ERC-404

Introduction

The best part of blockchain technology is its openness to experimentation, modification and development of its many moving parts. For instance, a few years ago, Layer 2s were just ideas, almost unheard of, and doubted to work. These days, almost everyone knows what they are, and the tradeoffs that make them salient to our ever growing ecosystem.

ERC(Ethereum request for comments) standards were a term almost exclusive to Developers till the advent of NFTs. ‘ERC-721’ has since become a common language that everyone that ever transacted NFTs speaks. Since then, there has been vast interest not just by developers, but by traders on what ERC standards mean, and if there has been one that can solve the fungibility issue that makes NFT an almost illiquid ecosystem.

Understanding The ERCs

To properly flesh out the significance of the most recently developed ERC standard, it would make sense to define ERC standard for the reader.

According to web3.career, “ERCs are a set of technical standards that are used to create and manage tokens on the Ethereum blockchain. These standards provide guidelines for the development of smart contracts and dApps (decentralized applications) that can be used to create, manage, and exchange tokens on the Ethereum network.”

Of all the ERC standards, ERC-20 and ERC-721s are the most popular. This is also because they are the most widely used token standards. While some ERC standards have been developed as modifications to other standards in order to improve their usefulness, their core features have always been distinctly kept apart. For instance, ERC-223 is a standard modeled after the famous ERC-20 standard that allows its tokens the options for retrieval if sent to a wrong smart contract. Read here.

The core functionality and uniqueness of ERC-721 standard based tokens lies on the premise of their non fungibility feature. This has been its best feature and its constraint to mundane use cases.

Another very unique ERC Standard to note is the ERC-1155 developed by Enjin. It is a token standard that supports fungible tokens (ERC-20), non fungible tokens (ERC-1155) and semi fungible tokens in one smart contract. ERC-1155 standard was designed to encompass the advantages of many ERC standards into one.

With ERC-1155, you could send multiple transactions in a batch, mint fungible and non fungible tokens in one smart contract, and save gas fees.

While all these advantages are a great addition to the crypto ecosystem, a slight difficulty still exists; ERC-1155 NFT tokens are still as illiquid as their ERC721 counterparts.

THE ERC-404

The latest ERC Standard to come to utility and recognition is the ERC-404.

On February 2, 2024, a new ERC standard called ERC-404 was launched. Named after the popular website error, the ERC-404 is a token standard that allows for the combination of ERC-20 and ERC 721 standards in a bid to improve liquidity of NFTs and support its fractionalization. To better define the ERC-404 standard, we refer to Kucoin’s article on the matter which states that “The ERC-404 token standard is an experimental Ethereum token standard designed to merge the characteristics of fungible (ERC-20) and non-fungible tokens (ERC-721) into a hybrid form, allowing for both unique and divisible asset representations on the blockchain.”

With ERC-404 tokens, the NFTs still retain their non fungibility while being paired to a fungible token. Platforms that utilize the ERC-404 standard token mostly use the mint and burn system where an NFT gets burnt when the ERC20 token that they are attached to, gets sold or transferred from one wallet to another.

The experimental ERC-404 was first introduced with the Pandora Ecosystem. The Pandora platform features 10,000 ERC-20 tokens that are attached to 10,000 ERC-721 tokens called Replicants. When a buyer gets a $PANDORA token, he is assigned a randomly generated Replicant, while the seller’s Replicant is burnt. The $PANDORA token received much coveted attention from crypto enthusiasts all over the world, as it was the first project to employ the ERC-404 standard. Exchanges, both centralized and decentralized, are interested in listing the token for their customers; every worthy news outlet has written about them, and the market capitalization of the token itself has surpassed 100 million dollars in less 30 days of launch, a feat worthy of mention.

ERC-404: A Bright Future Is Found

The success of the $PANDORA token is a testament to the revolution that the ERC-404 standard brings to the crypto space. It’s been less than a month since the ERC-404 term became popular, yet the changes it has brought about are just staggering.

For Example,

The current market capitalization of the ERC-404 standard is now worth over $200million according to coinmarketcap.
The ERC-404 standard has spawned the development of yet another standard called the DN-404, which supposedly boasts of reducing gas fees by featuring two smart contracts, one that is fully ERC-20 standard compliant and one that mirrors the ERC-721 standard.
Aevo, the Prelaunch and Perpetuals trading platform has utilized the ERC-404 fractionalization advantage in giving their users random booster multipliers in their latest farming program.
For the first time since its inception, the crypto space is accepting and utilizing an ERC standard that is yet to be EIP (Ethereum Improvement Proposal) approved.
Injective, a blockchain layer for DeFi applications, recently launched a ‘CW-404’, an ERC-404 derivative that allows fractional ownership of NFTs
Pandora recently airdropped tokens to their token holders, engaging in the ongoing airdrop criteria meta that is currently the spice of the crypto world.

So, what does the Introduction of ERC-404 mean for Web3?

Like I pointed out in the first paragraph, the Web3 Space is an ever growing space. It’s almost impossible to keep track of all that goes on in this space. With the introduction of ERC-404, there is now a shift in how we can now interact with NFTs. Making NFTs liquid while still protecting its core features can make

Real world Assets (RWA) to be better tokenized;
DeFi protocols can better incentivize their users
Liquidity will be made available to NFTs

Conclusion

In conclusion, while it is still an experimental standard, there is no denying that the ERC-404 standard is bringing a lot of changes to how NFTs are traded. There is still a lot of room for improvement as many critics have pointed out, but this has paved ways for NFTs to be used to their maximum efficacy, at least in theory.