ERC-404 TOKEN STANDARD #ERC404
it’s not news that the ERC-404 token standard has garnered a lot of attention since the surge with $PANDORA.
ERC-404 has emerged as a new standard for the Ethereum blockchain, what does this mean for Ethereum network and what is it all about
What is ERC-404
ERC-404 is an experimental hybrid token standard, the fusion of the ERC-20 and ERC-721 standard. It is designed to possess the functionality of these two standards in one, being both fungible and non-fungible at the same time Depending on its use case
ERC-404 presents a unique front, as a token standard that can be an NFT and a token at the same time, allowing Liquidity and Fractionalizion at the same time. A unique semi-fungible token that can be traded on DEXs as well as NFT marketplaces
With ERC-404 NFT ownership can be divided into smaller, tradable units, providing more flexibility for buyers and sellers in the NFT market.
Unlike fractionalization protocols, which allow NFTs to be locked and shares to be issued against them, the ERC-404 standard, integrates fractionalization directly into NFT projects.
How does it work?
So basically every ERC-404 token issued is linked to an NFT, when you mint a token a complementary one is minted in your wallet and same thing when you mint an NFT you receive a complementary token.
Now when a fraction of that token is sold its complementary NFT is burnt
But when these fractions of the same token are combined to be whole again, a new NFT is minted.
Pros of ERC-404 Token Standard:
• Hybrid functionality, ERC-404 tokens can do more things because they combine features from both regular tokens (like money) and unique tokens (like digital art). This makes them useful for many different purposes.
• Dynamic Token Scarcity Management: ERC-404 tokens can adjust how many of them exist, developers can control this to make sure there are enough tokens for trading, but not too many that they lose their value.
This helps maintain a healthy balance in the tokenomics ensuring that tokens stay valuable and in demand.
• Inherent Liquidity Mechanisms: ERC-404 tokens are designed to be easy to buy and sell. They have built-in features that make trading them easier and faster. This means you can easily exchange ERC-404 tokens for other assets without facing too many hurdles or delays.
Cons of the ERC-404 Token Standard
The ERC-404 standard is experimental and unofficial, it is unaudited and yet to be vetted with Ethereum’s EIP, making it unsafe and open to vulnerabilities, security is critical and with ERC-404 it is not exactly guaranteed.
It also creates room for potential exploitation seeing as tokens can be tampered at any given time.
Projects that have adopted this standard:
• @pandora_ERC404 the first token built on this standard
• @DeFrogsToken
• @FORGE_ERC
• @rugged_dot_art
Conclusion:
ERC-404 is a game changer for tokenization. Excited to see how it's explored. Thoughts on this new standard? Let me know below ⬇️