What Are SPL Tokens and How Do They Work on Solana?

What Are SPL Tokens?

SPL Tokens are tokens that are issued and managed on the Solana blockchain using Solana’s token standard. SPL stands for Solana Program Library, a collection of standard programs that run functions on Solana.

A token can represent, for example, a payment method, a points system, a digital collectible, or some other right inside an app. On Solana, tokens like that aren’t stored as a separate object inside a crypto wallet. Instead, the blockchain tracks them in special accounts that follow the rules of a token program.

The most important record is the mint account. This is the unique technical file for a token. The mint account records things like:

• how many tokens exist in total;
• how many decimals the token uses;
• who’s allowed to issue new tokens;
• whether someone can freeze token accounts.

Every mint account has its own mint address. This address is the only reliable technical identifier for a token. A name or ticker symbol can be used by multiple tokens.

Example: Two tokens can both show the same name and ticker in a crypto wallet. But they’re different tokens if their mint addresses are different. So always check the mint address before you receive, send, or use a token.

A name, ticker, and image are not included by default in the mint account. This info is called metadata: extra data that makes a token easier for users to read and recognize. Metadata can, for example, be added in a separate account through Metaplex.

Key Takeaways

• SPL Tokens are tokens on the Solana blockchain.
• The mint account is a token’s unique technical file.
• The mint address is the reliable unique identifier for a token.
• A wallet tracks SPL Tokens through separate token accounts.
• Names, tickers, and images are metadata and aren’t included by default in a mint account.

How Do SPL Tokens Work on Solana?

SPL Tokens work through mint accounts and token accounts that are managed by a token program using fixed rules. Solana has two important programs for this: the original Token Program and the Token Extension Program, also called Token-2022.

The original Token Program provides the basic token features. Token-2022 includes the same core features and can add extra properties, like transfer fees, metadata, or non-transferable tokens.

The mint account describes the token as a whole. A token account then records how much of that specific token a certain owner holds. A token account can only contain one mint and has one owner.

So a crypto wallet can have multiple token accounts. One wallet can also own multiple token accounts for the same mint, although that’s usually not necessary.

For the usual setup of one wallet and one mint, there’s an associated token account, often shortened to ATA. This is the standard token account that’s predictably derived from the wallet address and the mint address. That way, an app can find the normal receiving address for a specific token.

During a transfer, the token program moves a balance from the sender’s token account to the recipient’s token account. Both accounts must belong to the same mint. If the recipient doesn’t have an ATA for that token yet, that account can be created in the same transaction.

So a mint address is not a receiving address. If you want to receive SPL Tokens, you normally use your wallet address so the right ATA can be determined, or you use the correct token account directly. A transfer to the mint account itself will fail.

What Types of SPL Tokens Exist?

SPL Tokens can be fungible or non-fungible, but that split doesn’t cover everything that’s possible on Solana. The properties of a specific mint, like supply, decimals, metadata, authorities, and any extensions, ultimately decide how the token behaves.

Alongside regular fungible tokens and NFTs, there are also programmable or semi-fungible forms. Token-2022 can also add properties that change how a token is transferred or used, like transfer fees or a rule that limits transfers.

What Are Fungible SPL Tokens?

Fungible SPL Tokens are made up of interchangeable units from the same mint. One unit has the same protocol-level properties as every other unit of that mint.

This is like dollars: one dollar is generally interchangeable with another dollar. With a fungible token, it doesn’t matter which specific unit you get, just how many units you hold.

The mint account determines things like the supply and the number of decimals. Decimals control how the smallest units are shown to users. For example, a token can be displayed in whole numbers, but also in smaller fractions.

Fungible tokens can be minted, transferred, delegated, and burned. Delegating means the owner gives another party limited permission to use tokens on their behalf. Burning means tokens are permanently removed from the supply.

When a mint has a freeze authority, the authorized party can freeze a specific token account or unfreeze it again. A frozen account can’t receive, send, or burn tokens.

Fungible SPL Tokens can be used as currency, points, or tokens that are traded in an AMM pool. An AMM is a system that does token swaps through a pool of tokens, instead of a traditional order book with buyers and sellers.

Fungible doesn’t automatically mean a token is freely transferable or has no extra costs. A Token-2022 mint can, for example, include transfer fees or extra rules for transfers.

What Are Non-Fungible SPL Tokens?

Non-fungible SPL Tokens are SPL-based tokens where one copy can be treated as unique. A well-known use case is an NFT, a token that usually represents a unique digital item or proof.

A traditional SPL-based NFT can technically be created with a mint that has zero decimals, where one unit is minted, and then the mint authority is removed. Metadata and the right token standard make wallets and marketplaces recognize the token as an NFT. The mint authority is the permission to create new units. After it’s removed, the supply can’t be increased anymore.

NFTs typically use metadata for info like a name, image, description, creators, collection, and token standard. That info makes it clear what digital item the token is supposed to represent.

There are multiple NFT types. Standard non-fungible tokens, programmable NFTs, and NFT editions can all have different rules. Programmable NFTs can, for example, enforce rules for transfer, locking, or burning.

Token-2022 can also support NFT-like tokens, for example with zero decimals, built-in metadata, or a setting that makes a token non-transferable. Not every non-fungible asset on Solana is an SPL token, though, because there are also separate asset models.

What Are SPL Tokens Used For?

SPL Tokens are used to represent digital ownership rights and other types of value or rights on Solana. Tokenization here means recording a right or item in digital token form.

Fungible tokens can, for example, act as a payment method, points, or other transferable units inside an app. Users hold these tokens in token accounts and can send them to other users.

SPL Tokens are also a foundation for DeFi, the umbrella term for financial apps on a blockchain. In an AMM pool, for example, users can swap one token for another.

NFT-like SPL assets can represent digital collectibles, limited editions, or game items. A non-transferable token can also work as proof of an achievement or a referral reward, since the recipient can’t easily forward it.

Token-2022 enables extra use cases. Think of tokens with transfer fees, required metadata, token-gated access, or confidential transfers. With token-gated access, holding a certain token determines whether someone can access a feature or environment. Confidential transfers are transfers where certain transaction details can be shielded.

Just because a token can technically represent an asset or a right doesn’t automatically mean the holder is the legal owner, has guaranteed redeemability, or is entitled to returns. That depends on the party issuing the token, the terms, and the applicable laws.

How Do You Create and Manage an SPL Token?

Creating an SPL Token starts by creating and initializing a mint account under the token program you choose. The choices you make here matter, because they determine how the token can be used and managed later.

1. Choose the token program Choose between the original Token Program and Token-2022. The original program offers the standard features. Token-2022 is a good fit if you need extra properties from the start, like built-in metadata, transfer fees, or non-transferability.

2. Create the mint account The mint account becomes the token’s unique technical file. A new mint starts with a supply of zero tokens.

3. Set the settings Set the number of decimals and decide who gets the mint authority. You can also set a freeze authority. These choices determine things like whether new tokens can be issued and whether token accounts can be frozen.

4. Pick extensions up front with Token-2022 With Token-2022, you need to decide up front which extensions need account space and which have to be set before initializing the mint. Some extensions can’t be added later, while other extensions or their settings can still be added or changed under certain conditions. What’s possible depends on the extension.

5. Add user-friendly metadata For a name, ticker, and image, you can use Metaplex Token Metadata. With Token-2022, you can also use the built-in TokenMetadata extension. Also decide who’s allowed to update metadata later.

6. Mint and distribute tokens Only the mint authority can create new units. Tokens are minted into token accounts and can then be transferred to other users’ token accounts.

7. Manage permissions carefully You can set a limited delegate, revoke a delegate, adjust authorities, burn tokens, and close empty token accounts. Removing an authority is basically permanent. So double-check settings before you sign a transaction.

A mint authority that still exists can increase the supply. A freeze authority that still exists can block accounts. These permissions are functional, but they also give the holder a lot of influence over the token.

What Role Does the Solana Token Program Play?

The Solana Token Program handles the standard actions for SPL Tokens, but technically there are two separate token programs. The original Token Program provides the familiar basic features, while Token-2022 combines the same core features with extensions.

These programs control things like creating mints and token accounts, minting, transferring, delegating, burning, closing accounts, and managing authorities. So they make sure token actions are carried out according to the fixed rules of the chosen mint.

Solana programs can also call the token program to perform token actions from inside an app. For example, an app can trigger a token transfer, while the token program checks whether the involved accounts and permissions are correct.

Token-2022 adds things like transfer fees, transfer hooks, metadata, non-transferable behavior, confidential transfers, interest-bearing mints, pausing, and token groups. A transfer hook is an extra rule that can run additional logic during a transfer.

The token program enforces the technical rules of a token. It doesn’t independently judge whether a token has economic value, is trustworthy, or fulfills legal claims.

Which Wallets Support SPL Tokens?

Phantom and Solflare support SPL Tokens on Solana, but the exact support can vary by token and feature. A wallet needs to be able to handle the relevant token accounts in order to receive, display, or send a token.

Supported tokens can show up in Phantom automatically as soon as the receiving transaction is confirmed on the blockchain. Solflare also offers features to receive and send SPL Tokens.

For Token-2022, extra support is needed, because the wallet must be able to process transactions with Token-2022 mints. Even if a wallet can receive a token, the display of metadata, swaps, NFT galleries, and individual extensions can differ by wallet or dApp.

If a token isn’t visible in a wallet’s interface, it’s not automatically lost. Token visibility, token verification, and swap support are separate features. First check the mint address and the on-chain token account before you draw conclusions.

What Are the Benefits and Limitations of SPL Tokens?

SPL Tokens offer a standardized way to issue and use tokens on Solana, but the mint configuration you choose and the authorities you set can have major consequences. The standard enables lots of use cases without every app having to build its own basic token rules.

The main benefits are:

• Standardized token actions: Mint accounts, token accounts, transfers, and authorities work through fixed rules from the token programs.
• Predictable receiving addresses: An associated token account provides a fixed standard address for the combination of one wallet and one mint.
• Extensibility through Token-2022: A mint can get extra features, like metadata, transfer fees, transfer hooks, confidential transfers, or non-transferability.
• Works for lots of use cases: Tokens can be used for payment methods, points, token swaps, digital collectibles, and access rules.

There are also limitations and risks:

• Metadata isn’t built into every mint by default: A standard SPL mint doesn’t store a name, symbol, or image in its base data. You need extra metadata for that.
• Authorities can create centralized power: A mint authority can create more supply. A freeze authority can block token accounts from receiving, sending, and burning.
• Transactions cost SOL: Every transaction needs SOL for network fees. Creating a new token account can also require rent-exempt lamports. These are lamports that must stay in the account to keep it active.
• Token-2022 requires planning ahead: Extensions must be chosen when you create the mint and can’t be changed later for that same mint.
• Support differs by product: Not every wallet or dApp supports all metadata, Token-2022 extensions, or extra token features.

A transfer fee or transfer hook never applies automatically to all SPL Tokens. They’re properties of a specific Token-2022 mint. So check the mint configuration and the authorities for each token.

Final thoughts

SPL Tokens are Solana’s tokens, and they’re technically managed through mint accounts, token accounts, and token programs. The mint account sets a token’s core rules, like supply, decimals, and key permissions. Token accounts then record how many tokens a specific owner holds.

The original Token Program provides the standard features for issuance, transfers, and management. Token-2022 builds on that with extra options, including metadata, transfer fees, and non-transferable tokens. That makes SPL Tokens usable for simple payment methods, points, DeFi apps, and unique digital items.

For users, the mint address is the most important thing to verify: names and tickers aren’t unique. For creators, the chosen authorities and extensions are crucial, because they affect supply, transferability, and the future management of a token.