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This week, a new type of NFT with a built-in capacity for fractional trading has gained in popularity.
Liquidity, interest, and infrastructure are pouring into this new meta—so let’s take a look at what ERC-404 is and how it works.
First of all, this standard is calling itself an ERC, but it’s not gone through the formal process of an EIP (Ethereum Improvement Proposal)., meaning it’s not been fully vetted or audited by the Ethereum devs or governance structures. It’s calling itself an ERC, and there is a lot of public interest in the idea of ERC-404 tokens, so it may get codified officially in due course.
ERC-404 tokens are primarily on the Ethereum mainnet for now, but they can also be deployed on chains like Arbitrum—the first 404 there is called Crystal.
How It Works
“ERC404 aims to be a hybrid of ERC721 and ERC20 –it’s an NFT token that has fungible fractionalization built in,”Cygaar posted a message on X.
To illustrate the differences between 404s and 721 tokens, he used a familiar illustration.
“Let’s say we have an ERC721 NFT contract called Fantastic Figs.
Your balance goes from 0 up to 1 when you mint a Fig. When you give your Fig away, your balance will be 0. You can’t trade fractional parts of each NFT, it has to be whole tokens.
Very straightforward,” he wrote.
He then asked: What would happen if Figs were 404s instead? “The fig contract now has a base unit like an ERC20 token. For this example, let’s assume a base unit of 100 (in reality it’ll be something like 10^18).
If I mint a Fig NT, my balance is 100 instead of 1.
So far, it’s not much different than before. This is where things get interesting.
You can trade fractions from your NFT.
I can transfer 20 Fig. NFT fractions. My balance will be 80. However, because my balance is less than 100, I will lose the NFT,” he explained.
In practice, each time someone buys or sold fractions of a 4404, the contract checked if it needed to mint or burn one of the NFTs that these fractions were constituent parts.
You can see the hybrid nature of the Pandoras by looking at them. The NFTs—For now, these are floating pixel art boxes that will unlock at their reveal to reveal a unique Replicant—are selling for over a 10 ETH floor, but if you want to get a fractional exposure, you can go over to UniswapPurchase the amount that you can afford. The NFT is priced the same as the $pandora Token, but you are able to trade fragments.
For the inveterate rarity sniper, it is important to know that when you sell enough fractions of $pandora, you’ll burn an NFT! For those who want to keep hold of a particular Replicant NFT while they’re trading, a Soon, locking feature will be rolled out.
Degen Liquidity NFT Art
Many of us are now freaking out about these new 404s, because the standard could fix the illiquid JPEG issue, making it easier for a collection cartoon animals to attract large liquidity pools, using the DEXes that we already know for trading memes tokens.
Security researcher 0xQuit has taken a look at the standard’s code and has Raise some technical concerns.
Acme, the founder of the project, replied to them on telegram. “I think all criticism is valid, but just to be clear, he’s creating an example where a protocol doesn’t integrate correctly and is leveraging that in an attempt to reflect poorly on us.
Oh, also, we’ve just fully completed an initial Pandora audit, and it will be out today. The second iteration of ERC404 has just started an audit as well and will be audited prior to release.”
ERC-404s have already been supported by wallets, such as OKXThe following are some examples of how to get started: Bitget Wallet, and announcements of a proper EIP application on its way, the new hybrid tokens could be a central theme in 2024—and are likely to transform the NFT landscape.
Original content by nftnow.com: “What Are ERC 404s?” Inside the Hybrid Token Standard
Read the complete article at https://nftnow.com/news/what-are-erc-404s-inside-the-hybrid-token-standard/ ‘