Understanding the Three Token Standards: NFTs, SFTs, and the Emerging ERC-404

The crypto asset landscape keeps evolving at lightning speed. After blockchain and cryptocurrencies captured our attention, Non-Fungible Tokens (NFTs) dominated headlines. Now, a new player called Semi-Fungible Tokens (SFTs) is reshaping how we think about digital assets. But here’s the thing—most people still confuse these concepts. Let’s break down what makes them different and why it matters.

The Foundation: What Does Fungibility Actually Mean?

Before diving into tokens, you need to understand one core concept: fungibility.

A fungible asset can be swapped 1-to-1 without losing value. Think of cash. Your dollar bill and mine are identical—we can exchange them and both still have equal purchasing power. Bitcoin and fiat currency work the same way. They’re fungible because one unit equals another.

Non-fungible assets, however, are one-of-a-kind. They can’t be swapped on equal terms because each has distinct characteristics, rarity, and value. A Picasso painting and a Monet are both priceless, but you wouldn’t trade them 1-to-1.

Semi-fungible tokens exist somewhere in between. They blend both characteristics, functioning as fungible assets in some contexts and non-fungible in others. This hybrid nature opens entirely new possibilities.

Non-Fungible Tokens: Unique Digital Ownership

Non-Fungible Tokens are blockchain-based digital stamps proving ownership and authenticity of unique assets. They cover everything—digital art, music, videos, virtual real estate, and in-game items.

The key word here is “unique.” Even if two NFTs have identical designs, they remain distinct and can’t be exchanged. Each NFT has its own value determined by rarity, creator reputation, and community demand.

Why NFTs Matter: They solve a critical problem for creators. Artists, musicians, and game developers can now monetize their work directly while proving ownership through blockchain verification. This eliminates piracy concerns and ensures authenticity.

NFTs exploded in 2020-2021, with billions in trading volume. But the concept started much earlier.

A Quick Timeline

The journey of NFTs traces back to 2012, when Meni Rosenfeld proposed “colored coins” on Bitcoin—a way to track real-world assets on-chain. Bitcoin’s limitations prevented implementation, but the idea stuck.

• 2014: “Quantum,” the first NFT—a pixelated octagon that contracts like an octopus—was minted on Namecoin by Kevin McCoy
• 2016-2017: Memes became NFTs. Cryptopunks and Rare Pepes gained traction on Ethereum
• 2017-2018: Cryptokitties exploded during an Ethereum hackathon, proving NFT gaming was viable
• 2021: NFT art sold at major auction houses. Beeple’s work fetched record prices. Meta announced its metaverse focus
• 2023-2024: Blockchain networks beyond Ethereum (Cardano, Solana, Tezos, Flow) now host NFT ecosystems

Semi-Fungible Tokens: The Flexible Middle Ground

Semi-Fungible Tokens represent a fundamental shift. They’re neither purely fungible nor purely non-fungible. Instead, they transition between states depending on conditions and use cases.

Imagine buying a concert ticket. Before the event, it’s fungible—you can trade it with anyone in your section for an identical experience. After the concert ends, that same ticket becomes non-fungible. It transforms into a collectible, a memory tied specifically to you. Its value now depends on concert rarity and nostalgia.

That’s semi-fungible behavior.

How Semi-Fungible Tokens Work

SFTs operate on Ethereum’s ERC-1155 standard, created by Enjin Horizon Games and The Sandbox. This standard allows a single smart contract to manage multiple token types—both fungible and non-fungible—simultaneously.

Why is this revolutionary? Compare it to the alternatives:

ERC-721 (NFT Standard): Each token requires a separate transaction. Want to send 50 NFTs? That’s 50 transactions, clogging the network and inflating gas fees. It’s inefficient at scale.

ERC-20 (Fungible Token Standard): Perfect for identical assets like cryptocurrencies, but lacks the uniqueness framework NFTs provide.

ERC-1155 (Semi-Fungible Standard): A hybrid enabling one contract to batch-process multiple tokens and handle both fungible and non-fungible assets in a single transaction. This drastically reduces fees and network congestion.

Real-World Gaming Application

Consider an in-game item system. A player earns a weapon as an NFT. By collecting ten identical weapons, they convert them into 10 game dollars (fungible currency). They can trade those dollars with other players or spend them to buy armor (which reverts back to NFT status). As the player levels up, the armor becomes more powerful and rarer—its value shifts dynamically.

The game developer maintains full economic control through smart contract rules, preventing the uncontrolled inflation seen in older MMO games.

Enter ERC-404: Blurring the Lines Further

Recently, developers “ctrl” and “Acme” introduced ERC-404, an experimental standard that takes hybrid tokenization even further. It combines ERC-20 (fungible) and ERC-721 (non-fungible) characteristics more seamlessly than semi-fungible tokens.

ERC-404 tokens can function as liquid, interchangeable units while also maintaining unique properties. A single token might trade as a fraction of an NFT, then recombine into a whole NFT. This unlocks liquidity for assets traditionally stuck in auction-based markets.

The Catch: ERC-404 hasn’t undergone official Ethereum Improvement Proposal scrutiny. It lacks formal audits, raising security concerns. Rug pulls and smart contract vulnerabilities are real risks. Yet projects like Pandora and DeFrogs are already experimenting with this standard, betting that the liquidity benefits outweigh the risks.

Semi-Fungible Tokens Meet Real-World Assets

The RWA (Real-World Asset) tokenization space is where semi-fungible tokens shine brightest.

Property ownership, for instance, could be initially fractional (fungible shares) but later transition to non-fungible status under specific conditions. This approach:

• Lowers entry barriers: Fractional ownership means smaller investors can participate
• Enhances liquidity: Digital trading platforms can reach traditional illiquid assets
• Enables compliance: Fungible-to-non-fungible transitions can encode regulatory requirements
• Creates flexibility: Asset financing becomes more innovative

Imagine tokenizing commercial real estate. Semi-fungible tokens could represent ownership shares initially tradeable on secondary markets (fungible phase), then lock into non-fungible state once transfer restrictions apply. The same technology works for commodities, bonds, and equity stakes.

Comparing the Three Standards Side-by-Side

NFTs (ERC-721):

• Purely unique digital assets
• One transaction per token (inefficient)
• High gas costs at scale
• Perfect for art, collectibles, and provenance-heavy items
• Dominates current NFT markets

Semi-Fungible Tokens (ERC-1155):

• Hybrid fungible/non-fungible behavior
• Batch transactions reduce gas and congestion
• Flexibility for gaming and conditional ownership
• Enables efficient multi-token management
• Still primarily used in blockchain gaming

ERC-404 Tokens:

• Novel hybrid approach blending fungible liquidity with NFT uniqueness
• Experimental and unaudited
• Potential for fractional NFT trading
• Security concerns remain
• Early-stage adoption by specialized projects

Where Each Token Type Thrives

Non-Fungible Tokens: Digital art, gaming collectibles, virtual real estate, music ownership, sports moments, membership passes with permanence.

Semi-Fungible Tokens: In-game items with dynamic properties, event tickets with post-event collectibility, loyalty programs with convertible rewards, limited-use coupons.

ERC-404 Tokens: Experimental liquidity solutions, fractional high-value NFT ownership, complex financial instruments on-chain.

The Bigger Picture

The crypto ecosystem is maturing beyond simple transactions. Tokenization now addresses sophisticated real-world needs. NFTs proved that scarcity and uniqueness have value. Semi-fungible tokens demonstrated that flexibility matters. ERC-404 and other emerging standards suggest we’re just beginning to explore hybrid models.

For creators, developers, and investors, understanding these distinctions isn’t academic—it’s practical. Different token types unlock different business models. Gaming studios leverage semi-fungible tokens for economy stability. Art platforms stick with NFTs for provenance. Emerging projects experiment with ERC-404 for liquidity advantages.

Blockchain technology enables all three to coexist and evolve. As industries from real estate to commodities explore tokenization, semi-fungible tokens and their variants will likely become mainstream infrastructure, not niche experimentation.

The token landscape is more sophisticated than ever—and it’s still early.