What is SFT (Semi-Fungible Token) ?

What Are Semi-Fungible Tokens?

Semi-fungible tokens (SFTs) under the ERC-404 standard are hybrid digital assets on the Ethereum blockchain that blend the interchangeability of fungible tokens (ERC-20) with the uniqueness of non-fungible tokens (NFTs, ERC-721). Developed in February 2024 by pseudonymous creators "ctrl" and "Acme," ERC-404 introduces a "semi-fungible" model where tokens can be divisible and tradable like ERC-20 tokens but also linked to unique NFTs, allowing fractional ownership of NFTs without third-party protocols.

Key Characteristics

• Initial State: They have a face value and are interchangeable, similar to Bitcoin or Ethereum.

• Transition: They lose fungibility after events like expiration or redemption, becoming unique.

How ERC-404 Works

• Fractional Ownership: Each ERC-404 token is tied to an NFT. Owning a whole token mints the corresponding NFT to the user’s wallet. Selling a fraction of the token burns the NFT, enabling multiple users to own parts of a single NFT.

• Mint-and-Burn Mechanism: Smart contracts automate minting an NFT when a full token is held and burning it when fractions are sold, ensuring seamless transitions between fungible and non-fungible states.

• Liquidity and Accessibility: By allowing fractional trading on decentralized exchanges (DEXs) via liquidity pools, ERC-404 enhances NFT liquidity and lowers barriers for investors who can’t afford whole NFTs.