What is ERC-404? ✋
The new Ethereum token standard for NFTs that allows multiple wallets to directly own a single NFT, but it is still experimental and yet to get official recognition.
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ERC-404 is a new token standard for digital assets on the Ethereum blockchain developed by pseudonymous creators "ctrl" and "Acme."
On Blockchain networks, token standards define formal sets of rules and protocols that determine the behaviour of tokens.
What is ERC-404?
Ethereum token standard aiming to bridge the gap between fungible (ERC-20) and non-fungible tokens (NFTs, ERC-721).
Enables fractional ownership of NFTs, allowing creators to tokenise and trade parts of their NFTs freely.
Aims to eliminate friction and complexity associated with existing fractionalisation solutions.
Key Features
Fractionalised NFTs: Create and trade fractions of individual NFTs directly, without relying on third-party protocols.
Enhanced Liquidity: Increased liquidity for valuable NFTs by enabling broader participation in ownership.
New Use Cases: Opens doors for innovative applications like NFT loans and staking based on fractional ownership.
Read: Explainer thread by the developer "quit”
What do the creators say?
ctrl, one of the developers of Pandora and ERC-404, told CoinDesk in a Telegram message.
“People in crypto hate friction … every solution before ERC-404 had too much friction and was usually a wrapping solution that abstracted the original NFT that people wanted to fractionalise or make liquid. Collectors hated this, and it limited adoption significantly. ERC-404s have these functions by default and don’t rely on confusing third-party protocols and solutions.”
Examples of ERC-404 projects
CoinGecko lists 12 other projects that have launched using ERC-404.
Pandora: 10,000 PANDORA ERC-20 tokens and 10,000 linked "Replicant" NFTs.
DeFrogs: 10,000 Pepe the Frog-themed NFTs with a deflationary mechanism.
Monkees: 100 PFP NFTs with 10 attributes and 6 traits.
Current Status
High Demand: First ERC-404 token (Pandora) saw a meteoric rise, reaching $32,000 from $250 within a week. It has a supply of only 8,000 tokens.
Growing Ecosystem: Several projects building on the standard, leveraging hype and airdropping tokens to Pandora holders.
Exchange Support: Prominent exchanges like OKX and Binance adding legitimacy by supporting ERC-404 tokens.
Safety Concerns and Experimental NFT Standard
While the creators of ERC-404 claim robustness, concerns linger about its underlying experimental nature and potential vulnerabilities.
Mixing Incompatible Standards
GitHub page acknowledges its experimental status and warns that the combined ERC-20 and ERC-721 standards are not inherently compatible.
Despite this, the project attempts to merge them for NFT fractionalisation.
Debate on Safety
Despite disclaimers, security concerns persist.
An X post by developer "quit" raised alarm in February 2024.
Potential Theft Vulnerability
"quit" claims NFTs using ERC-404 could be stolen by token holders if deposited in incorrectly configured lending protocols.
Improperly configured protocols may not distinguish between the NFT and its representing tokens, allowing unauthorised NFT withdrawals.
Read: Vulnerability thread by the developer “quit".
Speaking to Cointelegraph, founder developer "ctrl” has brushed off the vulnerability concerns.
“That’s like me posting a picture of a car and explaining how I would break into it because the door is unlocked.”
Challenges and Future
Unofficial Standard: Not yet recognised by Ethereum Foundation, EIP submission underway for official status.
Experimental Technology: Potential security risks and unforeseen technical complexities due to its innovative nature.
Adoption Uncertainty: Success hinges on developer and community support, EIP approval, and overcoming technical challenges.
TTD Week That Was 📆
Saturday: If You Smile ... 😄
Friday: Record breakers 🏋️♀️
Thursday: Blockchain v Traditional Finance? 🍻
Wednesday: BlackRock Rises 🌡️ Grayscale Slows Down 💨
Tuesday: GoDaddy x ENS 🤝
Monday: El Salvador votes pro-Bitcoin 📝🗳
TTD Week in Funding 💰
Superform Labs. $6.5 million. Cross-chain crypto yield marketplace, aiming to make DeFi easy to use.
Oobit. $25 million. Payments app to pay for purchases using crypto, while merchants receive fiat currency.
Flood. $5.2 million. Ethereum-focused DEX aggregator incorporates an optimal-routing model.
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