Established token standards for Ethereum include fungible ERC-20 tokens and non-fungible ERC-721 tokens (NFT). Now, ERC-404, an experimental and unofficial new token standard, aims to combine the two elements into one “semi-fungible” digital asset.
What is ERC-404?
ERC-404 is a new token standard for digital assets. Ethereum Blockchain developed by an anonymous creator “Ctrl key” and “zenith.”
A token standard is a set of formal rules and protocols that determine the behavior of tokens on a blockchain network such as Ethereum.
The ERC-404 token standard combines the features of ERC-20 and ERC-721 to enable the creation of “semi-fungible” tokens that use the features of fungible and non-fungible tokens.
How does ERC-404 work?
NFTs are non-fungible. That is, it is unique and indivisible. You cannot own any part of an NFT.
ERC-404 circumvents these limitations by using a token minting and burning mechanism to enable partial transfers of NFTs.
Issued tokens are linked to NFTs. When you purchase a full token, an associated NFT will be created in your wallet. If you sell a portion of your tokens, the associated NFT will be burned. When a wallet holding a fraction of a token purchases enough fractions to hold a complete token, a new NFT is automatically minted.
What’s so special?
The ERC-404 token standard enables native sharding of NFTs, creating new primitives and new mechanisms built on top of them. This will enable NFT experimentation and trading.
The creators of the token standard suggest that the goal is to “create NFTs with native sharding, liquidity, and incentivize some aspect of trading/engagement to create a unique set of characteristics.”
The team at Pandora, a project that uses ERC-404, claims that because it allows for “real-world underlying liquidity,” it effectively enables NFTs built using the standard to “effectively have token prices that reflect the floor price in real time.” do. No single counterparty is needed to purchase an NFT, and holders of ERC-404 tokens can sell them at any time they want, provided they have a liquidity pool.
Additionally, rather than locking or wrapping NFTs and issuing shares for them, splitting of NFTs can be achieved natively without relying on third-party protocols and solutions.
Another possible use case proposed by the Pandora team is an NFT game that incorporates randomization in destroying and reminting NFTs.
ERC-404 Project
- Pandora: Pandora is one of the first projects to use the ERC-404 token standard. It consists of 10,000 PANDORA ERC-20 tokens and 10,000 linked “Replicant” NFTs. When you purchase PANDORA tokens on an exchange, a replicant NFT will be created in your wallet.
- Remove the frog: DeFrogs is a collection of 10,000 Pepe the Frog-themed NFTs using a variant of the ERC-404 token standard, billed as the first ERC-404 PFP collection and claimed by its creator to be deflationary.
- Monkeys: Monkees, another PFP collection using the ERC-404 token standard, consists of 100 NFTs with 10 properties and 6 characteristics.
The future of ERC-404
Unlike the widely used ERC-20 and ERC-721 token standards, ERC-404 is “experimental” and unofficial. This means that it has not been submitted for Ethereum Improvement Proposal (EIP) review or has not been fully externally audited. This means that there may be undetected flaws that pose serious risks to token holders.
“These two standards are not designed to mix, but this implementation strives to do so in as robust a way as possible while minimizing tradeoffs,” the team said, but acknowledged that it is a “non-standard” implementation of ERC-. 721.
ERC-404 is an unofficial token standard, so many NFT platforms and marketplaces do not support it natively.
The team behind the token standard plans to submit it as an official Ethereum improvement proposal, a potentially lengthy process. However, the decision to bypass the standards approval process for a token standard could encourage other projects to do the same, which would result in more unaudited token standards hitting the market and the associated risks to users. can.
