What Is the SPL Token Standard on Solana?

The SPL token standard on Solana defines how NFTs and fungible tokens on the Solana blockchain operates, and ensures that SPL tokens are interoperable with Solana wallets and smart contracts. Unlike Ethereum’s ERC, where there are different token standards for different types of tokens like ERC-20 and ERC-721 (NFTs), the SPL token standard applies to all token types on Solana, where the difference in operation is defined at the token creation stage. Solana’s Token-2022 will offer developers and users new minting and account features.

Key Takeaways

• The Solana Primary Library (SPL) defines how smart contract tokens on the Solana blockchain operate. The operational standards are delineated in the library and must be adhered to by any token created on the Solana blockchain. These tokens are known as SPL tokens.

• The SPL is similar to the Ethereum Request for Communication (ERC) standard on Ethereum.

• SPL tokens run parallel to the native Solana token on the Solana network and utilize the network’s infrastructure. Fees for transactions involving SPL tokens are paid in Solana coin (SOL).

• Solana’s Token-2022 will enhance the functionality of SPL tokens by allowing developers to add interest-bearing logic, transfer fees, and other account specific functions. 

Solana is the 6th largest crypto asset by market cap at the time of writing, with a total market cap of over $26 billion.  It has an ecosystem of decentralized applications and smart contract tokens, including NFTs and fungible tokens. These smart contract tokens are developed according to the Solana Primary Library (SPL) standards. They are known as SPL tokens and are commonly referred to as ‘Solana tokens’. 

The Solana blockchain’s operation has a major effect on how SPL tokens function. Here’s a little background about the Solana blockchain.

What Is The Solana Blockchain?

Solana blockchain is a Layer 1 Proof of Stake (PoS) and Proof of History (PoH) network. It boasts a transaction speed of 65,000 TPs and a block time of 800 milliseconds. The POH consensus mechanism is an improvement of the POW consensus mechanism, which operates using timestamps. Each block is identified by its hash and the exact time they were added to the blockchain. A Verifiable Delay Function (VDF) is implemented to ensure consistency in the block production and arrangements.

As an L1 blockchain network, Solana operates a native token – Solana. Solana is the tax currency of the Solana blockchain; that is, fees for transactions on the network are paid in SOL. It is also vital to the security system of the network. Validators in the network stake Solana coins on their nodes and are rewarded with newly produced Solana coins when they verify a block successfully.

Solana is a smart contract blockchain. It powers applications that operate through smart contracts and also supports the creation of smart contract tokens. Smart contract tokens on the Solana network are known as SPL tokens.

What Are SPL tokens?

Fundamentally, SPL tokens are tokens that operate on the Solana blockchain. SPL defines the set of rules that define how tokens should operate on the Solana network, where compliance with these standards will ensure interoperability with Solana wallets and smart contracts.

SPL tokens run parallel to the Solana native coin and can be spent like any other cryptocurrency. However, they are abstracted from the core operations of the Solana blockchain, unlike the native coin. Therefore, SPL tokens are not used in the network’s consensus, and every transaction involving SPL tokens comes with a network fee which is paid in the native Solana coin. 

Nevertheless, the native Solana coin is technically an SPL token as well since it adheres to the provisions of the SP Library. But unlike other SPL tokens, it is integrated into the core operation of the network from the genesis stage.

Features of SPL tokens

SPL tokens are unique to the Solana blockchain, and do not follow the usual Ethereum-based systems on other blockchains like TRON’s TRC-20 and BSC’s BEP-20.  Here are some features of SPL tokens:

They Can Be NFTs And Fungible Tokens

The SPL defines operation standards for fungible and non-fungible tokens on the Solana blockchain. Unlike ERC, where different standards are set for different types of non-fungible and fungible tokens, the Solana Primary Library doesn’t have a specially computed standard for the different token types. 

So, the SPL standard applies to fungible and non-fungible Solana tokens. The difference in operation is defined at the token creation stage, but this is basically in terms of the number of tokens minted, divisibility, and extra attributes that could be abstracted.

Composability

The Solana Primary Library is composable and SPL tokens inherit this attribute. The source code for an SPL token can be re-used to create another SPL token. This makes it easier for developers to create new tokens. Depending on the creator’s intent, a few features (like token name and supply statistics) could be changed at the point of creation, but the majority of the code base can be deployed without modification and still deliver expected results.

Efficiency

The network conditions of the Solana blockchain have a direct effect on SPL tokens. Solana’s acclaimed fast transaction processing speed applies to SPL tokens. Therefore, transacting with SPL tokens might feel faster and more efficient than other tokens that run on a different blockchain network.

How Are SPL Tokens Created?

SPL tokens are created by interacting with the smart contract facility of the Solana blockchain through pieces of code developed using the Solana blockchain’s programming language (Rust). This process is known as Minting.

To mint an SPL token, you can write the code from scratch or modify the codebase for an existing SPL token. Certain applications have also been developed to help creators mint SPL tokens without doing much coding. During the minting stage, the core properties of the token are defined. For instance, to create a non-fungible SPL token, the supply is set to one and the decimal function is removed. For fungible tokens, the developer defines the decimal function to allow the token to be sent in splits. Also, the supply data is adjusted according to the project’s tokenomics strategy.

Once created, the tokens function like any other crypto asset, unless defined otherwise by the creator at the minting stage. 

What Can SPL Tokens Be Used For?

SPL tokens can be used just like any other crypto assets within the boundaries. Some use cases for SPL tokens include:

ICOs and IEOs

Mainstream firms or native cryptocurrency projects that wish to raise funds for their project’s development can conduct ICOs (initial coin offerings) or IEOs (initial exchange offerings) using SPL tokens. The tokens are minted to represent the project’s valuation, like shares. The project team can mint an amount of SPL tokens to represent the equity and also define future distribution data to suit the project as it grows. The token holders are shareholders in the project and dividends could also be defined in terms of receiving a share of newly generated tokens. 

DAOs

Decentralized autonomous organizations (DAOs) can also tokenize the governance of the project using SPL tokens. Projects can issue SPL tokens to their community and develop voting portals that accept these tokens for submitting and voting on proposals. Each SPL token issued for this purpose represents an opinion, where the number of SPL tokens held by an individual is proportional to their influence in the community decisions.

Utility Tokens

SPL tokens can also be used as utility tokens for blue chip projects in any sector. Projects like these integrate the token into the routine operation of their project. They are native tokens of the project and either give holders certain privileges or are designed to be the access point to the application. Utility tokens are also used as incentives in many contemporary projects.

MemeCoins

Community-building and fun-based projects can also issue SPL tokens as an index of their community strength and marketing prowess. Projects like these are popularly referred to as memecoins. The flexibility of SPL tokens means they can be configured to meet memeCoin tokenomic requirements, like implementing high supply statistics and several other features which memecoins are known for at the minting stage.

NFTs

Digital asset creators can mint unique SPL tokens as digital signatures to their multimedia, gaming assets, or any known use case for NFTs. In this case, the creator mints an SPL token with a supply set to ‘one’ and no decimal function. This removes the fungibility aspect and such tokens can function as an NFT. There are provisions for extra functions like defining the NFTs attributes and transfer arrangements. Some notable NFTs on Solana include Mad Lads and Famous Fox Federation.

RWAs

SPL tokens can also be created to represent Real-World Assets. The mode of operation is defined by the creator, but the SPL standard is fit for known RWA tokenization procedures. Future implementations could make SPL tokens more suitable for RWAs than they currently are, with discussions on the Solana Developer Forums mentioning the potential creation of a token standard that caters to RWA needs like escrow facilities, token freeze/nullification, and more.

SPL vs. ERC-20 Tokens

ERC-20 is an Ethereum standard for creating fungible tokens. SPL tokens and ERC-20 tokens share significant similarities as they both specify the operational set-ups for crypto assets that run on a blockchain. The ERC-20 standard is considerably older and used by more cryptocurrency projects, but SPL tokens are gaining relevance as well. Here are some differences between both of them;

Network

SPL tokens operate on the Solana blockchain, ERC-20 tokens operate on the Ethereum blockchain or any other EVM blockchain. These blockchains have different attributes which are inherited by the tokens. The technological difference in the blockchain also affects the operation and application of both token standards. ERC-20 tokens can only be used on EVM dApps, while SPL tokens can only be used on Solana dApps.

Operational Standards

The SPL standard is designed for tokens that operate on the Solana blockchain or any other network that adopts a virtual machine similar to the one used by the Solana blockchain. The ERC-20 standard on the other hand is designed for tokens that operate on the Ethereum blockchain or blockchains that use the EVM. The tokens’ operations are adjusted to complement these virtual machines. The code for their creation is written in a language understood by the virtual machine, for instance, most ERC-20 token contracts are written in Solidity while SPL tokens’ contracts are written in the Rust programming language. 

Asset Type

ERC-20 token standard defines the operation of fungible tokens only, and NFTs on the Ethereum and other EVM networks are created using specific standards (ERC-721 and ERC-1155). However, the SPL standard can be used to create Fungible and Non-fungible tokens, and it is also used as the token standard for all tokens on Solana.

Handling

ERC-20 tokens can be managed using EVM-compatible wallet applications like MetaMask while SPL tokens are held in Solana wallet applications like the Phantom wallet. While many wallet applications are multi-chain, wallets that are specific for any of these networks (Ethereum or Solana) do not support tokens from the other network. In simpler terms, you cannot transact your Solana tokens from your MetaMask wallet (except using a Solana wallet MetaMask Snap) and ERC-20 tokens cannot be held on Solana wallets like Phantom.

Solana’s Token-2022

The Solana token program is set for a couple of new introductions as part of the Token-2022 program currently in development. Token-2022 is meant to enhance the functionality of SPL tokens, giving way for new abilities in addition to the existing attributes. Token-2022’s new introductions will expand the minting and spending properties of SPL tokens and will allow users to explore even more use cases for SPL tokens. The new introductions are classified into Minting and Account functions. Some of them include;

New Minting Functions

Interest-bearing tokens: Allows creators to add interest-bearing logic to an SPL token.

Transfer fee: Developers can introduce extra fees when an SPL token is transferred.

Transfer functions: Developers can specify advanced transfer operations for an SPL token. Tokens can be set as non-transferrable

New Account Functions

Transfer memo: This will allow users to add a note to SPL token transfers.

Account ownership: Allows users to define rigid ownership data for an account. This cannot be changed once set.

Account state: Allows users to compute a set of conditions that applies only to a selected account.

According to official information, the Token-2022 program is still in development and not meant for full production use until a stable release. In the meantime, the status of the project can be tracked here. Pending its full release, the newly-introduced functions of the Token-2022 program could be a significant upgrade for the token system on the Solana blockchain.

Final Thoughts

The Solana ecosystem is a significant one. SPL tokens have seen a breakthrough in adoption. This article gives an insight into the SPL standard and how SPL tokens operate under the hood to enable the creation of flexible tokens on the Solana network. SPL tokens have a performance advantage over ERC tokens on the Ethereum network; this is thanks to the enhanced speed and overall performance the Solana network is known for. While there are concerns around the level of decentralization in the network, the agility associated with the Solana network is inherited by the chain’s SPL tokens.

When comparing SPL tokens and ERC tokens, both tokens have strengths that make them fit for specific purposes on their respective blockchains. As both cryptographic token standards develop, this will become even clearer. Having said that; note that this article only explains the SP Library and SPL tokens, and should not be considered financial advice. Always do your own research before investing in any asset.