What is a Semi-Fungible Token?

 All sort of levels of fungibility are now floating about.  Trying to keep it straight.  

What Is a ‘Semi-Fungible’ Crypto Token?

Concert tickets, gift vouchers and coupons are all examples of semi-fungible items.

By Anatol Antonovici  in Coindesk  Aug 17, 2021 

Fungibility has been a consistent theme of 2021, following the meteoric rise of NFTs. But what’s the deal with “semi-fungible” tokens and how do they work?

The interest surrounding non-fungible tokens (NFTs) reached astounding levels in the first half of this year. Data from NonFungible showed NFT sales surged to over $2.4 billion in the first quarter – 20 times more than the previous three months. That momentum has showed no signs of slowing so far in the second half of the year, with the leading Ethereum-based NFT marketplace, OpenSea, experiencing a record high trading volume of $49 million on Aug. 1, up from its average daily average trading volume of $8.3 million. The average price of CryptoPunks – one of the first collections of NFTs to make their debut on Ethereum’s blockchain – also set a record during the same month of 66.919 ETH per NFT (about $220,000 at press time).

The explosive growth has kickstarted a new wave of innovation around non-fungible assets, including the emergence of a new type of “semi-fungible” token (SFT) that starts off fungible and becomes non-fungible. Let’s break down these terms.

Fungible tokens

The majority of crypto assets investors monitor and trade on a regular basis are fungible, i.e. they are easily interchangeable. For example, if two people exchanged one ether (ETH, +3.59%) for another, there would be no loss of value and neither party would be better off than the other. That is because there is no value distinction between any two ether or any two bitcoin (BTC, +3.46%) for that matter (excluding “tainted coins” – coins that had been previously stolen or used in illicit activities).

Fiat money like U.S dollars are also fungible. In other words, fungibility is the ability of a token (or currency) to be exchanged or replaced with other tokens of the same type resulting in no change in value.    ... ' 

Why Tokens Matter

Whats a token?  Why should we use it as a means of payment.  How does it change how we do business?Is it inevitable we will tokenize?     Dr Rijmenam writes about it.

Why Tokens Matter and How to Clarify a Path Towards Tokenisation
November 6, 2019 | Blockchain Blog | Dr Mark van Rijmenam

The organisation of tomorrow, despite differences in industry, location, products and services on offer, will all have one thing in common: they will use some sort of token as the key enabler to their business. Organisations have multiple options when selecting the type of crypto token. The token economics they opt for influences the likelihood of success for the organisation. Tokens are the fuel of the decentralised economy and William Mougayar, the author of The Business Blockchain and Managing Partner and Chief Investment Officer at JM3 Capital, describes a token as:

“A unit of value that an organisation creates to self-govern its business model, and empower its users to interact with its products while facilitating the distribution and sharing of rewards and benefits to all of its stakeholders.”

The usage of tokens in society goes back to antiquity and technologies such as Blockchain can dramatically reduce the cost of secure and trusted token exchange. The potential for tokenisation to disrupt existing interactions is huge – offering more efficient solutions to existing paradigms (e.g. crowdfunding, fractionalised ownership) as well as opening up whole new models for financing and collaboration. One clear example of a use case for tokens is in funding. While crowdfunding has helped democratise funding, far too often worthwhile ventures remain unfunded. Tokens can potentially bridge the gap between organisations in need of funding and investors, who have funds available.

3 Types of Tokens

Although there are over 3000 different tokens, there are three types of tokens: currency tokens, utility tokens, and security tokens.

Currency Tokens

Currency tokens are the most well-known tokens, simply because the first crypto token ever, bitcoin, is a currency token. The value of the token is determined by supply and demand. Contrary to fiat money, which is backed by gold, currency tokens are only backed by the demand and trust in the market. Therefore, a new currency token faces the chicken and egg problem; for a currency token to be used by a lot of people, the currency token needs to have value and high liquidity. However, to have high liquidity and value, there needs to be a lot of users. Therefore, it took bitcoin and ether a lot of time to increase in value.

The more currency tokens there will be, the more difficult it will be to overcome this problem. As a result, in the future, there will only be a few dominant currency tokens. With the problems, Libra is currently experiencing and the opposition of governments and central banks, it is likely that in the future, currency tokens will be predominantly state-created currency tokens such as the crypto Euro, crypto dollar or crypto Renminbi..... "

Wal-Mart, Facebook and Digital Tokens for Inclusion

Fascinating piece on the notion of 'Financial Inclusion' and its use by retailers of both products and of marketing data,  like Wal-Mart and Facebook.    Meaning of this discussed in the Gartner Blog.  Does this mean that companies like these are attempting to construct their own monetary systems to improve this inclusion?  How will this be regulated?   Implications?

Libra and Walmart “Blockchain” Tokens: Financial or Walled Garden Inclusion?   by cuzureau    Gartner Blog

Facebook has announced the development of a digital currency, Libra (cf. “Facebook Libra — Liberator or Trojan Horse”1 ) and Walmart has filed a patent application for a digital token (cf. patent application2). Both initiatives rely on blockchain technology. The two companies have multiple rationales for launching or planning such initiatives. In this blog post, we explore their claims toward financial inclusion.

Facebook has stressed in the Libra white papers its objective of improving financial inclusion globally. And Walmart’s patent application’s introduction, stresses that: “The cost of having little money is high because of frequent short-term borrowing, accumulated interest on short-term borrowing that becomes long-term, high bank fees proportional to wealth, high credit card fees, and high payday loan interests…. Providing digital currency based on blockchain may overcome the drawbacks associated with the low-income households”

Having more companies try to address financial inclusion is positive and across all markets. Mature banking markets such the US also have to deal with a financial services access gap. The FDIC National Survey of unbanked and underbanked Households (cf.  https://www.fdic.gov/householdsurvey/) estimates that in 2017 there were 8.4m unbanked (no account at an insured institution) households and 24.2m underbanked (checking or savings account only with insured institution), in the USA.   ... "