Fungibility / Non-Fungibility

Fungible assets are interchangeable and hold equal value, such as one dollar or one share of stock. Non-fungible assets are unique and individually identifiable, like NFTs or specific contractual claims. The distinction shapes how assets are exchanged, priced, and recorded within a ledger.

Why it Matters

Understanding fungibility is critical for modern financial systems, particularly for fintechs that need to track fund origins, risk levels, and locations across multiple banking partners. While classical accounting treats all money as interchangeable—a helpful simplifying assumption for financial reporting—this approach creates serious traceability problems in practice.

The assumption of full fungibility, while convenient, means that once multiple transactions occur, it becomes impossible to answer essential questions like: Which bank holds this customer's specific funds? Are these funds still settling or fully available? What is the risk profile of funds in this account? As recent fintech incidents have demonstrated, the inability to trace funds precisely can lead to operational failures and regulatory challenges.

By recognizing that promises between financial institutions and end users are inherently non-fungible, fintechs can implement more sophisticated tracking mechanisms that enable complete traceability throughout their lifecycle while maintaining system reliability and meeting evolving regulatory requirements.