Quick insight of Solana's SPL-404 standard via the DEGODS token
September 25, 2024
The DeGods NFT collection recently migrated to a single token (DEGOD) to unite all the pieces of its ecosystem. However, this token is not as simple as it seems; it is based on Solana's SPL-404 standard, a particularly interesting yet little-used innovation. In this analysis, we'll be looking at this attempt to (re)connect NFTs to the world of DeFi, but above all at this SPL-404 token standard, enabling hybrid systems to be built between fungible and non-fungible tokens.
Key Information
- SPL-404 Standard: This token standard allows the association of a certain value of fungible tokens within NFTs, facilitating their integration into DeFi, making them more liquid and increasing their accessibility.
- Migration to $DEGOD: DeGods announced the unification of all its NFT collections (DeGods, y00ts) and its DUST token into a single cryptocurrency, DEGOD, via the SPL-404 standard on Solana.
- Pros and Cons: While SPL-404 improves liquidity and lowers entry barriers, it raises questions about the perceived value dilution of NFTs and its impact on the rarity of items in collections.
Overview of the DeGods Ecosystem
The DeGods ecosystem was born in 2021 with the launch of a collection of 10,000 NFTs on the Solana blockchain. It quickly became a huge success, becoming the top NFT collection on Solana in terms of market capitalization. More importantly, it stood out for its constant innovation, keeping up with trends and taking bold risks to maintain community interest.
For example, the collection introduced a unique deflationary mechanism, where holders could burn their DeGods to obtain DeadGods and generate revenue in DUST tokens. Later, the ecosystem expanded with the launch of the y00ts collection, consisting of 15,000 NFTs, organizing various activities and events where DUST was the main currency.
Moreover, DeGods and y00ts migrated to other blockchains, especially when Solana faced difficulties following the FTX incident. DeGods moved to Ethereum, while y00ts went to Polygon. During the Ordinals hype, DeGods also launched its own collection on Bitcoin. In summary, the ecosystem is now spread across multiple collections and blockchains.
The launch of the DEGOD token aims to connect these various components of the ecosystem and simplify things for users.
The SPL-404 Standard: Functionality and Utility
Overview
The SPL-404 standard is a new token standard on Solana that merges the properties of fungible tokens with those of NFTs. Unlike traditional NFT standards, which often limit asset liquidity in secondary markets, SPL-404 aims to fill this gap by integrating a value of fungible tokens directly within NFTs.
To better understand, let's take the case of the DeGods ecosystem. The total supply of DEGOD tokens is $10 billion, with 85% reserved for NFT holders. In fact, DeGods holders can exchange their NFT at any time for 550,000 DEGOD (approximately $3,000 at the time of writing). y00ts holders can burn their NFT to receive 120,000 DEGOD.
Unlike traditional NFTs, which represent unique and non-fungible digital assets, NFTs built on the SPL-404 standard possess an intrinsic value (in tokens) assigned to them. This amount is determined in the initial tokenomics by the collection’s creators.
Functionality
The SPL-404 standard allows each NFT in a collection to have an intrinsic value in fungible tokens while retaining its uniqueness. Notably, in the case of DeGods, the NFT’s rarity within the collection is not considered in the token conversion.
In a hybrid system based on the SPL-404 standard, NFTs hold an intrinsic reserve of fungible tokens. As such, holders have the option to exchange their NFTs at any time for this sum of fungible tokens.
This allows for instant liquidity without the need to find a specific buyer for the NFT. Furthermore, since the underlying token is listed on various marketplaces, it provides better liquidity for NFTs that otherwise wouldn’t have it.
This duality between NFTs and fungible tokens is an interesting way to offer flexibility to collection holders. More importantly, it allows NFTs to be easily integrated into a decentralized finance (DeFi) ecosystem, whether through staking or even in a lending protocol.
Advantages and Limitations
The main advantage of the SPL-404 standard is the flexibility it brings to the ecosystem in question, offering a duality between NFTs and fungible tokens for holders. Additionally, the NFT’s intrinsic value acts as a reserve, allowing traditionally illiquid assets to become liquid.
Moreover, the SPL-404 standard reduces entry barriers to access a portion of the NFT collection’s ecosystem. In the case of DEGOD, users can purchase shares of the DeGods ecosystem without buying a full NFT, making access to this world much more affordable.
Finally, the SPL-404 standard enables NFTs to be integrated into other environments, such as DeFi, as mentioned earlier, as well as virtual worlds, metaverses, or video games. Indeed, a video game item collected as an NFT could be converted into a specific amount of the game’s official token, simplifying sales or exchanges.
However, it’s essential to understand that the SPL-404 mechanism is relatively new and has yet to prove its full compatibility with other blockchains. This is why the launch of DEGOD is an interesting initiative, a large-scale experiment that will reveal the limits of this innovation.
Some of these limitations are already apparent, such as the issue of NFT fragmentation into tokens. This could impact the perceived value if the reserve token amount is much lower than the NFT’s floor price on the market, potentially rendering the mechanism obsolete.
Finally, concerns about considering rarity are also significant. In the case of y00ts, as mentioned earlier, the conversion permanently destroys the NFTs for a fixed amount of DEGOD, without accounting for the specific rarity of the initial NFT. This could affect collectors who value NFTs for their intrinsic rarity.
Key Information on DEGOD
Overview of DEGOD
The DEGOD token is an innovative initiative to unify the NFT ecosystem of the DeGods brand and simplify user interaction and understanding. Indeed, this universe has become increasingly complex over the years, with separate collections on various blockchains (DeGods on Solana, Ethereum, and Bitcoin; y00ts on Solana, Ethereum, and Polygon).
This cryptocurrency has a total supply of 10 billion tokens, distributed as follows:
As shown in the figure above, all existing assets within the DeGods ecosystem can be converted into DEGOD at fixed rates at any time (1 y00t = 120,000 DEGOD, 1 DeGod = 550,000 DEGOD, and 1 DUST = 36 DEGOD). Note that the conversion of these assets includes a 3.33% commission.
Launch Statistics
As of the writing of this article, around 1 million DUST tokens have been burned and converted into DEGOD (around 3.2%), and about 700 NFTs from the y00ts collection have been burned and converted into DEGOD (around 4.5%). As for DeGods NFTs, approximately 250 are currently in the pool, allowing them to be exchanged for their value in DEGOD tokens.
Additionally, the circulation of DEGOD tokens is distributed as follows: 11.6% from DUST, 53% from DeGods, 17% from y00ts, and 17% from the initial sale before the launch (bonding curve).
Conclusion
The SPL-404 standard, utilized by DeGods, merges the worlds of NFTs and DeFi by adding liquidity to traditionally illiquid assets. By testing this approach with their own SPL-404 token, DEGOD, DeGods offers a large-scale experience that will help assess the success or limitations of this new mechanism.
