Fungibility

Fungibility

Sovereign Assets • Layer 1s • Payment Networks

asset interchangeability property

Fungibility is the property of an asset that makes each unit identical and interchangeable with every other unit of the same type. Fungible tokens—such as Bitcoin, ETH, or USDC—can be swapped one-for-one, just like traditional money. Non-fungible assets (NFTs), by contrast, are unique and not interchangeable, with each token representing a distinct item, collectible, or property right.

Use Case: Swapping one $USDC for another $USDC works seamlessly because both tokens have equal value and function. By contrast, trading NFTs (like art or collectibles) is a one-of-a-kind exchange—each item has unique properties and value.

Key Concepts:

• Token Standards Index — Defines whether a token is fungible (ERC-20, BEP-20) or non-fungible (ERC-721, XLS-20)
• NFT Standards — Protocols designed to enforce non-fungibility and uniqueness for digital assets
• Smart Contract Token — Tokens created by code can be either fungible or non-fungible based on their standard
• Currency Conversion — Relies on the fungibility of money-like assets for seamless exchange
• ERC-20 — The primary fungible token standard on Ethereum
• Metadata — Non-fungible tokens use metadata to define uniqueness
• Liquidity Pool — Fungibility enables seamless pooling and swapping of tokens
• Stablecoins — Fungible tokens designed to maintain consistent value

Summary: Fungibility is the dividing line between cryptocurrencies that act as money and those that represent unique value. It underpins the fluidity of digital and traditional economies, enabling universal exchange and liquidity for assets.