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ERC-404 Tokens: As Developers Try For Approval, Here’s What These Hybrid Tokens Are

Last Updated February 9, 2024 9:31 AM
Teuta Franjkovic
Last Updated February 9, 2024 9:31 AM

Key Takeaways

  • ERC-404 aims to merge fungible and non-fungible tokens, enabling fractional ownership of NFTs.
  • Development is ongoing with a planned EIP submission.
  • Security concerns exist due to the experimental nature and integration complexity.
  • Despite safety concerns, major exchanges like Binance and OKX support ERC-404.

An innovative Ethereum standard, provisionally named “ERC-404 ,” is under development, aiming to merge the characteristics of fungible and nonfungible tokens (NFTs).

This ambitious project, spearheaded by pseudonymous creators “ctrl”  and “Acme ” as part of the Pandora initiative, seeks to blend the technology underpinning ERC-20 fungible tokens with that of ERC-721, the standard behind unique tokens like those found in the Bored Ape Yacht Club (BAYC) collection.

ERC-404 Set to Revolutionize NFT Ownership with Fractional Shares

The team is dedicated to drafting and submitting an Ethereum Improvement Proposal (EIP)  to formalize this hybrid standard.

Despite its designation, ERC-404 has not undergone an audit, and the “ERC” label is currently used in name only, without official endorsement or recognition.

The developers behind the experimental Ethereum standard ERC-404, led by ctrl, are preparing to submit an EIP but have kept details about the team discreet, hinting only at their proven track record and stating they are “in a very good spot” for submission.

ERC-404 proposes a groundbreaking approach to NFTs by integrating ERC-721 NFTs with ERC-20 tokens, facilitating what is often termed as fractionalized NFTs. This innovative concept would enable multiple wallets to own shares of a single NFT—like a piece from the Bored Ape Yacht Club collection—making it possible to trade or leverage these shares for financial purposes such as loans.

The GitHub page for ERC-404  describes the standard as an experimental endeavor, acknowledging that the two Ethereum standards it seeks to combine—traditionally not meant to be integrated—are being ambitiously fused.

Despite the inherent challenges, the project is dedicated to achieving this integration in the most effective and reliable way possible, striving to keep compromises to a minimum. The initiative highlights a bold step towards innovating within the blockchain space by merging distinct token functionalities.

Safety Concerns Over ERC-404 Standard Amid Experimental Phase

Despite its experimental label, the ERC-404 project has sparked  a lively discussion regarding its security implications. On February 8th, a developer known as “quit” raised concerns  on X about the potential vulnerabilities associated with NFTs utilizing the ERC-404 standard. Specifically, they highlighted a scenario where NFTs could be at risk of theft by ERC-404 tokenholders if the NFTs were placed into a lending protocol that was not properly adapted for ERC-404’s unique requirements.

According to “quit,” a lending protocol that fails to distinguish between an ERC-404 NFT and ERC-404 tokens might inadvertently allow individuals to withdraw an NFT they do not legitimately own by depositing ERC-404 tokens. This possibility has intensified the debate  over the project’s safety and underscored the need for rigorous configuration and compatibility checks within lending platforms to prevent such vulnerabilities.

When addressing the safety concerns highlighted in the post, ERC-404 developer Ctrl responded to Cointelegraph by downplaying the issues. He suggested that “quit” had incorrectly implemented the ERC-404 standard in a contract, leading to the identified vulnerability. According to Ctrl, the problem stems from improper use rather than an inherent flaw within the ERC-404 standard itself.

He explained that the situation could be likened to someone showing a photo of a car and detailing how they could break into it simply because the door was left unlocked.

Binance and OKX Crypto Wallets Embrace ERC-404

Crypto exchanges Binance and OKX have declared their support for the ERC-404 standard, with the project’s lead, ctrl, dismissing security concerns by suggesting that any significant vulnerabilities would have likely been exploited by now.

However, Binance deleted  the post on X soon after announcing it.

Ctrl mentioned that Pandora , the team behind ERC-404, is conducting an audit on a “more mature iteration of the standard” to enhance integration capabilities.

Since its launch on February 5, Pandora, the inaugural ERC-404 token, has witnessed remarkable growth, soaring over 1,850% in just four days, achieving a market capitalization close to $293 million, as reported by CoinGecko .

The platform also recognizes 12 additional projects that have adopted ERC-404. Among these is a frog-themed variant of the DeGods NFT collection , which has garnered nearly $30 million in market cap, and another featuring a collection of NFT pet rocks based on ERC-404, highlighting the diverse and rapidly expanding ecosystem surrounding this innovative standard.

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