General
A disputed innovation.
A controversial innovation has made headlines. Have you heard about the controversy surrounding the new ERC-404 token?
Recently the news of the emergence of a new standard, a mixture of fungible tokens and NFT has been the talk of the crypto ecosystem.
Will the 404 token be the revolution that some say? Or will it be forgotten like all those old abandoned tokens?
Let’s not forget that new tokens and supposedly innovative solutions are constantly emerging in the crypto world, and not all that glitters is gold. Sometimes they are outright scams and fraudulent projects. And other times, they are simply not without great risk. Always keep that in mind, and Do Your Own Research (DYOR)
Here we explain everything about this new (and controversial) ERC-404 standard, so that you can be informed and draw your own conclusions.
A mix of well-known standards.
- ERC-404 is characterized as an experimental Ethereum token standard that combines the features of ERC-20 and ERC-721 tokens. Functioning through a smart contract that integrates both standards, ERC-404 enables the creation and transfer of fractional shares of non-fungible tokens (NFTs) via a technique known as “pathing”, where both the token amount and ID are stored. Generating a semi-fungibility that allows for the development of tokens possessing both fungible and unique non-fungible properties.
- In more technical terms, it is a “lossy encoding scheme”: a method of data size reduction by eliminating less crucial details, facilitating the division or combination of tokens into smaller or larger units while preserving their true identity and value, thereby enhancing their utility as NFTs.
- The ERC-404 standard pretends to foster native liquidity and asset fractionalization, mitigating certain limitations inherent in traditional token designs. In a broader context, this signifies increased liquidity and fractional ownership of assets, thereby expanding opportunities for trading and owning digital assets, allegedly.
Key modifications of ERC-404 to the fungible and non-fungible token standards include:
- Native liquidity: this enables seamless trading and interaction within DeFi ecosystems similar to ERC-20 tokens.
- Fractionation: this aims to democratize the NFT market and promote inclusivity. Unlike traditional NFTs, fractional NFTs claim to offer accessibility, allowing more people to participate in the ownership of a collection.
Pandora: The launch project.
- The inaugural project following the ERC 404 standard is Pandora, which experienced a remarkable surge of over 50X in value at launch. Accompanied by a large trading volume at the beginning, although it then declined significantly.
- Pandora introduces an innovative mechanism whereby the purchase of a Pandora token in Uniswap simultaneously grants the purchaser a corresponding NFT. This NFT is randomly generated, creating a dynamic interaction between the fungible and non-fungible aspects of the token.
- This concept pretends to introduce a novel dimension to trading strategies, as the value and rarity of the NFTs can influence market dynamics. For instance, traders may engage in arbitrage based on the rarity of the NFTs obtained through purchasing Pandora tokens, potentially selling rare NFTs at a premium.
This is how it works:
- When purchasing 1 Pandora on Uniswap, upon confirming the transaction, you exchange your $ETH for 1 Pandora token and receive 1 Pandora NFT. The NFT you get is randomly generated, as we said, just like standard NFTs. And it is offered in multiple levels of rarity.
- If the Pandora token is sold, the associated NFT is destroyed, maintaining the dynamic nature of the ecosystem. Transferring NFTs to a new wallet does not affect them: only transferring the token initiates the burning of the old NFT and the generation of a new one.
- Pandora tokens can be sold on Uniswap, and you also can sell your Pandora NFTs on OpenSea and Blur.io.
Check $Pandora chart here:
Conclusion: technology advances, but the need for security remains the same.
From DEXTools we love to see how innovation does not stop emerging in DeFi ecosystem. With its rights and wrongs, innovation is the best way to move forward. But we recommend you to always be cautious, and (again) Do Your Own Research (DYOR).
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