What is an SFT and Why You Should Know About Them

October 5, 2022
Velhalla
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Semi-Fungible Tokens (SFTs) have just begun to break into the crypto space. By combining the features of fungible tokens (ERC-20) and non-fungible tokens (ERC-721), SFTs are a token with the capability of solving incompatibility issues between different standard tokens, and overcoming potential challenges of both fungible and non-fungible tokens.

Where did SFTs come from?

First created by Enjin on the Ethereum Network, SFTs are meant to be a more efficient way to manage fungible and non-fungible tokens by using a single smart contract. SFTs are currently being utilized in blockchain-based video games (GameFi) as multifunctional tokens that allow game creators to offer in-game items with the functionalities of both fungible and non-fungible tokens.

While most non-fungible tokens are built on the ERC-721 standard, semi-fungible tokens utilize the ERC-1155 standard. Because of how SFTs are built, this makes it easy for game players to trade fungible in-game items for NFTs and vice versa.

What’s the benefit of an SFT?

Semi-fungible tokens are built on smart contracts that allow transfer mistakes, which means that token transactions to the wrong addresses are reversible and the sender has the ability to get back their tokens if a mistake occurs.

The critical limitation of fungible tokens is their irreversible transactions. If you send coins to an incorrect address, you lose them forever. There is no possibility to get your funds back without the good will of the wallet owner. Contrary to NFTs, semi-fungible tokens also support batch transfers. You can transfer multiple SFTs in a single transaction which leads to lower network congestion, lower gas fees, and lower costs.

The ability to use a single smart contract for fungible and non-fungible assets can have a considerable impact on the crypto and NFT markets in the future. One of the most beneficial features about SFTs is that they have the characteristics of both fungible and non-fungible tokens. In the life cycle of a semi-fungible token, they are initially fungible and can be traded with other identical SFTs. When a holder redeems these SFTs, they become non-fungible, which makes them indivisible, verifiable, and indestructible. When they are fungible, they become highly liquid and can be exchanged easily with anyone.

Enjin has managed to create what could be the next major step in the development of NFTs: a fungible and non-fungible token using a single smart contract. As of now, most SFTs are being used in metaverse games for in-game assets, but with the multiple possibilities that SFTs have to offer the crypto world, who knows how far this newcomer could go in the future of the NFT space.

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