What is ERC-404? The combination of token and NFT
ERC-404 is a new token standard being experimented with on Ethereum, notable for combining features of both ERC-20 and ERC-721.
Hello everyone,
Cryptocurrency is a market with many different stories being told. With each new story, a new trend captures the community’s attention. The story of NFTs with the ERC-721 token standard is a typical example.
Recently, the community has been buzzing about a new token standard called ERC-404. The launch of this token standard was initiated by a project named Pandora, which saw an increase of tens of thousands of percent. Immediately, tokens in this segment also witnessed a surge in trading volume.
These are just a few examples related to ERC-404 that BeInCrypto has reported on previously. So what exactly are they, and how do they work? In this article, we will delve into the details and comprehensive understanding of ERC-404.
I am Neo — Admin — Community Manager of Optimus Finance and Growth Marketing of LECLE Vietnam.
1. What is ERC-404?
ERC-404 is a new token standard being experimented with on Ethereum, notable for combining features of both ERC-20 and ERC-721.
The ERC-20 standard, widely known as the standard for fungible tokens, such as cryptocurrencies and utility tokens.
On the other hand, ERC-721 is the standard for non-fungible tokens (NFTs), each representing a unique digital asset.
The standout feature of ERC-404 is its ability to partition NFTs into smaller fractions. While conventional NFTs cannot be divided and must be bought or sold as whole units, ERC-404 allows for the subdivision of an NFT into fungible tokens. Each portion of this NFT can be represented by an ERC-20 token, making NFT ownership more accessible and easier for investors who may not have the means to afford a large sum.
Fundamentally, ERC-404 addresses the liquidity issue of NFTs and the problem of certain NFTs in the market being priced too high, making them inaccessible to the majority of crypto users.
2. How ERC-404 works
ERC-404 operates by establishing a unique relationship between fungible (replaceable) and non-fungible tokens. This allows users to partition and merge NFTs flexibly. To better understand, let’s consider a practical example:
Real-World example of ERC-404
Let’s suppose there’s a highly valuable and unique NFT, such as a digital artwork or a Bored Ape Yacht Club (BAYC) NFT. The price of this NFT is so high that not everyone can afford to buy it in its entirety. Traditionally, NFTs are counted as integers (1, 2, 3…n), but ERC-404 experiments with decimals. For example:
Purchasing ERC-404 tokens in an AMM pool and receiving 10.5 tokens means you’re creating 10 NFTs + exchanging for 0.5 tokens (all in the same transaction). The NFT minting process occurs as usual.
Transferring tokens to another wallet means burning those NFTs in your wallet, then minting them into the other wallet.
Selling all ERC-404 tokens and receiving ETH means all NFTs and tokens will be burned back into the smart contract. This is similar to swapping an ERC404 order through an AMM Pool.
For each integer part of the token, the order will be recognized as a Mint order. For each decimal part, the order will be recognized as a Swap order.
The scarcity mechanism of ERC-721 NFTs will be maintained as when created through a standard smart contract.
In essence, ERC-404 enables high-value NFT collections to be more accessible to a wider audience, as they only need to purchase a small fraction of the NFT rather than the entire thing. Dividing NFTs into smaller parts creates higher liquidity in the market, as more people can participate in buying and selling.
3. Projects utilizing ERC-404
Pandora is the first collection to utilize the ERC-404 token. This collection consists of 10,000 NFTs. However, it’s also listed as a cryptocurrency token. According to CoinGecko, its current price is $21,452.50 USD with a total market capitalization of $215 million USD. Since its listing, its value has increased by over 100 times. You can find their NFTs on NFT trading platforms like OpenSea and Blur. On the other hand, you can find the token on Uniswap.
DeFrogs is a collection of 10,000 NFTs featuring Pepe the Frog. They are considered the first PFP (Profile Picture) collection on the ERC-404 token.
Some new collections have airdropped a small portion of their new tokens to Pandora holders. Solana and Arbitrum have also witnessed the emergence of new collections utilizing this token standard.
Leading exchanges like OKX and Binance have also provided support. Their Web3 wallets can accommodate this new token standard.
4. Closing thoughts
In essence, information about ERC-404 is still quite rudimentary as it has not yet been audited, and there are still many issues regarding the nature of this new token standard due to the apparent conflicting interests of combining the ERC-20 and ERC-721 asset standards. However, this is also a new step forward that could be a precursor to the explosion of NFTs.
What about your thoughts? If you want to know further about it, don’t hesitate to share it with us! 😀
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#ERC404 #Ethereum #blockchain