Beyond NFTs: Why Semi-Fungible Tokens Are the Next Big Thing in Blockchain

The crypto world moves at lightning speed. One year everyone’s talking about DeFi, the next it’s NFTs everywhere. Now there’s a new player entering the ring: semi-fungible tokens (SFTs). While most people have heard of NFTs by now, SFTs remain largely under the radar—but they might be about to change that. Let’s break down what these tokens are, how they work, and why they could reshape entire industries.

The Building Block: Understanding Fungibility

Before diving into the fancy stuff, you need to understand one simple concept: fungibility.

Fungible assets are things that can be swapped 1-for-1 without losing value. Your $100 bill is worth the same as anyone else’s $100 bill. Bitcoin works the same way—1 BTC is always 1 BTC, no matter which one you own. Boring, but useful.

Non-fungible assets are one-of-a-kind. They’re unique and irreplaceable. Think of a Picasso painting or your grandmother’s antique watch. You can’t just swap these for something else that looks similar and call it even.

This distinction is the foundation for understanding everything that follows.

NFTs: The Digital Ownership Revolution

Non-fungible tokens are unique digital assets living on a blockchain—usually Ethereum. Each NFT is a certificate of authenticity that proves you own something specific: a piece of digital art, a song, a video, virtual real estate, or an in-game sword.

The genius of NFTs is that they solve a massive problem for digital creators: piracy. Before NFTs, a musician or artist could share their work digitally, and anyone could copy it infinitely. With NFTs, there’s a permanent, verifiable record of who created it and who owns it. The creator can earn money, and buyers get proof of authenticity.

How NFTs Went From Nobody to Billionaire Status

NFTs didn’t just appear out of nowhere. The concept traces back to 2012 when someone named Meni Rosenfield proposed “colored coins” on the Bitcoin blockchain—essentially the grandfather of NFTs. The idea was cool but Bitcoin’s limitations kept it stuck in theory.

Fast forward to 2014: An artist named Kevin McCoy minted “Quantum,” the first actual NFT—a pixelated, color-shifting octagon. It wasn’t flashy, but it proved the concept worked.

By 2017, Ethereum’s smart contract standards opened up new possibilities. Projects like Cryptopunks (launched by John Watkinson and Matt Hall) and Cryptokitties arrived and things exploded. Cryptokitties in particular blew everyone’s mind—it was so popular it nearly crashed the Ethereum network.

From there, it was off to the races:

• NFT gaming and metaverse projects like Decentraland launched
• In 2021, prestigious auction houses started selling NFT art
• Beeple’s NFT sold for a record price
• New blockchains (Cardano, Solana, Tezos, Flow) joined the party
• NFTs became essential to metaverse virtual real estate
• Facebook rebranded to Meta and went all-in on the metaverse

Today, NFTs are used mainly in gaming, art, and music—but really, anything can be tokenized.

Enter Semi-Fungible Tokens: The Hybrid Solution

Here’s where it gets interesting. What if you could have a token that acts fungible sometimes and non-fungible other times?

That’s a semi-fungible token (SFT). It’s the middle ground between pure fungible assets (like cryptocurrency) and pure NFTs. An SFT can be freely traded like money in one context, then become unique and non-tradeable in another.

Real-World Example: The Concert Ticket

Imagine you buy a ticket to see your favorite artist live. Before the show, your ticket is basically fungible—you can trade it with anyone in the same seating section, and it has roughly the same value as any other seat ticket.

The moment the concert ends? Your ticket becomes a souvenir. It’s now unique to you, a memento of an experience. You wouldn’t trade it for someone else’s concert ticket from a different show. The value now depends on how rare or popular the concert was. Your ticket just became an SFT—it shifted from fungible to non-fungible based on what happened.

The Technology Behind SFTs: ERC-1155 Standard

SFTs exist thanks to the ERC-1155 token standard on Ethereum. This standard is the offspring of two parents:

• ERC-20: The standard for fungible tokens (cryptocurrencies)
• ERC-721: The standard for non-fungible tokens (NFTs)

ERC-1155 combines both, allowing a single smart contract to manage multiple types of tokens at once—some fungible, some non-fungible, or semi-fungible.

This standard was created by Enjin and Horizon Games specifically for managing in-game assets that needed to work as both fungible and non-fungible tokens within gaming environments.

Why Does This Matter?

With the older ERC-721 standard, sending 50 NFTs meant making 50 separate transactions. That’s expensive, slow, and clogs the network. ERC-1155 lets you handle multiple token types in one transaction, dramatically cutting costs and network congestion.

For non-fungible tokens, you get uniqueness and provenance. For semi-fungible tokens, you keep that uniqueness while gaining transaction efficiency and flexibility. It’s the best of both worlds.

The New Kid: ERC-404 Token Standard

Recently, a new experimental standard called ERC-404 hit the scene. Developed by pseudonymous creators “ctrl” and “Acme,” it attempts to merge fungible and non-fungible characteristics in an even more seamless way.

ERC-404 lets tokens operate as interchangeable units in some contexts and as unique assets in others, all within the same contract. It potentially offers enhanced liquidity and the ability to trade fractional NFTs—solving one of the biggest complaints about NFTs (they’re hard to trade and often illiquid).

The catch? ERC-404 hasn’t gone through the official Ethereum Improvement Proposal (EIP) process. It’s experimental, unaudited, and carries risks like potential smart contract vulnerabilities. But projects like Pandora and DeFrogs are already exploring it, proving there’s genuine appetite for these hybrid token models.

Side-by-Side: How These Token Standards Stack Up

ERC-721 (NFTs)

• Pure uniqueness: Each token is one-of-a-kind
• Pro: Perfect for proving ownership of rare digital assets
• Con: One NFT per transaction = expensive and slow for bulk transfers
• Best for: Digital art, collectibles, virtual real estate

ERC-1155 (SFTs and more)

• Hybrid flexibility: Handles fungible, non-fungible, and semi-fungible tokens in one contract
• Pro: Multiple transactions in one batch = cheaper, faster, less network congestion
• Pro: Can encode reversible transactions (unlike pure fungible tokens)
• Best for: Gaming assets, ticketing, loyalty programs, anything needing flexibility

ERC-404 (Experimental hybrid)

• Ultra-flexible: Tokens shift between fungible and non-fungible states dynamically
• Pro: Enhanced liquidity, fractional NFT trading possible
• Con: Unaudited, experimental, higher risk
• Best for: Advanced use cases still being discovered

Where Are SFTs Actually Being Used?

Right now, semi-fungible tokens are concentrated in blockchain gaming. An in-game item might start as a non-fungible weapon you collect, but if you gather enough of them, they convert into fungible currency you can spend on anything.

This gives game developers massive control over in-game economics. Unlike older MMO games where inflation spiraled out of control, SFTs let developers maintain balanced, predictable economies.

But the potential extends far beyond gaming. Industry experts are eyeing applications in:

• Event ticketing: Tickets trade as fungible before the event, become collectible souvenirs after
• Loyalty programs: Rewards that start fungible but become unique commemorative tokens
• Real-world asset tokenization: Fractional ownership of property or fine art that can become individual collectibles

SFTs and the RWA Revolution

Real-world asset (RWA) tokenization is becoming huge—the idea that physical assets (property, commodities, securities) can be represented as blockchain tokens.

Semi-fungible tokens are uniquely suited for this. Imagine tokenizing a commercial building:

• Individual shares start as fungible tokens (easily tradeable, liquid)
• Over time, specific shares might become non-fungible based on tenant terms or building conditions
• This gives investors both liquidity (via fungible trading) and uniqueness (via non-fungible representations)

SFTs can encode specific rights, embed regulatory compliance, and track asset conditions dynamically. They’re the bridge between the world of traditional finance (which values liquidity) and digital collectibles (which value uniqueness).

The Bigger Picture: What’s Actually Changing?

The evolution from NFTs to semi-fungible tokens to emerging standards like ERC-404 represents something larger: blockchain technology finally figuring out how to represent any kind of asset, not just one type.

• For creators: Artists, musicians, and developers get paid directly without middlemen, and they can build complex economic systems
• For investors: New asset classes become accessible, liquidity improves, and risk can be better managed
• For industries: Gaming, ticketing, real estate, art, music, and supply chain all get disrupted

NFTs proved the concept works. Semi-fungible tokens prove we need flexibility. And experimental standards like ERC-404 suggest we’re just getting started.

The Takeaway

Non-fungible tokens grabbed headlines and proved digital ownership is real. But semi-fungible tokens might end up being more useful. They’re the compromise that lets developers, creators, and investors have their cake and eat it too—combining the uniqueness of NFTs with the efficiency and liquidity of fungible tokens.

The technology is still young. Standards are still evolving. But as more projects explore what semi-fungible tokens can do, don’t be surprised when they start showing up in industries you wouldn’t expect. The same way NFTs went from “weird internet art” to billion-dollar ecosystems, SFTs might be about to do the same.