Breakthrough of NFT: Bringing Fungible Tokens and NFTs together

1. Starting from Peanuts

Recently, Elon Musk pinned a tweet about Deez Nuts. While this project appears to mock Disney and the US government, it is perceived by many in the crypto community as a shout-out for bringing fungible tokens and NFTs together. This has resonated with investors and NFT enthusiasts. But why? What exactly is Peanuts?

1.1 Bringing fungible tokens and NFTs together

It’s evident that the trading volume of traditional NFT platforms is shrinking, necessitating a reshaping or innovation in the NFT ecosystem. In today’s cryptocurrency domain, the concept of “bringing fungible tokens and NFTs together/tokens with dual fungibility” has become a highly discussed topic. However, this concept is far more than just a new approach to addressing NFT liquidity issues; it involves a comprehensive, systematic, and elemental turbocharged revolution across various aspects of the crypto industry, including asset categories, protocol standards, operational promotion, infrastructure, and application ecosystems.

Therefore, the successful cases of representative projects like $Nuts on Solana and @Pandora_ERC404 on Ethereum have further fueled discussions on the concept of “bringing fungible tokens and NFTs together”. It took $Nuts 9 days on Solana to rise from a peak value of 0.3u to 2.3u, while @Pandora_ERC404 saw a peak value increase from 400U to 24000U in 6 days on Ethereum. This surge has sparked continued attention and increasing enthusiasm for the concept of “bringing fungible tokens and NFTs together”.

1.2 Will its development be transient or sustainable?

We can see from a set of data that in December 2023, the monthly trading volume of NFTs on Solana reached $360 million, surpassing Ethereum for the first time. Compared to Ethereum, Solana has nearly double the number of trading users and ten times the number of transactions. Solana’s on-chain DEX: as of February 2, 2024, the trading volume of Solana’s on-chain DEX is approximately $114.9 billion, exceeding Ethereum for two consecutive days. Moreover, the trading volume of Solana’s DeFi aggregator platform Jupiter even surpassed the total trading volume of Uniswap V2 and V3 protocols at one point.

The homepage of the Tiny SPL protocol features a Merkle tree and a smiling face, reminiscent of the Windows98 aesthetic. This is the homepage of Peanuts, which may not appear particularly innovative at first glance, but in reality, it embodies a return to simplicity and the principle of minimalism.

1.3 ETH or SOL?

Firstly, Ethereum’s gas fees are relatively high. Although this issue has been discussed extensively, for projects like Pandora that require frequent NFT minting and burning, the gas fee issue on Ethereum may become more challenging with increasing transaction volume and frequency. Recently, the blue-chip NFT project Degods, which migrated from Ethereum to Solana, is considering migrating back to Solana.

However, some argue that compared to ERC‘s projects bringing fungible tokens and NFTs together, Peanuts has a strong background, ample funding, and a large pool. Facing long-awaited innovation, many are willing to bet on Peanuts. While Peanuts may not solely focus on bringing fungible tokens and NFTs together, its main attractiveness lies in its fee reduction in SOL address rent.

The major problem with NFT minting is the high gas fees, but for projects like Pandora that require frequent NFT minting and burning, the gas fee issue on Ethereum may become more challenging with increasing transaction volume and frequency. Recently, the blue-chip NFT project Degods, which migrated from Ethereum to Solana, is considering migrating back to Solana.

Source: https://twitter.com/leodeng08/status/1755444384097775932

However, some people hold different views and suggest comparing ERC’s project bringing fungible tokens and NFTs together with that of Nuts and conducting a rational analysis. ERC’s project bringing fungible tokens and NFTs together is underpinned by a strong background, good origins, and sufficient financial strength, so in the future, ERC-level tokens with dual fungibility will be more in line with public investors.

Of course, we might as well think about some more macro factors. SOL’s current shareholders are all also striving to deify its project. Innovations that have not been seen in a long time once flowed into Peanuts. Despite its mediocre background, Peanut’s value extends far beyond bringing fungible tokens and NFTs together. In other words, the main attractiveness of Peanuts is not bringing fungible tokens and NFTs together, but the reduction of Solana rent.

2. Tiny SPL Protocol

ERC-404, developed by the Pandora team, is a new token standard that adopts the concept of “dual fungibility” from the Tiny SPL protocol. Its design of “dual fungibility” has attracted significant attention, leading to speculation in the $PANDORA token, with its market capitalization increasing by over 100 times in a short period. This has also prompted many projects to issue tokens under the ERC-404 standard.

2.1 Origin - Liquidity Drivers

One of the biggest downsides of NFTs is the lack of liquidity, as it can be challenging to find buyers when trying to sell, resulting in large inventories accumulating and being difficult to circulate.

To address the liquidity issue of NFTs, Emerald introduced an improved token standard, ERC-404, which originated from the Uniswap Emerald project aimed at solving the liquidity problem of NFTs. Emerald introduced an improved token standard by establishing liquidity on Uniswap, allowing the purchase of tokens to correspond to the acquisition of NFTs. Inspired by Emerald, the Pandora team optimized its contract into the ERC-404 token standard, attempting to bridge the gap between the ERC-20 and ERC-721 standards through this innovative coding approach.

2.2 Based on Tiny SPL protocol - sharding technology

The ERC-404 standard has garnered widespread attention due to its unique approach to sharding NFTs. Simply put, “dual fungibility” allows NFTs to possess both scarcity and liquidity, similar to how water can be both solid (ice) and liquid (water).

Specifically, when NFTs have “dual fungibility”, it’s like ice can quickly transform into water when needed. Water can flow freely at any time, while ice is difficult to circulate in narrow bottle necks. Comparing the bottle to a wallet helps better understand this concept: the scarcity of NFTs is its advantage but also the reason for poor circulation. So, how can this problem be addressed?

One possible solution is to endow NFTs with both scarcity and liquidity, which the ERC-404 project achieves. It leverages the technology of the Tiny SPL protocol, giving NFTs a digital balance, akin to having $100 in cash.

For example, when you own this NFT and want to sell or transfer it to someone else, if you want to transfer $50 of its value, you need to pay a fee of $100 first. Then, two NFTs worth $50 each will be minted, allowing you and the recipient to each hold $50 in value. However, it’s essential to note that this process incurs significant transaction fees, equivalent to an additional 30% slippage.

2.3 Design concept

The ERC-404 standard is an experimental token standard aimed at addressing the liquidity issues of NFT (non-fungible token) collections. It combines the features of ERC-20 fungible tokens and ERC-721 non-fungible tokens to enhance the utility of NFT collections in the DeFi ecosystem.

The core innovation of the ERC-404 standard lies in its “dual fungibility” design, which adopts a lossy encoding approach to store the quantity information of fungible tokens and the ID identifiers of non-fungible tokens in the same data structure while ensuring their differentiation. Additionally, ERC-404 introduces a mapping mechanism that allows for natural swap between fungible tokens and their corresponding non-fungible tokens, thereby improving the liquidity of NFTs.

The operation of ERC-404 involves the design of a contract template aimed at facilitating transactions involving ERC-721 and ERC-20 tokens. This contract does not alter the parameters of existing standards but rather facilitates transactions between different asset types. However, it should be noted that whether ERC-404 will receive recognition from the Ethereum Foundation or the broader community is yet to be determined.

2.4 Shortcomings and Development

Despite the widespread attention ERC-404 has received, there are still some challenges in practical application, such as technical vulnerabilities and skepticism about long-term success and acceptance within the crypto community.

While the ERC-404 project has successfully endowed NFTs with liquidity, this rapid conversion comes at a cost, requiring significant gas fees. Additionally, although the project has increased the liquidity of NFTs by enabling the trading of token shares on decentralized exchanges, doubts have arisen about the long-term success of this standard and its acceptance within the crypto community, especially with the decline in the prices of Pandora and other ERC-404 tokens.

Nevertheless, through “dual fungibility”, NFTs can achieve liquidity while retaining scarcity. The ERC-404 project has successfully achieved this goal by leveraging the technology of the Tiny SPL protocol.

3. Key market projects

3.1 GH0ST

Investors have expressed interest in GH0ST, much like Peanuts ($NUTS), as an intriguing project worth considering for investment. It is described as the first project of SPL22, the latest iteration of the SPL20 inscription. Unlike Metaplex NFTs, GH0ST uses Token2022 and eliminates the 0.023 SOL minting fee. This allows creators to add minting fees themselves, with 100% of these fees going towards funding liquidity pools (LPs).

Regarding GH0ST’s minting process, it adopts the SPL20 protocol, essentially serving as a fair launch protocol for minting on Solana. These coins are minted as NFTs in batches of 1000. Subsequently, each NFT can be traded by splitting into individual tokens and vice versa.

The name “GH0ST” stems from its use of the Token22 standard, making them unable to be properly displayed in most wallets until converted into SPL tokens. Nevertheless, as an exchangeable token, platforms like dexscreener still display them as unknown.

3.2 MUBI

“MUBI yields over 10 times returns on initial investment, with a certain MUBI trader seeing their total assets increase from $31.5 million to $297 million in just one month,” - this event, regardless of MUBI’s ecosystem application, is enticing from the perspective of value appreciation alone.

MUBI is somewhat considered the infrastructure of inscriptions. If one considers Bitcoin as the consensus layer and Ethereum as the execution layer, then MUBI serves as the cross-chain inscription between the two. How does the token bridging mechanism of MultiBit work? Users connect their crypto wallets with MultiBit, select the BRC-20 tokens they want to transfer, and direct them to the specified BRC-20 address provided by the protocol. After receiving and verifying the deposited tokens, MultiBit generates an equivalent number of tokens on the EVM network through the minting process.

MultiBit’s bidirectional bridge feature allows users to recover tokens from the EVM network to Bitcoin. Upon withdrawal, the MultiBit protocol burns the corresponding tokens on the EVM chain and returns tokens of equal value to the users from a secure cold wallet. In addition to Ethereum and BNB Chain, MultiBit has extended its token bridging functionality to the Polygon and Arbitrum networks.

3.3 SoBit

SoBit is a cross-chain platform, and the SoBit protocol is an innovative solution designed to seamlessly connect BRC-20 tokens to the Solana network, enhancing the liquidity and utility of BRC-20 tokens in the Solana ecosystem. The project’s mission is to create a more unified connection in the Web3 ecosystem and unleash more native crypto liquidity in the future.

SoBit’s roadmap covers plans from the fourth quarter of 2023 to the third quarter of 2024. It mainly includes testing and auditing functions, launching a new user interface, introducing automatic routing functionality and real-time updates supporting BRC-20 assets, collaborating with more Solana DeFi partners, and establishing a BRC-20 application alliance.

Especially, the innovations in Sobit v2 in improving security, accelerating cross-chain speed, expanding asset support range, and enhancing user experience make the project increasingly prominent. It can provide one-stop cross-chain services for any new BRC20 assets and launch assets through contracts to better access funds and users in the Solana ecosystem.

According to the roadmap, Sobit is expected to become the platform with the widest support for BRC20 assets in terms of Bridge+LaunchPad and leverage the advantages of the Solana ecosystem to become the most promising value oasis in the inscription track. Sobit is expected to launch version v3, including a more feature-rich LaunchPad, Staking function supporting inscription assets, a global index compatible with SRC-20 inscription assets and Bridge as a Service (BaaS) function.

4. Development and Prospects

The development and emergence of the aforementioned projects not only benefit the SOL blockchain but also hold promise for other public chains. The concept of “bring fungible tokens and NFTs together” has dealt a significant blow to NFT platforms like Looksrare/Opensea/X2Y2, ushering in a convergence of Minting/NFT/TOKEN and signaling the reboot of NFT 2.0.

4.1 New Paradigm of Token Distribution

Projects like NUTS and GH0ST have underscored the importance of bringing fungible tokens and NFTs. In the future, NFTs without fungible token features may struggle to attract investors, especially during bullish crypto market cycles when value realization pathways are crucial.

The development in Minting is breaking through at the protocol level, potentially introducing a new paradigm or layer for assets in the crypto world. This suggests that Minting has the potential to significantly impact the entire crypto world by facilitating shifts and evolutions in asset paradigms.

4. 2NFT’s DeFi

Bringing fungible tokens and NFTs together has reignited interest in NFTFi, focusing on addressing liquidity control issues to ensure the stability of token values and prevent overheating or freezing. This entails the development of new financial services such as algorithmic stablecoins, liquidity mining, lending, and improved market-making mechanisms, thereby promoting the sustained and healthy development of the cryptocurrency ecosystem.

4.3 Proliferation of Low-Cost NFTs

Projects like Peanuts have significantly reduced the barrier to entry for minting NFTs. Previously, high gas fees, especially during network congestion, deterred many from minting NFTs on chains like ETH/BTC. However, the advent of bringing fungible tokens and NFTs together has greatly compressed this space, leading to the emergence of high-quality projects in bulk.

4.4 Enriched Expansion of Infrastructure Layer

As mentioned earlier, we discussed the predicament of platforms like OpenSea continuously declining. To support a large number of trading on tokens with dual fungibility, the demand for infrastructure services will become more urgent. This will involve the development of high-throughput and low-latency basic networks, reliable smart contracts, and interoperability solutions. For instance, the development of mechanisms for tokens with dual fungibility using cross-chain technology will facilitate seamless asset exchange across different blockchain platforms, further advancing the integration of the cryptocurrency ecosystem.

The boundaries between DEX, token markets, and NFT markets have become blurred. This indicates that tokens with dual fungibility may have established close connections between different encrypted transaction and asset fields, potentially facilitating transactions and liquidity between assets, further driving the development of the crypto world.

4.5 Emergence of a New Asset Category: Token + NFT + FT

Tokens with dual fungibility will combine non-fungible tokens (NFTs) and fungible tokens (FTs) into a hybrid asset standard, officially becoming a new asset category. These assets will possess characteristics similar to ordinals in BRC20 tokens, demonstrating the duality of NFT/FT. This innovation will drive the development of asset types in the cryptocurrency industry, potentially leading to the emergence of more projects similar to $Nuts and Pandora. For example, the NFT market is expected to experience a surge in applications and business models. This will further propel the development of the cryptocurrency industry, bringing more innovation to applications supporting tokens with dual fungibility. Fields such as AI, DeFi, GameFi, and RWA have enormous growth potential and will become important directions for applications supporting tokens with dual fungibility.

4.6 The Era of Digital Asset Transformation in the Solana Blockchain Ecosystem

The introduction of SPL-20 tokens on the Solana blockchain and the significant evolution they bring. SPL-20 tokens represent a unique and professional registration standard within the Solana network, storing binary data such as images or JSON metadata through program-derived addresses (PDAs) linked to NFTs. For example, SPL-20 tokens feature mutable stamps for reserved space and immutable artifacts for permanent records. Additionally, LibrePlex plays a crucial role in the development and deployment of SPL-20 tokens, proposing concepts such as fair launch modules and bidirectional bridges to enhance accessibility and functionality in the digital asset domain.

SPL-20 tokens go beyond simply embedding data into the blockchain; they represent a nuanced and structured approach within the broader landscape of blockchain tokens. This involves creating PDAs linked to NFTs, which store binary data such as images or JSON metadata. SPL-20 tokens, defined through JSON, encompass every operation involved in minting NFTs, with each operation associated with a corresponding order number. Tokens like $SOLS and $LADS are examples of assets created according to this specification.

5. Summary

With the introduction of Minting and the analysis of $NUTS, valuable insights have been provided to us: SPL-20 has become a unique and professional registration standard within the Solana network. The Solana blockchain is currently undergoing significant evolution, and the concept of Minting has gained attention in the blockchain world, particularly emphasized by Ordinals and BRC-20 in the Bitcoin ecosystem.

Originating from the Bitcoin network, Minting has been described as destined to eventually break out of the Bitcoin network. This suggests that Minting could become a crucial bridge connecting different blockchain networks, further emphasizing its critical role in the crypto world. However, more importantly, we should anticipate the future development trends of “bringing fungible tokens and NFTs together / tokens with dual fungibility” and deeply contemplate and forecast its implications.

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