The path of history doesn’t follow a straight line. The reality of this particular origin story is layered, circular & nuanced. I feel we should embrace this complexity instead of settling for an oversimplified misrepresentation. This article contains both my own subjective anecdotes as a Solana native along with the objective research I’ve gathered in the hopes of helping to glean a clearer picture on the origins of Hybrid DeFi.
First let’s define Hybrid DeFi, in this context I’m referring to digital assets that can exist dynamically in multiple states such as fungible tokens, semi-fungible tokens, and/or non-fungible tokens within a SINGLE TOTAL SUPPLY. NFT collections with staking tokens, multiple generations, pets & breeding do not fall into this category as those are all separate assets & supplies, although all of these NFT models are important predecessors. Fractionalized NFTs also do not fall into this category as the intention is to bridge one way from a single NFT to token, never back. This category includes but is not limited to meta-protocols & projects like Ovols, NPC, SPL20, TinySPL, SPL22, ERC404, FOCS/FOC & SPL404. Or to oversimplify it:
“The best of both worlds of NFTs & memecoins in ONE”.
The place I like to start is with the advent of BRC20, although it is in no way the beginning of this meta and isn’t directly related. (If you’re already familiar with BRC20 you can skip this section).
MARCH 2023
In summary, BRC20 is a fungible token standard built on top of Ordinals by Domodata, enabling tokens to be deployed on Bitcoin layer 1. BRC20 is one of the most lean and elegant token standards in crypto history (though not without its own flaws). So I find that it helps to distill the concept of a token standard into a simple, human readable format. It simply consists of three kinds of text inscriptions, using JSON format to broadcast the deployment, minting & transferring of tokens.
A deploy inscription looks like this:
{"p": "brc-20","op": "deploy","tick": "ordi","max": "21000000","lim": "1000"}It’s that simple. By inscribing this string with less than 100 bytes of data onto Bitcoin, you’ve just deployed a new token named ORDI with a supply of 21 million, and a mint limit value of 1000. This means that you can only mint up to 1000 tokens at a time per mint inscription.
A mint inscription looks like this:
{"p": "brc-20","op": "mint","tick": "ordi","amt": "1000"}By inscribing this text string, you’ve minted 1000 ORDI tokens to your wallet. Mint inscriptions have a one-time use only, and are only valid up until the entire supply has been minted. So in the case of ORDI, only the first 21,000 mint inscriptions are indexed, as 1000 x 21,000 = 21,000,000.
A transfer inscription looks like this:
{"p": "brc-20","op": "transfer","tick": "ordi","amt": "1"}The transfer inscription completes everything you need for a fungible token on Ordinals. It allows you to move any amount you choose as long as you have an available balance that is equal to or more than the transfer amount. You simply have to inscribe this text string first to your wallet that holds the balance, then send it to the destination address where you’d like to send the tokens to. Indexers determine state balance at any given time.
July 2023
On the other side of the blockchain ecosystem i.e. Ethereum in mid 2023 (the tail end of the bear market) there wasn’t a ton of innovation occurring with Ordinals still being the hot new thing. However a project emerged with an interesting twist on the ERC1155 semi-fungible standard creating something they called NFT Hybrids or MFTs (Meme Fungible Tokens). This project is called NPC: Non Playable Coin, the first documented occurrence of the term “NFT Hybrid” in reference to one that can be swapped for its fungible equivalent. The aim was to make NFTs much more liquid, high supply, and tradable across DEXs such as Uniswap, in addition to NFT marketplaces such as OpenSea & Blur.
The project was based on its own custom dApp built on top of ERC1155 & ERC20, enabling you to swap between NFT and fungible toke at a 1:1 ratio, the total supply was 8 Billion (one for every human on earth). However each ERC1155 was an identical base PFP, so they introduced the option to customize the PFP to your liking and then mint it as a new ERC721. The project went mostly under the radar in 2023. Since it contained this separate collection of ERC721 NFTs, it was still a prototype to the current Hybrid meta.
November 2023
Now we can fast forward to SPL20, perhaps the most important underlying framework in today’s meta we call Hybrid DeFi. SPL20 formed organically out of the Libreplex community, built on top of their on-chain Solana inscription program. Libreplex was at the time a small grass roots community that emerged out of the need to create a fully open-source & fee-free standard for NFTs on Solana; as before that, a single centralized entity Metaplex owned the dominant proprietary standard which included protocol level fees to mint. Their mission was to democratize access to creating NFTs on Solana. The most notable core contributors to Libreplex are Neft, Hamster, Scruffy & Appsus.
The biggest catalyst that propelled Libreplex’s mission into action was the implementation of their on-chain inscription program, inspired by Hamster’s early art collection Blockrons (the first on-chain inscription collection on Solana) as well as CryptoPunks & Ordinals of course.
As soon as the program went live which standardized on-chain art, I began inscribing my 1/1 animated GIF collection CryptoChumps starting at inscription #1312. Around this same time a self-proclaimed multi-chain degen with an honorary NodeMonke PFP named SolKek and his friends began to toy with ideas on how to replicate the BRC20 text inscription standard onto Libreplex’s inscription program which was originally made for art & media files. They were freshly inspired by the success of the “ethscription” coin $ETHS that did the same thing on Ethereum, having skyrocketed to a $40M market cap. SolKek discovered that while inscribing an NFT using Libreplex you were able to not only change the original image to a new one, but you could also upload a .txt file instead, allowing him to inscribe a JSON string analogous to BRC20. He landed on the name SPL20, as SRC20 had already been takin by the Stacks BTC L2 chain. He chose the following syntax for the first deployment, SOLS.
{"p": "spl-20","op": "deploy","tick": "sols","max": "21000000","lim": "1000"}It’s only a few characters different from ORDI and from there the public mint began and anyone was able to inscribe the following mint inscription using this same “hack” of the Libreplex program.
{"p": "spl-20","op": "mint","tick": "sols","amt": "1000"}
It was at this moment, as soon as the SOLS mint began that I realized we’d need some form of “transfer inscription” to break apart each mint batch of 1000 tokens as SPL20 behaves very differently than BRC20. BRC20 was born out of necessity whereas Solana already had a perfectly fine fungible token standard, so in the case of SPL20 the JSON data isn’t actually very useful for the changing of balances, it’s mostly arbitrary after the initial deploy, mint & indexing of the NFT inscription collection. I suggested to SolKek some form of “bridge” to burn each NFT in return for 1000 SPL tokens, the pre-existing standard that could be traded on all Solana DEXs like Orca & Raydium. Neft engineered this and added his own innovation, a two-way bi-directionality so that you wouldn’t have to burn the NFT but instead lock it in escrow, only retrievable by swapping back in 1000 $SOLS. This was the genesis of a new hybrid asset that can exist in either an NFT or a fungible token state, but never both at once.
Here’s the official documentation on this Libreplex fair launch mechanism that grew out of this experiment.
DECEMBER 2023
We can fast forward again from here past SOLS becoming the #1 market cap collection on Solana for a brief moment, reaching an all time high of $300M i.e. an NFT floor pice of nearly 100 SOL with a 21,000 supply, something previously unheard of on Solana. However this was only still setting the stage for the new narrative to emerge in full force. At the time of SOLS, nobody was calling it Hybrid DeFi, we were calling them SPL20s or inscription fair launches and the main narrative revolved around the same values of ORDI and BRC20 i.e. free & 100% public mints based on immutable on-chain data. It wasn’t until a month or so later in December 2023 that a project came around called BOZO Finance that popularized the term “Hybrid DeFi”, founded by Caeser aka Parabolit.
Caeser saw SPL20 in an all new light than anyone before him. He concocted his own special formula of tokenomics that are meant to enhance the qualities of these hybrid assets he found fascinating. Instead of each NFT containing 1000 tokens inside, he chose for them to contain 800,000 tokens and an NFT supply of 1000, for a total supply of 800,000,000. This extreme ratio of NFTs to tokens creates a system in which the NFT supply becomes effectively deflationary at an extreme pace, as it becomes increasingly difficult to acquire enough tokens to redeem an NFT with the rise of token distribution and/or price. (However neither the NFT or token supply is truly deflationary as no tokens or NFTs are ever fully removed from circulation). Caeser has written at length about Hybrid DeFi and has some of the pioneering threads on the subject. Other common themes of this new game theory framework include internal arbitrage (across the NFT & token markets) and NFTs being used as trustless OTC transactions for whales to avoid slippage. He discovered a positive feedback loop within this system, where demand can lead to rapid price movement, with very low token circulating supply, low liquidity and the ability to avoid negative price impacts on the token market by utilizing the NFT. This leads to high volatility in price action and at all time highs the NFT floor price soared past 500 SOL, another moment that took the entire blockchain by storm and had everyone wondering what this meta was all about.
JANUARY 2024
In the early new year an experiment arose on Solana called tinySPL by a dev ironically named Sol_idity. tinySPL is an entirely different approach to hybrid tokens utilizing compressed NFTs (cNFTs) eliminating the ~0.002 SOL cost required to create a new token account per wallet. This made it virtually free to deploy and/or airdrop an entire token supply, as well as any subsequent transfers. Initially it launched as a collection of strictly cNFTs that contain a dynamic amount of tokens inside. Holders are able to split their cNFT balances into any amount to make them fungible as well as recombine their balances using the custom tinySPL dApp.
At launch, NFT marketplaces weren’t setup to handle these dynamic value NFTs, as there’s just one floor price for any of the NFTs in the collection regardless of how many tokens were contained inside. (For SPL20, the value is static across the collection, so this hadn’t been an issue previously). These cNFT token wrappers behaved much more similarly to BRC20 transfer inscriptions, so the ecosystem had to adapt. An up and coming NFT marketplace called SolSniper rose to the occasion and added support for displaying the actual price per unit (tokens), instead of simply the price per NFT. This was the beginning of Sniper becoming known as the home of Hybrid DeFi as they were the fastest and most willing to pivot into the emerging meta.
tinySPL later introduced their own custom system of bridging from cNFT to true SPL tokens enabling tradability across all DEXs & CEXs, not just NFT marketplaces.
The next milestone in this journey came that same month in the form of two key innovations to SPL20. One of them being the removal of Metaplex NFTs altogether, opting instead for the use of SPL Token Extensions (formerly known as Token2022) which removes the ~0.02 SOL mint fee and allows for additional token functionality.
The second innovation, inspired by Analysoor, was in introducing the option to add an “LP fee” for the purpose of crowdfunding a liquidity pool enabling DEX trading with healthy TVL immediately upon mint out.
I launched GH0ST in January 2024 using these two new additions to SPL20 and coined the term SPL22. The inscription data still defines the protocol as SPL20 so they’re all indexed together, but SPL22 is a subset that uses Token Extensions as the underlying standard. This opens up a whole new world of possibilities with hybrid assets including transfer taxes, custom transfer hooks & more. This also solved the low liquidity issues that I noticed EVERY SPL20 suffered from as teams previously had to rally community members together to provide liquidity individually on a case by case basis. To this day still, nearly every SPL20 suffers from low TVL.
By removing reliance on Metaplex all together, SPL22 was the first full realization of the LibrePlex mission and since it was based on Solana’s own new token standard, it removed the entire uphill battle that would’ve been necessary had we created our own entirely new standard. Though at the time of launch there was very little adoption at all, that’s why it’s called GH0ST, because the tokens were completely invisible to wallets and even explorers weren’t yet displaying the metadata. We minted out 21,000 NFTs with an LP fee of 0.02 SOL and after the fees of minting 10% of the supply + bridging we had about 350 SOL of liquidity along with 2.1M GH0ST tokens to launch our token’s LP on FluxBeam the only Token2022 DEX. Since launch we’ve helped push for ecosystem adoption of Token Extensions from wallets, explorers & platforms such as Phantom, SolFlare, Backpack, Birdeye, SolanaFM, SolScan, Sniper, Tensor, Jupiter, CoinGecko & more.
Since SPL22 is built on top of Token Extensions it enables all the same functionality such as one of most common use cases, Transfer Taxes, which makes hybrid assets truly deflationary and opens up an additional source of revenue generation for a multitude of use cases such as reflections, LP injections, prize pools & more. The first truly deflationary SPL22 is a project called $VICE which adds gamification and incredibly creative art & lore to this system, an important step in bringing this meta to the mainstream masses.
SPL20 was “hacked” into existence by building on top of Metaplex NFTs, so it was instantly tradable on MagicEden and Tensor but took some time to become tradable on DEXs and CEXs. SPL22 played out in the opposite way, immediately tradable on DEXs but no support from any NFT marketplace. Token Extension Metadata NFTs were brand new, this was even before $WEN announced the WNS standard. SolSniper again embraced this innovation before anyone else and enabled trading of the NFTs about a week after launch. Tensor followed in suit only a couple weeks or so later, solidifying Token Extension Metadata as a viable new standard for NFTs. And yet these Hybrid protocols were still only used for fungible coins, with the NFTs simply acting as wrappers of tokens.
FEBRUARY 2024
Quite possibly the biggest amplification of awareness of Hybrid DeFi came from the conception of Pandora’s ERC404, an experimental new meta protocol on Ethereum that ties together ERC20 and ERC721 in an all new way with the aim to create a standard for hybrid collections on ETH. Unlike NPC, it doesn’t use ERC1155 semi-fungibility and it works 100% within the existing rails of the Ethereum NFT & DeFi ecosystem while introducing rarity & uniqueness to the NFTs. This is the key factor that led to an explosive trajectory for the project, rising above $100M mcap shortly after launch. In a way it completed the feature set of Hybrid DeFi from a conceptual perspective, it was now possible to have a hybrid collection in which the NFTs had their own rarity tiers but could still also function as fungible tokens. It introduced the concept of “re-rolling” tokens by buying/selling into the LP to spawn new NFTs in the hopes of receiving a rare. The ERC20 side is tradable on DEX’s like Uniswap and the ERC721 counter-part is tradable on NFT marketplaces like Opensea & Blur. When you own the token, you also own the NFT, in a sort of quantum state of entanglement. Both assets exists simultaneously & are tied 1:1, so if you sell the NFT you also lose the token and if you sell the token, you also lose the NFT. You have to maintain a balance of tokens at multiples of 1 to keep the NFT, if you sell half of a token, you will lose the entire NFT. This meta protocol opened the eyes of the masses to the concept of Hybrid DeFi.
ERC404 is an unofficial & experimental standard that does not at all follow the true process of Ethereum Improvement Proposals or Ethereum Requests for Comments. It just borrows the use of the ERC acronym in the tradition of BRC20, chosen arbitrarily and formed purely around social consensus. This has resulted in some unintended consequences and there still seems to be an unfinished, ongoing process of standardizing this concept on Ethereum. There are already a few newer attempts at improving on it such as DN404 & ERC20721.
The final innovation I’ll touch on in this article brings the rarity system of ERC404 back full circle to Solana Hybrid DeFi in the form of a new project, MutantMon and their standard SPL404.
It contains all of the same utilities and game theory of Hybrid DeFi that SPL22 has along with the NFT rarity & re-rolling system that ERC404 offers. Holders of the token can swap for an NFT and back an infinite number of times, paying a 2% tax for the chance at increasing the rarity of your MutantMon. This is the most affordable, frictionless & user friendly Hybrid re-roll system to date, as ERC404 has all the pain points of Ethereum’s high gas fees and low transaction throughput rate in addition to its LP re-roll fee.
CONCLUSION
There are a few other niche hybrid meta protocols out there such as the Libreplex Liquid Hybrid which is essentially the same as an SPL22 but using a traditional SPL token on the fungible side in order to eliminate the pain point of the lack of DEX / LP integration on Solana for Token Extensions (mostly a temporary solve until Token Extension Metadata is fully integrated across the ecosystem). There’s also an entire migration system for legacy collections to move over to SPL22 Hybrids, which was used to convert the FOCS token (an SPL20 derivative built on top of Metaplex’s inscription program deployed by SolKek) back over to SPL22, because Metaplex never got around to building out a two way bridge for its FOC20/MPL20 inscription coins. This pipeline migration system however still hasn’t been optimized for collections with NFT rarity and it would require its own article to explain its process.
It’s also worth noting that a project called OVOLS on Solana created a nearly identical system to SPL404 over a year prior with a 10k NFT collection which are able to be fractionalized for 1000 $OVOL SPL tokens, and you can even choose which OVOL pfp you want from the escrow pool when you swap from token to NFT. It’s essentially the exact same Hybrid DeFi framework of today, just without the random re-rolling, but it never achieved the same kind of mindshare or market cap valuations as ERC404 or SPL20 most likely due to being a bit too ahead of its time.
Another very important predecessor to this meta is the NFT AMM such as Elixir, SudoSwap, HadesSwap, Blur & Tensor. All of these platforms attempted to make the experience of trading NFTs much more analogous to the ease and liquid nature of trading fungible tokens.
Many have predicted that NFTs would have a resurgence this cycle within a new form factor after the bear market of 2022–2023. If you ask me, we’ve finally found that new form. We’ve finally made NFTs fun again.
