What Is ERC-404? The New Semi-Fungible Token Standard Explained

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The new, exper­i­men­tal ERC-404 stan­dard com­bines the ele­ments of ERC-20 and ERC-721 tokens to cre­ate semi-fun­gi­ble dig­i­tal assets. 

Post­ed Feb­ru­ary 12, 2024 at 5:42 am EST. 

Ethereum is home to a wide range of token stan­dards that enable spe­cif­ic func­tion­al­i­ties for cryp­to tokens. ERC-20 and ERC-721 are the two most pop­u­lar token stan­dards on the Ethereum blockchain. ERC-20 is the token stan­dard for fun­gi­ble tokens, while ERC-721 is the stan­dard for non-fun­gi­ble tokens (NFTs). 

And now, a new exper­i­men­tal token stan­dard has emerged called ERC-404. The token stan­dard com­bines the ele­ments of ERC-20 and ERC-721 tokens into one semi-fun­gi­ble dig­i­tal asset. 

Read on to learn what the ERC-404 token stan­dard is, how it works, and how it dif­fers from ERC-20 and ERC-721. 

What Is ERC-404?

The ERC-404 is an exper­i­men­tal token stan­dard that merges the fea­tures of the ERC-20 and ERC-721 token stan­dards to cre­ate a ‘semi-fun­gi­ble’ token with the char­ac­ter­is­tics of both fun­gi­ble and non-fun­gi­ble tokens. 

Pseu­do­ny­mous cre­ators “ctrl” and “Acme” on the Ethereum net­work cre­at­ed the unof­fi­cial token standard. 

The ERC-404 stan­dard allows devel­op­ers to devel­op frac­tion­al­ized NFT col­lec­tions that can be freely used and open­ly trad­ed in NFT mar­ket­places. Cur­rent­ly, unlike with fun­gi­ble tokens, NFT hold­ers can­not pur­chase frac­tions of a dig­i­tal asset.

Although frac­tion­al­ized NFTs exist, they pri­mar­i­ly rely on an insti­tu­tion spe­cial­iz­ing in NFT frac­tion­al­iza­tion to lock the frac­tion­al­ized NFTs in a cryp­to wal­let and issue tokens depict­ing that non-fun­gi­ble token. While these frac­tion­al­ized NFTs are freely trad­ed in the mar­ket, they may not pre­cise­ly match the val­ue of the locked NFTs.

And this is what the ERC-404 token stan­dard aims to solve.

How Does ERC-404 Work?

The ERC-404 token stan­dard enables the cre­ation of semi-fun­gi­ble tokens by uti­liz­ing token burn­ing and token mint­ing mechan­ics to allow for frac­tion­al NFT transfers. 

The token stan­dard links issued tokens to a non-fun­gi­ble token. The asso­ci­at­ed NFT is mint­ed to your wal­let if you pur­chase a full token. If you opt to sell a frac­tion of the token, the linked NFT rep­re­sent­ing that frac­tion is burned. 

Thus, the token stan­dard makes it pos­si­ble for mul­ti­ple wal­lets to hold frac­tions of one NFT. 

A new NFT is auto­mat­i­cal­ly mint­ed if a wal­let hold­ing mul­ti­ple frac­tions of a token buys enough to hold an entire token.

In short, if ERC-404 goes through the offi­cial Ethereum Improve­ment Pro­pos­al (EIP) process and is added to the Ethereum ecosys­tem, it will pro­vide room for the native frac­tion­al­iza­tion of non-fun­gi­ble tokens, which will make it pos­si­ble to exper­i­ment with NFT use cases. 

How Does ERC-404 Differ from ERC-20 and ERC-721

Let’s take a look at how the ERC-404 token stan­dard dif­fers from the ERC-20 and ERC-721 token stan­dards in the table below.

ERC-404 ERC-20 ERC-721
EIP  Lacks a for­mal EIP Pro­posed and intro­duced through EIP-20 Pro­posed and intro­duced through EIP-721
Token stan­dard  Semi-fun­gi­ble token standard  Fun­gi­ble token standard Non-fun­gi­ble token standard 
Asset class represented Rep­re­sents frac­tion­al­ized dig­i­tal assets Rep­re­sents a spe­cif­ic type of fun­gi­ble dig­i­tal asset Rep­re­sents a class of unqi­ue dig­i­tal assets
Tokens stan­dard creators “ctrl” and “Acme” Fabi­an Vogelsteller William Entriken, Dieter Shirley, Jacob Evans, and Nas­tas­sia Sachs
Token IDs Not known Lacks a token ID Fea­tures a unique token ID for each asset
Sta­tus Under devel­op­ment  Devel­oped Devel­oped

 

Who’s Already Using ERC-404?

The ERC-404 token stan­dard is exper­i­men­tal and hasn’t under­gone the offi­cial EIP process. Still, devel­op­ers are already using it when build­ing their projects. 

Below is a list of the three projects cre­at­ed using the ERC-404 token standard. 

  • Pan­do­ra: Pan­do­ra is a new­ly launched token. It’s the first project employ­ing the ERC-404 token stan­dard to launch. Pan­do­ra is made up of 10,000 PANDORA ERC-20 tokens and 10,000 linked ‘Repli­cant’ non-fun­gi­ble tokens. A cor­re­lat­ed Repli­cant NFT is mint­ed to your wal­let if you pur­chase a full PANDORA token.
  • DeFrogs: DeFrogs offers 10,000 Pepe the Frog-based NFTs and is con­sid­ered the first ERC-404 pic­ture-for-pro­file (PFP) NFT collection.
  • Mon­kees: Mon­kees is also a PFP col­lec­tion uti­liz­ing the ERC-404 token stan­dard. It com­pris­es 100 NFTs that have six traits and ten attributes. 

The Takeaway

While the ERC-404 token stan­dard con­tin­ues to show the adapt­abil­i­ty of the Ethereum blockchain, it’s impor­tant to remem­ber that the stan­dard is only exper­i­men­tal and not offi­cial. It has yet to be sub­mit­ted for review as an EIP and hasn’t under­gone the required exter­nal audit.

As such, although already being uti­lized, the token stan­dard could have some unknown flaws, which intro­duces a risk to token hold­ers. Addi­tion­al­ly, as an unof­fi­cial token stan­dard, major NFT mar­ket­places and plat­forms cur­rent­ly don’t sup­port it.

While there’s no deny­ing that the ERC-404 token stan­dard opens up new use cas­es for NFTs on Ethereum, it remains to be seen whether its devel­op­ers will suc­cess­ful­ly pro­pose and get the approval need­ed for it to become part of the Ethereum ecosystem. 

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