutionary Step

NFTs have revolutionized digital ownership by creating certificates of authenticity for digital assets. Launched in 2014 with Kevin McCoy’s “Quantum” on Namecoin, NFTs gained massive popularity after 2017 via the Ethereum blockchain through the ERC-721 standard.

The NFT timeline marks important milestones: CryptoPunks and CryptoKitties around 2017, the rise of blockchain games and the metaverse (Decentraland), followed by the 2021 explosion with sales at prestigious auction houses and record-breaking prices (notably Beeple). Other blockchains like Solana, Cardano, Tezos, and Flow have also followed.

However, this evolution has highlighted the limitations of NFTs: liquidity issues, high transaction costs, and lack of flexibility for certain use cases. Semi-fungible tokens are emerging as a solution to these challenges.

What Is a Semi-Fungible Token (SFT)?

A semi-fungible token combines properties of fungible and non-fungible tokens. It starts as a fungible token, exchangeable with others of the same category, then transforms into a non-fungible asset with unique properties during its use.

For example, consider a concert ticket. Before the event, all tickets in the same seating category are interchangeable—classic fungibility. Once the concert is over, that ticket becomes a unique souvenir and non-exchangeable: it has transformed into a non-fungible asset with a value based on the rarity and popularity of the event. This is precisely how a semi-fungible token functions.

Technical Standards: ERC-20, ERC-721, ERC-1155, and ERC-404

To understand SFTs technically, it’s important to know the Ethereum standards governing them.

ERC-20 is the standard for fungible tokens. It enables simple transfers of cryptocurrencies but offers limited flexibility for complex assets.

ERC-721 manages NFTs. Its advantage lies in adding metadata and authentication features. Its main drawback: each transaction can only send one NFT. To transfer 50 NFTs, 50 separate transactions are needed, clogging the network and significantly increasing gas fees.

ERC-1155, the multi-token standard, merges ERC-20 and ERC-721. A single smart contract can manage both fungible and non-fungible assets simultaneously. Semi-fungible tokens operate via this standard, allowing multiple transfers in one operation and greatly reducing costs. This efficiency also addresses the irreversible transaction issues encountered with traditional fungible tokens.

ERC-404 represents the most recent innovation. Developed by creators “ctrl” and “Acme,” this hybrid standard fully merges ERC-20 and ERC-721 features, creating tokens that can function as either fungible or non-fungible depending on the context. However, unlike recognized standards, ERC-404 did not follow the official Ethereum Improvement Proposal (EIP) process, raising security concerns. Projects like Pandora and DeFrogs are already exploring its possibilities despite these potential risks.

Applications of Semi-Fungible Tokens

Currently, SFTs dominate the blockchain gaming industry. Enjin, Horizon Games, and The Sandbox have created the ERC-1155 standard to efficiently manage in-game assets that can be both fungible (game currency) and non-fungible (rare equipment).

In games, a token can start as tradable currency and then transform into a rare weapon depending on the player’s level. The same token can have different values when traded on an NFT marketplace or used as equipment—flexibility impossible with previous standards.

Beyond gaming, semi-fungible tokens are revolutionizing the tokenization of real-world assets (RWA). They enable efficient fractional ownership: ownership shares of real estate can be fungible during sale and non-fungible once held, greatly improving liquidity and accessibility. SFTs can encode specific rights and adapt to regulatory compliance requirements.

Comparison: NFT vs Semi-Fungible Tokens vs ERC-1155

The Future of Semi-Fungible Tokens

The growing popularity of SFTs signals a major shift toward more flexible assets. While current applications focus on gaming, industries such as finance, tokenized real estate, and loyalty programs are seriously considering adoption.

Semi-fungible tokens redefine profitability for digital creators, artists, and companies by offering granular control over digital economies. For investors and users, they lower barriers to digital assets through improved liquidity and reduced transaction costs.

Asset tokenization—driven by NFTs yesterday, SFTs today, and hybrid standards tomorrow—continues to transform decentralized finance and the global digital economy.