Token extensions are extremely exciting for Solana. Sophisticated interoperation and deployment of token extensions seems to be the key to onboarding not only more companies and founders, but the next billion to Solana. As a Turing complete blockchain, Solana has programs (smart contracts) that have the potential to create programmable money.
Tokens are the programmable money.
Token Extensions are native programs that make the creation, architecture, and management of programmable money easier.
Token extensions are like a DLC upgrade for the current SPL Token Program. They not only add additional functionality to SPL tokens at the native program level, they address many concerns for onboarding new founders and companies including confidentiality, security, and support authorities.
Let’s cover a few extensions to see what we can build:
The transfer hook extension allows programs to be called when a token transfer is initiated. Due to the generality of this, there is incredible potential for flexibility of the program that is called. Since this happens at the program level, there is no way to intercept, circumvent, or abuse this program call.
Confidential transfers are important for both privacy and compliance. In the effort to onboard users and companies from traditional finance, the public aspect of the blockchain is a concern for some. Confidential transfers are non-anonymous, non-private but transfer amounts are hidden. An auditor can be designated that can decrypt the transactions.
The permanent delegate extension is an extension that grants revoke, freeze, transfer, and burn powers to an authority. This is an insane amount of power that is applicable to cases of token seizure, freezing sanctioned assets, reversing transfers, and more. Critics may argue that this is a return to centralization, but it is a bubble of delegated power over a contained token that exists on the decentralized chain. It’s important to recognize that onboarding the masses ultimately requires certain protections to be in place before they feel comfortable in trusting the blockchain with their assets. With the rise in scams, and geopolitical unrest, the permanent delegate can be a powerful tool for builders to create safe bubbles for onboarding.
Non-Transferable (Soulbound): As evidenced with the Saga Genesis NFT, soul-bound tokens have seen a rise in popularity and their use cases are many. Non-transferable tokens are self-explanatory, but again, there is value in the non-transferability of the token being baked into the native token program itself. Non-transferable tokens can ensure that token holders do not trade their token away and remain unique.
Transfer fees are another self-explanatory extension where token transfers can trigger a fee to a designated fee collection account. This can be used for automatic tax deduction or payment platform fees and the funds could be used to further develop a project.
Composability
These extensions are made to simplify and accelerate the developer experience by putting high-demand and high-utility features right into the native token program. The most important aspect that I have understated is that all of the token extensions are interoperable and composable. You can create a token with Transfer fees, have a Transfer Hook call a program, and set a Permanent Delegate. You can have confidential transfers along and a delegate. You can have most combinations that don’t fundamentally conflict because token extensions are modular. Token extensions are building blocks for programming money.
Auditable
Token Extensions being on the official SPL Token program means that the functionality of the extensions can be thoroughly and frequently audited. This provides another layer of security and reliability for end users to trust in.
The Next Billion
In the effort to onboard the next billion, it is important to take into consideration how wealth is distributed in society and how tech-savvy the holders of wealth are. It’s not uncommon to hear about a family’s life savings be stolen in a simple scam. With the rise of generative AI, bad actors are becoming increasingly sophisticated.
As crypto-natives, we see the value in “being our own bank”. However, it’s important to recognize that scams are rampant in the space, with even the most cautious crypto-natives seeing their wallets drained by clicking one wrong link. To expand the pie, security and safety needs to be concerned with the added value of support. If you bank with J.P. Morgan Chase and fall victim to a rental scam, there is a phone number to call for support. The same cannot be said for an erroneous transaction on the blockchain. This is especially concerning for high net worth individuals who are not willing to put their capital at risk of simple, irreversible transfers without sufficient security measures.
A Tokenized Future
Token Extensions make it easier for developers and founders to build more, build faster, and build better. A tokenized future may include collectables, real estate, art, RSUs, precious metals, luxury goods, debt, and private equity, patents, energy, loyalty points, tickets, licenses, certificates, and more. It’s quickly apparent when trying to tokenize real world assets that the vanilla blockchain is necessary but not sufficient by itself. Token Extensions neatly package functionality that was previously hacked together from various external sources and libraries into native SPL, removing barriers of entry for builders to tokenize everything.
Institutions are not blind to tokenization. McKinsey, Coinbase, Visa, the Federal Reserve, Bank of America, Galaxy all have eyes on where tokenization can happen in a safe, performant, and compliant way.
For example, if gold was tokenized, there would be a institution that settles physical gold between parties while providing a digital representation of a real asset that has various advantages. The value of the token would be backed by the existence and proportional share of real gold and the token holder would be able to move, transact with, and store the value of the gold at the speed of light without having to physically move it.
Other benefits of tokenization include faster transaction settlement, operational cost savings, and broader access and transparency.
Conclusion
Token Extensions are a powerful addition to the existing Token Program. By leveraging features built natively into the SPL Token 2022 Program, developers and enterprises have access to safe, auditable, and reliable tools to build out a tokenized future.