Crypto News

What is the ERC-404 token standard: revolution or failure?

[ad_1]

The new ERC-404 token standard presents promise and uncertainty for traders and digital art enthusiasts. But is it a reliable solution?

The experimental ERC-404 standard aims to solve the liquidity problem of NFT collections. It merges the features of ERC-20 fungible tokens with ERC-721 non-fungible tokens.

ERC-20 serves as the protocol standard governing token issuance on the Ethereum network, facilitating the exchange of tokens based on predefined rules. Conversely, ERC-721 functions as a standard for non-fungible tokens, allowing developers to tokenize ownership of various data on the Ethereum blockchain using the Solidity language.

Typically, ERC-20 and ERC-721 are aimed at fungible assets such as currencies and unique collectibles, including digital art. However, this categorical division complicates the rapid sharing and exchange of specialized digital assets.

Understanding ERC-404: What We Know So Far

Developers are introducing the ERC-404 standard as a new protocol aimed at merging the desirable features of ERC-20 fungible tokens and ERC-721 non-fungible tokens (NFTs). Its primary goal is to address the liquidity challenges NFT collections face and improve their utility within the challenge ecosystem.

How does ERC-404 work? ERC-404 represents a contract template designed to facilitate transactions involving both ERC-721 and ERC-20 tokens. This contract does not change the parameters of existing standards but rather facilitates transactions between different types of assets. It is important to recognize that recognition of ERC-404 by the Ethereum Foundation or the broader community is still pending.

ERC-404 projects

Pandora

In early February 2024, Pandora debuted as the first ERC-404 coin. It works with two assets: an ERC-20 fungible token (PANDORA) and an ERC-721 non-fungible token known as the Replicants collection.

The Pandora Project has issued a total of 10,000 ERC-404 tokens, each linked to a unique NFT within the Replicants Collection. These NFTs, represented as colorful boxes called Replicants, come in five different colors, each representing a distinct level of rarity. For example, ordinary boxes are green, while rare ones are red. When purchasing a PANDORA ERC-404 token, buyers receive a random NFT box associated with the token.

Essentially, every time a user acquires a PANDORA token, the Mint contract automatically generates a corresponding NFT replicant, which is then transferred to their wallet. Subsequently, when a token is sold or transferred to another wallet, the associated NFT is burned.

However, the process does not work in reverse. When transferring or selling an NFT, the PANDORA token remains unchanged; instead, the fungible token is transferred to the new owner’s wallet alongside an instance of Replicants.

With each PANDORA purchase, the Mint contract generates an NFT with random parameters that vary in rarity. Therefore, buyers of the fungible token cannot anticipate the scarcity of the NFT in advance. This approach ensures equal opportunities for all users and introduces an element of unpredictability and speculation into trading.

DeFrogs

DEFROGS is a meme coin inspired by the PEPE crypto project. The DeFrogs collection consists of 10,000 NFTs, each representing a frog with unique characteristics and accessories. Built on the Ethereum blockchain, each DeFrog guarantees proof of token ownership and distinct individuality.

Launched in July 2022, the project quickly attracted considerable attention from the NFT community.

Why is ERC-404 gaining popularity?

ERC-404 has become a central point of discussion within the crypto community replicants.

Since its launch on February 5, the value of the PANDORA token has seen a remarkable 290% increase, reaching $16, according to CoinMarketCap. Notably, between February 5 and 9, the token experienced explosive growth, rising from $4,018.12 to $32,854.52, with a current market capitalization of $166 million.

What is the ERC-404 token standard: revolution or failure?  - 1
Source: CoinMarketCap

Several factors contribute to this rapid success. First, ERC-404 introduces a new token standard with a unique transaction format. The price gap between the NFT value and the PANDORA token also creates lucrative opportunities for investors.

The hype around ERC-404 has led to an increase in gas fees on the second-largest cryptocurrency’s blockchain, reaching an eight-month high. Regular transactions required users to pay $60, with costs peaking at 377 Gwei – the highest since May 2023.

ERC-404 standard boosts competitor

Following the rapid rise of ERC-404, the cryptocurrency development group has unveiled an alternative implementation of the experimental ERC-404 token standard.

Responding to concerns about fees, developers have designed a new solution. On February 12, programmers introduced the Divisible NFT standard (DN-404). Like ERC-404, this standard is also a hybrid of ERC-20/721, allowing non-fungible tokens to be broken into pieces and exchanged between users.

However, unlike ERC-404, the DN-404 standard employs two contracts: the “base” ERC-20 and the “mirror” ERC-721. Developers say this segregation minimizes potential problems.

Decentralized exchange (DEX) Trader Joe was the first platform to adopt the DN-404 standard, launching the token named SHOE. These tokens were exclusively distributed between 22,140 wallets of active users of the Joepegs marketplace and holders of NFT projects affiliated with the Joe Studios accelerator.

What is the future of ERC-404 tokens?

Critics have expressed concerns about the standard’s practicality and effectiveness. Developer Quit has highlighted potential vulnerabilities in unconfigured lending pools on ERC-404, which could allow users to exploit the system and cash out high-value NFTs instead of their tradable fractions.

Such criticisms highlight the experimental nature of ERC-404 and the unforeseen challenges it might face in real-world applications.

Despite these obstacles, the ERC-404 standard has attracted interest due to its unique approach to NFT splitting. The ability to trade tokenized shares on decentralized exchanges has increased the liquidity of NFTs.

This concept was new to NFTs, treating them like regular ERC-20 tokens. However, the falling price of Pandora and other ERC-404 tokens raises doubts. This raises questions about the long-term success and acceptance of this standard within the crypto community.

Follow us on Google News



[ad_2]

Related Articles

Leave a Reply

Your email address will not be published. Required fields are marked *

Back to top button