Watch out for ERC-404, there’s another hybrid NFT standard in town.
Just a week after the launch of ERC-404 — an unofficial Ethereum standard created to join the functions of fungible and non-vulnerable tokens (NFTs) — another group of developers claims to have done it one better with “DN404.”
The “Divisible NFT” standard, like its ERC-404 rival, is “the intended hybrid ERC-20/721 token.” The proposed standard would essentially allow NFT holders to trade their distributed NFT units with others, according to anonymous developer “Sygar” in a Feb. 12 X post.
“Our ultimate goal was to create a token standard that would act as an NFT, with built-in partitions,” Cigar added. While ERC-404 is popular, they say, “it doesn't follow existing standards, it's not efficient, and it breaks in some edge cases.”
Most of the transactions are done on the base contract – this is a fully compliant ERC20 token that keeps track of user balances and controls the creation/burning of mirrored NFTs.
You can think of these tokens as fractions of NFTs. They are compatible with DEXes out of the box.
— Cygaar (@0xCygaar) February 12, 2024
Although ERC-404 is interoperable with ERC-20 token and ERC-721 NFT contracts, protocols still need to be designed to implement ERC-404.
Sigar, however, notes that the DN404 approach uses two contacts: “‘base' ERC-20 with ‘mirror' ERC-721” and that they “fully comply” with protocols “out of the box”.
That's because the majority of trading takes place on ERC-20 token contracts — described as “fractions of NFTs,” Saigar explained. When base ERC-20 tokens are transferred, the reflected NFTs are burned and generated automatically.
A wallet with a token amount of at least one base unit will receive NFT on the mirror contract and NFT will be burned when the wallet holds below the minimum base unit amount.
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Cigar said the ultimate goal was to allow users to trade NFT units without any intermediaries and to allow NFTs to be traded on both NFT exchanges and decentralized exchanges.
But the developer warns that the code “has not been formally audited, so you are using it at your own risk.”
ERC-404 security is requested
Last week, one of DN404's developers said there might be an ERC-404 vulnerability, nicknamed “Leave it,” that allows ERC-404 tokens to steal NFTs stored in lending protocols incorrectly configured for ERC-404.
9/ You can probably guess what will happen.
This is the correct withdrawal rate, because the depositor has a balance much higher than the request.
However, Pandora interprets it as an ERC721 transfer, and therefore our token deposit NFT can steal from our NFT deposit. pic.twitter.com/sQwn9828Jp
— Quit (@0xQuit) February 8, 2024
An ERC-404 developer known as “ctrl” spoke to Cointelegraph last week to dismiss his concerns and argue that he has stopped contracts abusing the standard, which created the vulnerability.
Pandora, the upcoming ERC-404 project, says it is conducting a “more mature audit of the standard that explains integration.”
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