Token 2022: Solana catching up to Ethereum?

Introduction

Developments in Solana’s ecosystem have been plausibly rapid and dynamic for the past few years. Yet, the standard token of this ecosystem seems to be a little too simplistic for the developers. Sure, forking always stands as an option; but, as a developer, you would want things to go as smoothly as possible. That’s where SPL Token-2022 comes in.

The Token-2022 program is all about improving the native token of Solana’s ecosystem to be the most suited for innovators. Just like Ethereum’s native ERC-20 tokens, Solana’s SPL token standard provides the general architecture for all the NFTs and cryptocurrencies living on the chain’s ecosystem. Solana Labs has been consistently working to add extensions to these basic rules and increase the functionality of the native token since 2020, under SPL Token-2022 Program. You can look at Token2022 as the new and modified form of the token program in Solana. It has all the characters of the previous token, but the additional features are the ones that make all the difference. These features come in the form of extensions and, are mainly responsible for enhancing the functionality in Solana.

Why is Token-2022 needed?

Solana has been around for a while, with its reputation for allowing fast transactions and scalability. But when it comes down to Token standards, Solana definitely has much more to improve! In comparison to Ethereum’s token standards, Solana’s SPL and SDKs are somewhat limited. For developers, this means forking the basic token program until it suits their specific needs and adding new functions. While many different SPL token standards are found all over the Solana Mainnet and Devnet, the ecosystem still lacks a unified standard that operates within and integrates with popular applications. On top of that, the programming model of Solana complicates transactions involving multiple token types.  Hence, the advent of SPL 2022 program. With its added extensions, the token aims to address the existing issues and bring new utility to NFTs and cryptocurrencies on Solana.

To specify things further-all the modified functionalities and features lie in the token’s extensions. In the context of Token-2022, extensions refer to the additional features/ functions that can be added to the token to enhance it. They allow users to modify the tokens as per their needs. In fact, the whole system can be identified as token customization.

The features offered by the extensions of Token-2022

Mint Extensions

Transfer Fees: Token-2022 allows the configuration of transfer fees at the protocol level, enabling a new level of financial control over transactions.

Transfer Hooks: This extension provides token creators the ability to create custom programs that execute whenever SPL 2022 Tokens are transacted. With additional control over token transfers, artists and creators are able to enforce royalty payments at a contractual level, which provides a timely solution to NFT royalty wars.

Closing Mint: Token-2022 enables the closure of mint accounts, allowing someone other than the authority wallet to close a token's mint. While this might not be of any significance to the average users like us, this holds importance to the developers working in teams and helps them with security and interoperability issues.

Interest-Bearing Tokens: Token-2022 introduces an InterestBearingMint extension, enabling tokens to accumulate interest. This is also useful for traditional financial assets as the value overtime is stored in a transparent, on-chain format.

Non-Transferable Tokens: As the name suggests, the NonTransferable mint extension allows the creation of "soul-bound" tokens that cannot be moved from a wallet. The Non-Transferable Tokens are especially useful in cases of awards and achievements.

Confidential Transfers (Not live yet): Token-2022 uses zero-knowledge proofs to encrypt balances and transfer amounts, providing transaction privacy and uncompromising security to the users.

Account Extensions

Memo Required on Incoming Transfers: Token-2022 includes a feature for enforcing memos with all incoming transfers. This is analogous to adding a reference while transacting money through banks. The feature enables Solana users to hard-code memos and messages into their transactions, which will be permanently stored in the blockchain.

Immutable Ownership: The ImmutableOwner extension makes it impossible to reassign ownership of an account. This enhances the safety of token transactions.

Default Account State: The DefaultAccountState extension allows mint creators to restrict token use by setting all new token accounts to be frozen by default. Tokens can be frozen to resist premature liquidity and disruption of a project’s launch.

Permanent Delegate: Token-2022 allows a permanent delegate to burn and transfer tokens they have minted, even if they live in someone else’s account. So far, this is the most sensitive extension and is sure to raise some eyebrows for the overtone of centralized control. The real-world use cases of this extension might involve asset seizures in case of loan defaults or sanctions.

Pros and Cons

Despite the simplicity of Solana’s previous token, it was head-on competing with Ethereum’s stats by averaging almost as many daily active addresses and processing 20 times more transactions. However, the limitations of the previous token were creating serious barriers for developers and innovators – which are now being addressed by Token-2022. The advent of token-2022 has brought a wealth of new utilities and tools to leverage innovations in the ecosystem. Adding on, extensions like confidential transfers really went a step ahead on the security line by integrating zero-knowledge proof.

However, features like delegate accounts bear the potential to be abused and oppose the whole idea of decentralization. Besides, SPL 2022 hasn’t been fully audited yet and could still contain bugs.

The whole upgrade brings plenty of new utility to the ecosystem. Despite its potential to change the dynamics of dApps development in the Solana ecosystem, they are not very exceptional to the tools available on most EVM networks. From the utility perspective, Solana might be playing catch-up, yet it remains the most performant Layer-1 blockchain in crypto.

There has always been a ridicule from the side of Ethereum maxis about Solana’s limited DeFi capabilities. With the Token-2022 program, hopefully, Solana will max out the expectations. The availability of a wider range of tools and features will allow developers to unleash their creative spirits without facing any barriers.

Early Adopters

To fully leverage the benefits of Token2022, developers, dApps, and wallets have already started to embrace its new functionalities. Here are some exciting early adopters and features:

$BERN / BonkEarn: Built by the BONK community, $BERN is among the first tokens on the Token2022 program. It utilizes the Transfer Fee extension, charging a 6.9% fee on transfers. This fee is used to reward both $BERN and $BONK holders, with specific allocations for various purposes.

Decentralized exchanges: FluxBeam, a Solana-based DEX, currently supports tokens created using Token2022. Explore and trade these innovative tokens on the platform.

Wallets: Backpack, a popular wallet extension, has already integrated Token2022 support. You can now access Token2022 features directly from your Backpack wallet. Additionally, Phantom wallet is set to introduce Token2022 functionality soon.

Tooling: Soon, FluxBeam will launch tools for mining your own tokens with Token2022. Unleash your creativity and create your unique tokens using the program.

RugCheck: A tool called RugCheck is already available for examining Solana token markets and Token2022-built tokens. It's a valuable resource for analyzing tokens and their characteristics.

Conclusion

The arrival of Token2022 marks a massive stride in Solana's web3 journey, propelling it into new realms of innovation. This game-changing update not only amplifies the capabilities of existing features, but also introduces a diverse range of cutting-edge functionalities. Token creators now wield unprecedented control and flexibility, pushing the boundaries of what's possible in the world of decentralized finance (DeFi). While other blockchains may offer similar features, Solana's unbeatable speed and affordability, combined with the revolutionary enhancements brought by Token2022, position it as a formidable contender in the crypto sphere. As early adopters and the vibrant community continue to expand their support, Token2022 is poised to elevate and transform the Solana ecosystem to new heights.