Imagine owning a small piece of a famous piece of digital art. Sounds impossible, right? Well, thanks to ERC 404 tokens, it’s becoming a reality. This exciting new way to own nfts is changing the game.
Instead of buying a whole nft, you can now buy a small part of it. This means more people can enjoy owning a piece of something special and makes nfts more accessible to everyone. Learn more about What is ERC 404? tokens and how they are shaping the future of digital arts.
Key points:
- The ERC 404 token standard allows multiple people to own parts of a single nft, making high-value digital assets more accessible.
- By merging the properties of ERC-20 and ERC-721 tokens, ERC-404 enables fractional ownership, improving nft liquidity.
- Top use cases for the ERC 404 token standard include real estate, art, collectibles, gaming, and more, democratizing asset ownership and investment.
- The top ERC 404 projects on the ethereum blockchain are $PANDARO and $DEFROGS.
What is the ERC 404 token standard?
In simple words, “ERC-404 is an experimental token standard that allows multiple people to own parts of a single nft.”
The ERC-404 token standard is a concept on the ethereum blockchain that aims to bridge the gap between fungible and non-fungible tokens. Unlike traditional ERC-20 tokens, which are identical and interchangeable, and ERC-721 tokens, which are unique and indivisible, ERC-404 tokens offer a hybrid approach.
The ERC-404 standard was created by two anonymous developers who go by the names “ctrl” and “Acme,” and merges the properties of ERC-20 and ERC-721 tokens. It also introduced the concepts of semi-fungible tokens, which allow people to own fractions of a single nft.
This concept opens up new possibilities for asset management and investment. For example, high-value nfts could become more accessible to a wider range of investors through fractional ownership. Furthermore, it could facilitate the creation of complex nft-based financial instruments.
For better understanding, here is a quick comparison between ERC-404 vs ERC-20 vs ERC-721:
Comparison between ERC-404, 20 and 721 token standards. Source: DeFrogs
How do ERC-404 tokens work?
ERC-404 tokens work by combining the properties of the ERC-20 and ERC-721 token standards.
As mentioned above, an ERC-404 token represents a Fractional ownership of an nftWhen an nft is divided into ERC-404 tokens, each token becomes a divisible unit that represents a part of the nft. These tokens are fungible, meaning they can be traded like regular digital currencies (similar to ERC-20 tokens).
The key mechanism is the link between the ERC-404 token and the underlying nft. When someone owns all the ERC-404 tokens associated with an nft, they effectively own the entire nft. This is achieved through smart contract logic that manages the relationship between the tokens and the nft.
If someone sells part of their ERC-404 tokens, they are essentially selling a portion of their ownership of the nft (not the entire nft). The remaining tokens still represent ownership of the nft. Conversely, if someone accumulates enough ERC-404 tokens, they can “burn” them to claim ownership of the entire nft. This system allows for fractional ownership and increased liquidity for nfts.
How ERC-404 tokens work. Source: Mercuryo
Use cases of the ERC-404 token standard
ERC-404 opens up a wide range of possible applications. Some notable use cases are listed below:
- Real estate:Expensive properties can be converted into ERC-404 tokens, allowing multiple people to own fractions of them. This democratises access to real estate investments and improves liquidity.
- Art and collectibles:High-priced artworks or rare collectibles can be divided into ERC-404 tokens, allowing for broader ownership participation and potential price appreciation.
- Collateralization:ERC-404 tokens can serve as collateral for lending protocols, expanding the range of acceptable assets.
- Provision of liquidityFractional ownership of nfts can improve liquidity by increasing the number of potential buyers and sellers.
- Games and Metaverse:Virtual objects, characters, or land within a game can be represented as ERC-404 tokens. Fractional ownership of in-game assets can create dynamic economies within virtual worlds.
- Tokenization of assets:Real-world assets (RWA), such as commodities, bonds, or intellectual property, can be tokenized and fractionalized.
- DeFi: The ERC-404 token standard expands the scope of decentralized finance (DeFi) use cases by enabling the use of non-fungible assets.
Main ERC 404 projects
$PANDORA
PandoraBuilt on the ERC-404 standard, it is the first project of its kind. This innovative system links 10,000 ERC-20 tokens to 10,000 “Replicator” nfts.
When you buy a full PANDORA token, a Replicant nft is created and added to your wallet. If you sell a PANDORA token, the connected nft is destroyed. These Replicant nfts come in different rarity levels, shown by various colors, with green being the most common and red being the rarest. You can change the rarity of a Replicant by exchanging PANDORA tokens.
$DESRANAS
Desranas DeFrogs is another project based on the experimental ERC-404 standard. It combines the features of ERC-20 and ERC-721 tokens to create a hybrid token that supports native liquidity and fractional ownership for nfts. It also offers a collection of 10,000 nfts featuring unique frog profile photos. Purchasing a DeFrogs token creates a new frog nft.
The DeFrogs project embraces meme culture and aims to elevate the quality of meme coins and nft art. It launched with no pre-sale, has zero taxation, and features a locked liquidity pool. The project is promoted as a fun and artistic endeavor, encouraging participation through humor and creativity rather than financial gain.
Rough art (RUG)
RUGwho created pixelated penguins, was inspired by the Flippies nft Collections on Solana and used ERC 404 token standards. This project focuses on making the ERC 404 standard adaptable to various blockchain ecosystems.
The innovative technology between resistant art and the ERC 404 standard allows the collection to have nft-FT duality. They can be traded as nfts on marketplaces and as fungible tokens on DEXs.
404 Alien (404A) and Alphabet (ALPHABET) are two other projects that use ERC 404 token standards. However, their market capitalization and trading volume are different.
Challenges of the ERC-404 token standard
The ERC-404 token standard, while promising in terms of fractionalizing nfts, faces several hurdles.
Experimental
One of the main challenges is its experimental nature. As a relatively new standard, it lacks the maturity and widespread adoption of its predecessors, such as ERC-20 and ERC-721. This newness means there is a higher risk of unforeseen issues and vulnerabilities.
Liquidity concerns
While the goal of ERC 404 is to improve the liquidity of nfts by allowing fractional ownership, a number of factors, such as user adoption, platform support, and overall market conditions, will impact the actual liquidity of these tokens in the market. Early projects may face liquidity issues until the standard gains more widespread use.
Technical challenges
Another major concern is the potential for complex interactions between the fungible and non-fungible components of ERC-404 tokens. Ensuring accurate calculations and avoiding accidental burning of nft fractions due to rounding errors is a critical technical challenge. Additionally, the complexity of the standard can lead to higher nft gas fees, making transactions more expensive.
Market adoption
While ERC-404 offers a solution for nft liquidity, it requires a robust ecosystem of platforms, wallets, and decentralized applications (dApps) to support its functionality. Building this infrastructure and educating users on the benefits of fractional ownership will take time.
Regulation
Regulatory uncertainty looms over the ERC-404 standard. As fractional ownership introduces new financial dynamics, regulators may need to develop specific guidelines for this type of asset. Navigating this regulatory landscape could be challenging for both projects and users.
Not tested
Finally, the ERC-404 standard has not gone through the rigorous ethereum Improvement Proposal (EIP) review process. This lack of formal standardization could hinder its long-term acceptance and raise questions about its security and reliability.
The future of ERC-404 tokens
One of the most promising aspects is the potential for wider adoption. As more people become familiar with fractional ownership and the benefits it offers, demand for ERC-404 tokens is likely to grow. This increased adoption could lead to a more liquid market, making it easier to buy and sell fractional nft shares.
ERC-404 could also pave the way for new financial instruments. For example, we could see the emergence of nft-backed securities or derivatives. This could open up new investment opportunities and attract more traditional financial players to the nft ecosystem.
The gaming industry is another area where ERC-404 could have a significant impact. Imagine owning a fraction of a rare in-game item or virtual real estate. This could create entirely new economic models within games and virtual worlds.
Final Thought
ERC-404 tokens are changing the way we think about nfts. By allowing people to own small pieces of special digital items, they are making nfts more accessible and exciting.
While there are still things to be worked out, such as how to ensure everything works smoothly, the future looks bright. This new way of owning things could open up a lot of interesting opportunities in the world of digital art, gaming, and beyond.
Frequently Asked Questions
Is ERC 404 token safe?
Unlike ERC 721 and ERC 20, the ethereum Foundation does not officially recognize the ERC 404 token. The lack of thorough verification of the standard raises security and integrity issues. Therefore, an ERC 404 asset will carry some risks.
How do ERC-404 token standards address security concerns?
ERC-404 token standards would combine ethereum’s existing security mechanisms while also proposing new techniques to combat smart contract vulnerabilities. To ensure the integrity and security of ERC-404 tokens, developers will likely apply rigorous testing and auditing techniques similar to those used for the ERC-20 and ERC-721 standards.
What is the difference between ERC 404 and ERC 1155?
The ERC 1155 standard supports flexible fungible tokens, such as fungible, non-fungible, and semi-fungible tokens. The ERC 404 standard focuses on the transition from fungible to non-fungible tokens.
Below is a quick comparison between two token standards:
| Feature | ERC-404 | Administrative procedure code 1155 |
| Fungibility | Transition between fungible and non-fungible | Fungible, non-fungible and semi-fungible token. |
| Property | Native fractional | Collective |
| Availability | Market, DeFi platforms | nft Market |
| Utility | A bridge between nft and DeFi | Games, ticket sales and memberships |
