One thing is a constant in life, and that is change. You can also apply this to the crypto space. For instance, there was a recent addition to the ERC token standard family.
It’s the ERC-404, and it’s an experimental, semi-fungible token. It combines fungible and non-fungible elements. So, here’s a guide to this new ERC-404 token standard.
What Is the ERC-404 Token Standard?
The ERC-404 token standard mixes the ERC-20 and ERC-721 tokens. It takes the best of both worlds. As it happens to be, these are by far the two most popular ERC token standards. So, we have the ERC-20 token, which caters to crypto assets. On the other hand, we have the ERC-721, which hosts NFTs. Fungible tokens, the ERC-20 token, and non-fungible tokens, the ERC-721 token, combined.
To clarify, this is an experimental token standard. On one side, it’s a semi-fungible token. On the other side, though, it’s not an official token yet. The two creators, ‘crtl’ and ‘Acme’ are the creators of this new Ethereum token. They fiddled around with the ERC token standards. These standards have formal sets and rules. As a result, the tokens act in predetermined ways.
For example, it’s not possible to buy fractionalized ERC-721 tokens. Unless you go through specific procedures. For instance, specific entities lock up an NFT. It issues a new, fractionalized NFT. Now, you can trade this NFT on marketplaces. On the other hand, an ERC-20 has this fractional feature. For example, you can buy 0.0125 ETH. However, the ERC-404 token solves this problem. It has a native option to fractionalize NFTs.
The new ERC-404 standard takes this even a step further. Various wallets can own a single NFT. The idea is to allow you to tokenize this exposure and monetize it. You can take out loans with it or stake your holdings. So, the new token doesn’t have to rely on third-party protocols. It offers these functions by default.
Source: X
How Does the ERC-404 Token Work?
The ERC-404 token standard uses a burn and mint mechanism. This is how you can transfer its fractional NFTs. So, you link issued tokens to an NFT. In case you buy the full token, you get the linked NFT minted to your wallet. Selling only a fraction of the token burns the linked NFT. However, if you buy enough fractions again, it burns a new NFT.
Here’s a sample, they generally explain things easily.
- So, the tokens are in a pool on an AMM. In case you buy 10.5 tokens, you mint 10 NFTs and get 0.5 tokens.
- When you transfer NFTs between wallets, you burn them in the originating wallet. However, you mint them again in the destination wallet.
- Selling your ERC-404 tokens for ETH results in burning all NFTs back into the smart contract.
- The ERC-721 rarity mechanism remains in place.
This allows you to sell the NFTs at any time, as long as there’s an AMM pool available for them. You don’t need to wait for a buyer who wants to buy your complete, non-fractionalized NFT.
This all sounds great and interesting. However, keep in mind that these new tokens are not official tokens yet. Nonetheless, the team is working hard to achieve this. You can do this with an Ethereum Improvement Proposal (EIP). But this takes time to get it approved. This also means that the token may have risks. For example, undiscovered flaws.
Excited to announce one of ERC404's biggest improvements yet. We've modified exemptions (formerly whitelist) to be decentralized and egalitarian. This means major gas savings, independent integration, and more.
Quick thread.
— Acme (@0xacme) February 13, 2024
Projects that Use ERC-404 Tokens
Pandora is the first collection to use the ERC-404 token. It has a 10k NFT collection. However, it’s also listed as a crypto token. According to CoinGecko, its current price is $21,452.50. It has a market cap of $215 million. Since its listing, it has done well over 100x. You can find their NFTs on NFT marketplaces like OpenSea and Blur. On the other hand, you can find the token on Uniswap.
DeFrogs are 10,000 Pepe the Frog NFTs. They’re considered to be the first PFP collection on ERC-404 tokens.
Some new collections airdropped a small part of their new tokens to Pandora holders. Solana and Arbitrum (crystal_404) also have seen new collections with this token standard. It may pay off to be the first mover.
Top-tier exchanges like OKX and Binance also offered support. Their respective Web3 wallets can hold this new token standard. This most certainly will further boost the current hype.
New update:
The #Binance Web3 Wallet now supports #ERC404 tokens.
Tap to try 👉 https://t.co/jLHn6QPHKA pic.twitter.com/e3gTylFyim
— Binance (@binance) February 8, 2024
Conclusion
There’s an exciting new and experimental ERC token standard. The ERC-404 token combines features from the ERC-20 and ERC-721 tokens. This makes it a semi-fungible token. In other words, it has a native fractionalizing feature. However, it’s not an official Ethereum token standard yet. Nonetheless, its popularity is growing fast.
Disclaimer
The information discussed by Altcoin Buzz is not financial advice. This is for educational, entertainment and informational purposes only. Any information or strategies are thoughts and opinions relevant to accepted levels of risk tolerance of the writer/reviewers, and their risk tolerance may be different from yours.
We are not responsible for any losses that you may incur as a result of any investments directly or indirectly related to the information provided. Bitcoin and other cryptocurrencies are high-risk investments, so please do your due diligence.
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