semifungibility

Semifungibility is a property of certain assets in which individual units are interchangeable with other units within a defined set or class, but not necessarily interchangeable with units outside that set. In practical terms, all units in the same subclass share a common value or claim, while units from different subclasses carry distinguishing features that can affect exchangeability or price. This places semifungible assets between fully fungible assets, where every unit is interchangeable, and non-fungible assets, where each unit is unique.

In traditional finance and commodity markets, semifungibility arises when units can be exchanged freely within a subset but not across the entire asset pool. For example, bonds of the same issue are generally fungible, but different issues or tranches are not interchangeable with one another. Similarly, a crude oil grade with certain specifications may be treated as interchangeable within that grade, while shipments that differ in quality or origin are not fully interchangeable.

In digital assets, semifungible tokens describe a class of tokens that are interchangeable within a defined subset but not across other subsets. For instance, tickets within the same seating category for a given event may be considered semifungible, as they are exchangeable among holders of that category, but not with tickets from other categories or events. Loyalty points or coupon-based assets can also exhibit semifungibility when only points from the same program or class are mutually interchangeable.

Semifungibility has implications for pricing, trading, custody, and regulatory treatment, requiring clear classification boundaries and consistent valuation within each subclass. It offers liquidity within groups of interchangeable units while preserving distinctions between different classes.