What are SPL tokens?

SPL tokens are tokens on the Solana blockchain. They conform to the Solana Program Library, a collection of on-chain programs that govern how the tokens function. 

Altcoins have become a dirty word in much of the legacy financial system, primarily due to 2017’s ICO era. Wall Street, or at least the ‘Old Wall‘ (and the IRS), recognizes Bitcoin and Ethereum as commodities while dismissing other tokens as a general altcoin market full of valueless tokens and a few diamonds in the rough. While untrue in many cases, usefulness is certainly not a default aspect of the technology.

Think of the native asset (the one that pays the fees) of a blockchain (ETH on Ethereum, AVAX on Avalanche) as the coin, and think of the tokens built on those blockchains (AAVE, JOE) as the digital assets that conform to a given token standard instituted by the network. 

For example, SOL serves two primary purposes:

1. Securing the blockchain by being delegated to a decentralized network of validators.
   1. For more information on how this works, check out this link. 
2. Being the currency to pay transaction fees with. 
   1. Each transaction you make on the Solana blockchain requires SOL to be paid as a fee. 
   2. Don’t worry. The average transaction cost on Solana is around 0.000005 SOL, or about $0.001.

SOL serves as the unit of account for the Solana ecosystem because all the NFT exchanges on Solana currently denominate their NFTs in SOL. This could change, but it has become the standard since the onset of these exchanges. 

Are SPL Tokens fungible?

Yes and No. 

Think of fungible tokens as being exchangeable for one another. Bitcoin is fungible because you can exchange 1 Bitcoin for 1 Bitcoin. Every Bitcoin is the same. NFTs are non-fungible because every NFT is unique, valued differently, and can serve various purposes. 

SPL tokens refer to all the on-chain program libraries that Solana has implemented. This means that a token you are using to purchase a Solana NFT is an SPL token, and the NFT itself is an SPL token. 

It’s similar to the fact that Ethereum’s ERC20 token standard defines how fungible tokens like UNI, AAVE, and YFI operate. In contrast, the ERC721 token standard defines how non-fungible tokens, like every NFT, operate. 

What is the point of a token standard?

Solana is the world’s fastest smart contract-enabled blockchain, attracting hordes of developers and entrepreneurs. For smart contract networks to operate effectively, token standards are necessary implementations as they help govern the capabilities and limits of the decentralized applications built on them. Token standards also enable decentralized applications to generate incentives within their network of users. 

SPL tokens can vary greatly. One can be an NFT, one can be a token with a circulating supply of 10, one can be a token with a circulating supply of 1 quadrillion, and one can even be a derivative of a real-life asset, like a condo or a diamond. 

Synthetic Tokens

Synthetic tokens are slowly but surely finding their place in decentralized financial markets. 

Using ERC20 tokens and the oracle protocols on Ethereum, Synthetix, and UMA (Universal Market Access) can mint a token to reflect the values of objects located outside the Ethereum network. Oracles are third-party data feeds that connect smart contracts with data outside their network. 

Say you want to trade Apple’s stock on a blockchain. You can head over to a synthetic protocol like Mirror on Terra and see that you can trade mAAPL which reflects the real-time value of Apple’s stock on the New York Stock exchange – during the NYSE’s trading hours, of course.

Solana has a few projects building synthetic tokens, but they have yet to go live. For more information on synthetic SPL tokens, check out Synthetify’s Whitepaper.

How to use SPL tokens

Holding, sending & receiving, swapping, and staking SPL tokens requires an SPL-compatible wallet. A wallet built strictly for Ethereum utilizes only ERC20 & ERC721 tokens and won’t work with SPL tokens. If you do send SPL tokens to an Ethereum address, you will either have the transaction denied or lose the funds forever. 

To avoid that hassle, you can set up Solana’s most powerful non-custodial wallet, Solflare. Click here to learn more about Solflare’s swap feature and here for its staking features. 

Once you have generated your Solflare wallet, you must fund it by sending SPL tokens from the exchange. You then have access to the wonderful worlds of DeFi, NFTs, and DAOs. 

DAOs & Tokens

DAOs (decentralized autonomous organizations) come in many shapes and sizes. The primary function of a DAO is to allow members to participate in the governance of an organization, community, protocol, or product. The majority of DAOs require a token (ERC, SPL, ASA – Algorand’s Standard Asset, etc.) to be held in your wallet for you to be eligible to vote or create proposals. For example, holders of the UNI token on Ethereum get to vote on how the treasury is governed. Uniswap’s treasury is over $10 billion. 

Squads and Goki Protocol are building the necessary infrastructure for DAOs to succeed on Solana. With Squads’ Voting and Treasury features implemented alongside Goki’s multi-sig wallet, DAOs can form and enact proposals quickly and efficiently. 

Conclusion

SPL token standards are the backbone of Solana’s burgeoning DeFi, NFT, and DAO ecosystems. They help maintain decentralized controls over protocols, enable novel products like synthetics, and create new forms of governance. 

Once you wrap your head around the idea that, when designed and managed effectively, any token can be a force for good, you’ll see the value of token standards and their massive benefits to society.