What Is ERC-404? The New Token Standard On Ethereum Network

ERC-404 has become the latest token standard on the Ethereum network which has recently popular. ERC-404 is an experimental token standard with an innovative approach as it can combine features from ERC-20 (fungible tokens) and ERC-721 (non-fungible tokens or NFTs). This token standard was developed by anonymous developers "ctrl" and "Acme," collectively referred to as the Pandora project team. While many crypto observers believe that ERC-404 has the potential to grow in the future, this experimental project has not yet been officially recognized by the Ethereum Foundation.

What Is ERC-404?

ERC-404 is an experimental token standard built on Ethereum, enabling conversion between Non-Fungible Tokens commonly known as NFTs (ERC-721) and fungible tokens (ERC-20).

ERC-404 operates by merging elements from the ERC-20 and ERC-721 standards. ERC-20 tokens are fungible, meaning they can be replaced and traded in fractional amounts. On the other hand, ERC-721 tokens, commonly known as NFTs, are non-fungible, with each token possessing uniqueness and irreplaceability.

With ERC-404 in place, it enables the fusion of these qualities. NFTs can be divided into fractional parts and traded like fungible tokens. This can enhance NFT liquidity and allow retail investors to participate in NFTs without having to purchase the entire NFT asset.

How Does ERC-404 work?

ERC-404 utilizes smart contracts to manage the distribution and ownership of NFTs. Each ERC-404 token represents a specific portion of an NFT, with the total supply reflecting the available number of parts. Here's how ERC-404 tokens work: Combining ERC-20 and ERC-721 ERC-404 tokens are designed to function in a hybrid manner based on the logic programmed into the smart contract. This is achieved by linking each ERC-20 token issued to an NFT, enabling a combination of characteristics from both token types. Fractional NFT Ownership One of the key features of ERC-404 tokens is their ability to allow fractional or partial ownership of NFTs. This mechanism enhances liquidity and accessibility in the NFT market. Dynamic Minting and Burning When fractional tokens representing parts of an NFT are traded, the associated NFTs can be dynamically minted or burned. Any ERC-404 token with a positive integer balance will be considered an NFT. Balances in decimal form will be considered as ERC-20 tokens. Here's an example: If someone has a balance of 10.25, tokens, it means there are 10 tokens in the form of NFTs and 0.25 tokens in the form of fungible tokens (ERC-20). If they purchase 0.75, then the balance becomes 10.25 + 0.75 = 11, indicating that 1 NFT has been dynamically minted. If they decide to sell 0.5 tokens, the balance will be 11 - 0.5 = 10.5, indicating that 1 NFT has been dynamically burned.

Potential Uses Of ERC-404

With the ability to enable fractional ownership of NFTs, ERC-404 tokens can significantly enhance NFT liquidity. The unique combination of NFTs and ERC-20 tokens can broaden the potential uses of ERC-404, including: New DeFi Opportunities: ERC-404 paves the way for integrating fractional NFTs into DeFi protocols, enabling new financial applications such as lending-borrowing and yield farming with NFTs. Real Estate Tokenization: Tokenizing real estate assets like properties allow for fractional ownership, thus making investment access easier. Gaming & Metaverse: Assets in games such as virtual land can be divided and traded among players more easily and efficiently. Company Stock Tokenization: Company stocks tokenized with ERC-404 can function both as whole integers (in lots) and as divisible tokens.

Top Projects Built with ERC-404

Despite being in the experimental stage, several developers have successfully created ERC-404 token projects that have been notably successful and captured attention. Here are some projects built with the ERC-404 token standard: 1. Pandora

Pandora is the first ERC-404 project and arguably the most successful one. Pandora has created a new class of assets worth millions of dollars in the crypto market. Pandora has experienced significant price fluctuations. In just one week, its value soared from $250 to $32,000. With a token supply of 8,000, Pandora has managed to increase trading volume to around $76 million in the last 24 hours. The success of Pandora has generated enthusiasm and spurred developers to create their own versions of ERC-404 tokens. Some projects have chosen to airdrop a portion of their token supply to Pandora holders, thereby increasing demand for Pandora tokens while attracting interest in launching their tokens on alternative blockchains like Arbitrum and Solana. Support for ERC-404 tokens also comes from top Centralized Exchanges (CEX) like Binance and OKX. They have announced their support for these tokens through their Web3 wallets. This further enhances the credibility of the ERC-404 token standard and increases market enthusiasm for ERC-404 tokens.

2. DeFrogs

DeFrog is a collection of 10,000 NFTs themed around Pepe The Frog. These NFTs utilize a variant of the ERC-404 token standard. DeFrogs is advertised as the first ERC-404 Profile Picture (PFP) collection ever created. One of the claims made by the creators of DeFrogs is that this collection is deflationary. It means that the number of tokens in circulation will decrease over time, possibly through burning mechanisms or token redistribution. This could potentially increase the value of each token over time, as the relative supply of the token becomes scarcer. Thus, DeFrogs creates a model where owners of Pepe the Frog-themed ERC-404 NFTs can expect their asset value to increase over time, depending on adoption, demand, and the deflationary mechanisms implemented by the creators.

Disadvantages of ERC-404

Although ERC-404 tokens can reflect how NFTs work and can increase utility in the Ethereum ecosystem, due to their experimental nature, we need to be vigilant. Here are some of the shortcomings of ERC-404 tokens. Not officially listed: The ERC-404 standard token has not yet been listed on the Ethereum Improvement Proposal (EIP), so future development is still full of speculation. Highly speculative investing: While there is good potential for future growth, ERC-404's popularity is currently driven only by the rising trend of the crypto market. It could be the same fate as the Metaverse project. Technical challenges: since ERC-404 is a new way to handle hybrid tokens, there are still challenges in integrating such tokens with existing platforms and wallets.