NFT vs SFT: An In-Depth Comparison of Two Token Standards and Their Application Prospects

The world of digital assets is accelerating its evolution. If Bitcoin and Ethereum opened the door to the crypto era, then NFTs are like unlocking a new world of digital ownership. Now, a hybrid token—SFT (Semi-Fungible Token)—is quietly changing the game.

Many people are already familiar with NFTs, but the concept of SFT remains unfamiliar. Regardless of your current understanding, this article will help you thoroughly grasp the fundamental differences between these two types of tokens.

Starting from the Basics: What Are Fungible and Non-Fungible Assets?

To understand NFTs and SFTs, you first need to understand the concept of fungibility.

Fungible assets are assets that can be exchanged on a 1:1 basis. Simple example: the 1 dollar bill in your hand is exactly the same as the 1 dollar bill your friend has—regardless of whether the bill is flat or crumpled, their value is identical, and they can be exchanged directly. Cryptocurrencies like Bitcoin and Ethereum are fungible assets.

Non-fungible assets are the opposite. They are unique, with each having its own characteristics. You cannot simply swap one non-fungible asset for another because their rarity, attributes, and value differ. This is the essence of NFTs—each token has a unique digital identity.

NFTs: The Ownership Revolution in the Digital World

Non-fungible tokens (NFT) are like “proof of exclusive ownership” on the blockchain. They are not a physical object but a digital marker that proves you own a certain item.

This “item” can be digital art, music files, images, videos, virtual land, or even in-game equipment. The key feature is: each NFT is unique, cannot be duplicated, and cannot be forged.

This is highly significant for digital creators. Artists, musicians, and content creators can finally “sign and number” their works like traditional painters, gaining fair commercial returns through genuine scarcity.

###NFT’s Historical Trajectory

The development of the NFT concept predates many people’s expectations:

• 2012: Developer Meni Rosenfeld first proposed the concept of “Colored Coins” on the Bitcoin blockchain, aiming to represent real-world assets with tokens.
• 2014: Kevin McCoy created the first true NFT—“Quantum,” a pixel graphic that changes color and shrinks rhythmically, minted on the Namecoin blockchain.
• 2016-2017: Internet memes began to be issued as NFTs.
• 2017-2020: Ethereum’s smart contract standards (especially ERC-721) became widespread, and NFTs migrated massively to the Ethereum ecosystem.
• 2017: Cryptopunks launched on Ethereum, becoming a benchmark for early NFT projects.
• 2018: Cryptokitties exploded in popularity, expanding the application scope of NFTs.
• 2021: NFT artworks started trading at major auction houses, with Beeple’s work setting record prices.
• Post-2021: Blockchains like Solana and Cardano joined the NFT competition, and virtual real estate in the metaverse became a new hot spot.
• 2022: Meta announced a strategic shift toward the metaverse, deeply integrating with the NFT ecosystem.

SFT: A Hybrid Between the Two

If NFTs are “completely unique,” then SFT(Semi-Fungible Token) is a “both unique and universal” hybrid—precisely what makes it powerful.

The core mechanism of SFT is interesting: it initially behaves as a interchangeable asset (like regular cryptocurrencies), but under certain conditions, it transforms into a non-interchangeable, unique asset (like an NFT).

A simple example:

Suppose you buy a concert ticket. Before the event starts, your ticket is identical to others in the same row—you can freely resell it. At this stage, it is fungible. But after the concert, the ticket loses its original utility; it becomes a souvenir—one-of-a-kind, non-duplicable, with special memories for you. At this point, it becomes non-fungible. This is the operational logic of SFT.

SFT’s Technical Foundation

SFT is built on Ethereum’s ERC-1155 standard. This standard is a set of rules that support both fungible and non-fungible tokens simultaneously, offering more flexibility than standalone ERC-20 (fungible) or ERC-721 (non-fungible).

The biggest advantage of ERC-1155 is: a single smart contract can manage thousands of different token types, greatly improving efficiency.

Current Applications of SFT

Currently, SFT is mainly active in the blockchain gaming ecosystem. In gaming, SFT can serve as multi-identity game assets:

• As fungible assets: in-game currency, common items, etc., which can be freely traded.
• As non-fungible assets: limited weapons, special skins, each one unique.

This dual attribute provides game developers with unprecedented economic control—much more regulated than traditional MMO games with abundant low-quality items.

Emerging Standard: The Introduction and Controversy of ERC-404

Recently, a new standard called ERC-404 has attracted community attention. It aims to further improve the integration of fungible and non-fungible tokens.

What does ERC-404 promise? It claims to create hybrid assets that possess both fungible token liquidity and NFT uniqueness. In theory, this could solve issues of NFT illiquidity and trading barriers.

But there’s a big problem: ERC-404 has never been approved through the Ethereum official proposal process (EIP). It hasn’t undergone formal security audits, raising safety concerns. There have been multiple incidents of projects exploiting ERC-404 vulnerabilities and fleeing.

Despite the obvious risks, projects like Pandora and DeFrogs are experimenting with ERC-404. This reflects the market’s desire for hybrid tokens but also serves as a caution for investors.

Comparing Technical Standards: ERC-721 vs ERC-1155 vs ERC-404

ERC-721: The Foundation of NFTs

ERC-721 is the de facto standard for existing NFTs, covering most NFT projects.

Advantages:

• Developers can add custom features to each token.
• Can strictly verify ownership and authenticity.
• Ecosystem is mature with comprehensive tools.

Disadvantages:

• Inefficient transactions. Sending 50 NFTs requires 50 separate transactions.
• Leads to network congestion and high gas fees.
• Not friendly for bulk operations.

ERC-1155: Multi-Token Standard

ERC-1155 supports both fungible and non-fungible tokens, serving as an upgrade to ERC-721.

Core advantages:

• One smart contract can manage an unlimited number of tokens.
• Supports batch transactions, significantly reducing gas costs.
• Much faster transaction speeds.

Improvements over shortcomings:

• For main issues of fungible tokens (like non-revocable transactions), ERC-1155 introduces conditional revocation mechanisms.
• For NFT transaction limitations, ERC-1155 allows multiple transactions within a single contract.

ERC-404: Experimental New Direction

ERC-404 attempts to enable dynamic conversion between fungible and non-fungible states at the token level.

Theoretical benefits:

• Enhance NFT market liquidity.
• Support fractional ownership trading.
• Better price discovery mechanisms.

Practical issues:

• Lacks official recognition and security audits.
• Risks of smart contract vulnerabilities.
• Potential for rug pulls.

Comparing NFT and SFT: Practical Application Scenarios

How It Works in Practice

NFT Operation Mechanism:

NFTs mainly operate on Ethereum. They serve as digital identity cards for real assets. Once created, they cannot be altered or duplicated. This ensures artists, musicians, and companies can earn fair income, as each work has an immutable ownership record.

SFT Operation Mechanism:

Imagine you obtain a weapon in a blockchain game. Initially, it can be traded interchangeably with similar weapons—fungible. But after defeating a special boss, the weapon gains a “legendary” attribute, becoming unique and non-fungible. You can showcase its unique value in the game marketplace or keep it as a souvenir. The entire transformation is automatically managed by smart contracts, with no manual intervention needed.

This brings unprecedented transparency and fairness to game economies—making in-game markets operate more like real markets compared to traditional game setups.

SFT and Real-World Asset Tokenization (RWA)

One of the current hot topics in DeFi and Web3 is RWA(Real World Assets)—tokenizing real-world assets.

SFT plays a bridging role here:

• Real estate, art, and other high-value, hard-to-divide assets can be sliced into tradable small shares (initially fungible, facilitating diversified investment).
• Under certain conditions (like property transfer), they can switch to non-fungible form (ensuring ownership uniqueness).
• This flexibility greatly lowers the entry barrier for ordinary people to invest in high-value assets.
• Also ensures legal and regulatory compliance.

This “both liquid and unique” characteristic of SFT is becoming a key to large-scale RWA applications.

Conclusion

From simple cryptocurrencies, to the ownership revolution of NFTs, and now to innovations like SFT and ERC-404, the evolution of tokens is clearly progressing: from single-function to multi-dimensional flexibility.

• NFTs provide digital creators and artists with new monetization pathways.
• SFT offers a perfect technical foundation for practical scenarios like gaming, tickets, and memberships.
• ERC-404, despite its risks, represents the community’s courage to explore new possibilities.

The core value of blockchain tokenization is not hype but how technology can redefine ownership, liquidity, and market efficiency. Whether for creative workers, gamers, or traditional asset investors, everyone benefits from this token revolution.

In the future, more industries and asset types will find suitable token standards. SFT and NFTs are not competing but complementary tools, jointly driving the maturity and expansion of the Web3 ecosystem.