Deep dive into the new ERC6909 token standard

Introduction

One of the latest breakthroughs in DeFi comes with Uniswap v4, a major upgrade to the world’s leading decentralized exchange. While Uniswap v4 itself is a huge improvement (promising new automation and possibilities like AI-driven agents) what doesn’t get talked about enough is the standard powering its liquidity provider (LP) tokens: ERC6909.

Let’s see why. 

What is ERC6909?

ERC6909 is a new token standard on Ethereum designed to handle semi-fungible tokens. But what does "semi-fungible" mean? Imagine tokens that are interchangeable (fungible) within specific groups or categories, but distinct (non-fungible) across different groups. Each group is assigned a unique token ID, and within that ID, the tokens are fully interchangeable.

To make this concrete, let’s use an example: sneakers.

• Let's say you have a pair of white Nike Air sneakers, size 46. Another pair with the exact same attributes (white Nike Air, size 46) is identical and interchangeable with yours. You could swap them without knowing which is which.
• But that same pair isn’t interchangeable with pair of Nike pink sneakers, size 42. They’re fundamentally different due to their unique attributes (brand, color, size). But both are still sneakers. 

With ERC6909, each unique combination of attributes gets its own token ID. All white Nike Air size 46 sneakers might be grouped under token ID #1, and within that ID, the tokens are fungible. Meanwhile, Adidas pink size 42 sneakers get their own token ID #2, and they’re not interchangeable with #1. This flexibility makes ERC6909 perfect for assets that don’t fit neatly into the fully fungible (ERC20) or fully non-fungible (ERC721) categories.

ERC6909 bridges the gap between ERC20 (fully fungible tokens) and ERC721 (non-fungible tokens, or NFTs), offering a clear way to represent complex, semi-fungible assets on the blockchain.

It is important to note that you can specify the maximum supply for each ID, meaning you could have a close to infinite supply of tokens with a certain set of characteristics, effectively making them fungible. Or you could set the max to one, thus creating an NFT. 

Use Cases for ERC6909

ERC6909 isn’t just a theoretical improvement—it’s already proving its worth in practical applications.

1. Gaming
   In-game items like “health potions” could be fungible within their type (token ID #1), while “mana potions” get a separate token ID (#2).
2. Supply Chain
   Batches of goods (e.g., organic apples from Farm A) can be tracked as fungible within their batch, but distinct from other batches.‍
3. Clothing
   or everything brand-related.‍
4. Real World Assets (RWA)
   many items in our non-digital lives fall into this category. Flexibility in representing them means being closer to the truth when interacting with the chain.  Specifically, let’s talk about Fund Shares. 

Fund Shares: Precision in Finance

At first glance, you might think fund shares or fund units are fully fungible: one share equals another since they can be redeemed for the same underlying. However, this doesn’t take into account the different share classes. Even within the same share class, there might be several differences: 

• Shares in a fund can have different high-water marks (the peak value used to calculate performance fees), lockup periods (how long your money is tied up), and exit fees (costs to withdraw).
• Even if two shares have the same Net Asset Value (NAV), these attributes can make them distinct, since the investor wouldn’t get the same amount of liquidity out of them. 

Now with ERC6909, you can have individualized share classes for each investment (can be multiple per investor), without additional overhead. You can precisely track individual characteristics and take them into account in calculations and accounting. 

At Fume, we’re using ERC6909 to tokenize fund shares. This unlocks the power of our on-chain operations, such as:

• one-click NAV calculation
• automatic distribution
• instant subscription and redemption
• and much more.

More complex cases can then benefit from these operations, with equalization amongst these individualized share classes, or creating a Fund-of-Funds that has extremely low operational overhead.

This approach ensures our protocol is efficient, fast, and secure while accurately reflecting the real-world complexity of investment funds. 

Conclusion

ERC6909 allows a precise representation of a new kind of assets on-chain and unlocks a new wave of applications. Fume is the first among them to tackle the tokenization of fund shares, and build on top of this new standard. 

Contact us to learn more about the possibilities offered by this new standard and how it allows us to streamline fund operations. 

Extra: Why ERC6909 Stands Out in Comparison to ERC1155

If you come from the blockchain world, you might be thinking: “Doesn’t ERC1155 already handle semi-fungible tokens?” You’re right. ERC1155 is a multi-token standard that can manage both fungible and non-fungible tokens under one contract, just like ERC6909. So why do we need ERC6909?

The answer lies in simplicity, security, and efficiency. Here’s how ERC6909 improves on ERC1155:

1. Fewer Hooks and Callbacks
   ERC1155 includes advanced features like hooks and callbacks, which allow contracts to react to token transfers. While powerful, these features increase complexity, creating more code that could harbor bugs or vulnerabilities. ERC6909 strips these away, focusing on the core functionality needed for semi-fungible tokens.
2. Reduced Attack Surface
   Less complexity means fewer opportunities for exploits. By minimizing the features in the standard, ERC6909 lowers the risk of security issues—a critical advantage for DeFi applications where millions of dollars are at stake.
3. Lower Gas Costs
   Simplified logic translates to less computation on the Ethereum network, reducing gas fees for transactions. This is a big win for users and developers alike, especially in high-volume environments like Uniswap.

Uniswap v4 has embraced ERC6909 for its LP tokens, and their documentation highlights these benefits: improved gas efficiency and streamlined contract logic. If a protocol as prominent as Uniswap is adopting it, that’s a strong signal of ERC6909’s potential.