Introducing ERC-404: A New Token Standard for Ethereum
A new experimental token standard called ERC-404 has been developed for digital assets on the Ethereum blockchain. Created by pseudonymous creators “ctrl” and “Acme,” ERC-404 combines features from both ERC-20 and ERC-721 standards to create “semi-fungible” tokens.
How Does ERC-404 Work?
While non-fungible tokens (NFTs) are unique and indivisible, ERC-404 enables fractional transfers of NFTs through token minting and burning mechanics. If you buy a full token, the linked NFT is minted to your wallet. Selling fractions of the token burns the linked NFT. If a wallet accumulates enough fractions to hold a complete token, a new NFT is automatically minted.
The Unique Aspects of ERC-404
The ERC-404 token standard allows for native fractionalization of NFTs, creating new possibilities for experimentation and trading. It offers liquidity and encourages engagement with unique trait sets. Unlike other methods that require wrapping or issuing shares against NFTs, ERC-404 enables native fractionalization without relying on third-party protocols.
ERC-404 Projects
- Pandora: An early adopter of the ERC-404 standard, Pandora comprises PANDORA ERC-20 tokens and linked “Replicant” NFTs.
- DeFrogs: A collection of Pepe the Frog-themed NFTs using a variant of the ERC-404 standard, known for its deflationary nature.
- Monkees: Another collection utilizing the ERC-404 standard, Monkees consists of 100 NFTs with various attributes and traits.
The Future of ERC-404
As an experimental and unofficial token standard, ERC-404 has not undergone a full external audit or been submitted as an Ethereum Improvement Proposal (EIP). While the team behind ERC-404 plans to submit it as an official EIP, its non-standard implementation may introduce risks to token holders. Additionally, many NFT platforms and marketplaces do not support ERC-404 by default. The emergence of unaudited token standards like ERC-404 could lead to potential risks for users.
Hot Take: ERC-404 Combines Fungibility and Non-Fungibility for Unique Tokenization
ERC-404 introduces a new token standard that merges the qualities of fungible and non-fungible tokens. By enabling fractional transfers of NFTs, it opens up opportunities for liquidity and experimentation in the NFT space. However, being an unofficial standard without a formal review process poses potential risks to token holders. As more projects adopt similar approaches, it is crucial to prioritize security and thorough audits to protect users from vulnerabilities associated with unaudited token standards.
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