Ethereum Improvement Proposal (EIP) 3525 has been approved as a new standard on the blockchain platform for the creation of semi-fungible tokens.
EIP-3525 has become a new token standard on Ethereum, designed to represent semi-fungible assets within this network.
This new token standard was introduced in 2020 by developer Will Wang, co-founder of the Solv protocol, along with contributors Mike Meng, Ethan Tsai, Ryan Chow, Zhongxin Wu, and anonymous contributor AlvisDu, to introduce a new structure for tokens on the network.
In the proposal for improvement of EIP-3525, Wang explained that Semi-fungible tokens are more suitable for the creation or tokenization of financial instruments such as bonds, securities and insurance policies on the blockchain.
Semi-fungible tokens on Ethereum
The ERC-3525 standard introduces a new semi-fungible token structure and transfer model that combines the quantitative characteristics of ERC-20 tokens with the qualitative attributes of ERC-721 tokens, thus allowing the creation of customizable financial assets on the blockchain. This means that through ERC-3525 it is possible to create digital assets with identical asset units that provide flexibility, while integrating a distinction to differentiate assets based on identity.
To differentiate the ERC-3525 token standard from the ERC-1155 standard, which also allows for the ability to handle somewhat semi-fungible assets, Wang explained that the logic behind his standard is that «an ERCC-3525 token, has an ID with an associated value», while in ERC-1155 the logic is that «an address can have multiple tokens, with different values under a given ID».
The ERC-3525 standard uses so-called “slots” as a technique to estimate whether asset values of different IDs are fungible with each other. It is this feature that enables the semi-fungibility capability of ERC-3525.
What are the advantages of semi-fungibility?
The ERC-3525 token structure allows for the best of ERC-20 and ERC-721 to be brought together to accommodate the realities of flexible financial assets on the blockchain. Essentially, ERC-3525 seeks to become a vehicle for more realistically expressing financial assets (traditional and non-traditional) on the blockchain and associated protocols (DeFi or GameFi, for example).
The developers of the standard explain that With ERC-3525 there is no need to create a separate ERC-20 token contract for each financial product on-chain, as is the case under the ERC-20 standard, where a separate contract needs to be created for each individual data structure or combination of customizable properties, resulting in the creation of an extraordinarily large number of ERC-20 contracts. All of this is simplified by the ERC-3525 token standard.
On the other hand, the new Ethereum standard also allows manage the value of financial products at a standard level, rather than doing it separately at the implementation level, as is the case with ERC-721-based contracts. This is especially useful for improving the computability, liquidity, and manageability of digital financial assets, allowing the possibility of transferring a portion of the value deposited in the contract represented by the token; something that is impossible using ERC-721.
The ERC-3525 standard creates huge space for blockchain innovations
The Ethereum crypto community is excited about the arrival of this new standard. On Twitter, Wang commented that this new token structure paves the way for creating new use cases for tokenization and for expanding the potential of the Ethereum network.
On the other hand, although the Ethereum Improvement Proposal (EIP) 3525 has been approved this month and has become a new standard for the Ethereum network, some developers like Micah Zoltu do not seem very convinced with the new standard.
In a Discussion on the Ethereum Magicians forumZoltu commented that ERC-3525 may bring compatibility issues for most existing wallets that are unable to implement updates, as this new standard requires the recipient of a token transaction to have a specific function implemented in their wallet to accept such a transfer.
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