Token standards established for Ethereum include fungible ERC-20 tokens and immutable ERC-721 tokens (NFTs). Now an experimental and unofficial new token standard, ERC-404, aims to combine both elements into a single “semi-volatile” digital asset.
What is ERC-404?
ERC-404 is a new token standard for digital assets. Ethereum A blockchain developed by anonymous creators “ctrl” and “Acme”.
Token standards are standard rules and protocols that determine the behavior of tokens on blockchain networks like Ethereum.
The ERC-404 token standard combines the features of ERC-20 and ERC-721 to enable the creation of “semi-fungible” tokens that employ the characteristics of fungible and intangible tokens.
How does ERC-404 work?
NFTs are inviolable, meaning they are unique and indivisible; You cannot own fractions of NFTs.
ERC-404 overcomes this limitation by using token mint and burn mechanics to enable NFT fractional transfers.
Issued tokens are linked to NFTs. If you buy a full token, the linked NFT is deposited into your wallet. If you sell a portion of the token, the associated NFT is burned. If a wallet containing token fractions purchases enough fractions to hold a complete token, a new NFT is automatically issued.
What's so special about it?
The ERC-404 token standard enables native partitions of NFTs, creating new primitives and new mechanics on top of them. This also allows for experimentation with NFTs and their trading.
The creators of the token standard suggest that the goal is to create an NFT that “encourages native segmentation, liquidity, and certain business/agricultural-specific feature sets.”
The team behind Pandora says that using ERC-404, NFTs built using the standard will effectively “have a token value that reflects the floor price in real time” because it allows for “true native liquidity.” Instead of having to find a counterparty to buy their NFT, holders of ERC-404 tokens can sell whenever there is a liquidity pool.
In addition to locking or bundling NFTs and issuing shares on them, NFTs can be distributed locally without relying on third-party protocols and solutions.
Another use case suggested by the Pandora team is gaming NFTs that involve randomization in the erasure and recall of NFTs.
ERC-404 projects
Pandora: Pandora was one of the first projects to employ the ERC-404 token standard. Includes 10,000 PANDORA ERC-20 tokens and 10,000 linked “duplicate” NFTs. If you buy a PANDORA token on the exchange, a duplicate NFT is placed on your wallet. DeFrogs: DeFrogs is billed as the first ERC-404 PFP set of 10,000 Pepe the Frog-themed NFTs using a variant of the ERC-404 token standard, which the creators say is invalid. Monkees: Another PFP suite using the ERC-404 token standard, Monkees consists of 100 NFTs with ten attributes and six attributes.
The future of ERC-404
Unlike the popular ERC-20 and ERC-721 token standards, ERC-404 is “experimental” and unofficial. This means that it has not been submitted for review or fully external audited as an Ethereum Improvement Proposal (EIP). This means that it may have undetected defects, which introduces a high risk to token holders.
Although these two criteria are not designed to be combined, the group states that this application strives to minimize transaction errors as strongly as possible, but it is an “informal” implementation of the ERC. 721.
Since ERC-404 is an informal token standard, many NFT platforms and marketplaces do not support it by default.
The team behind the token's formal plan, like the official Ethereum reform proposal, could be a lengthy process. However, the decision to abandon the formal approval process for token standards could encourage other projects to do the same—which could lead to more unaudited token standards going to market, at the server's risk to users.
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