Off the back of our most recent Twitter Spaces featuring Unchained Elephants, we discussed the ERC-404 token standard which is both new and exciting — I’ve decided to put together some information about it for everyone to benefit from learning more about it.
The ERC-404 is an innovative token standard that is an evolutionary step in the development of NFTs, fast-tracking their ownership by reducing barriers to entry and enabling diversifying use cases. The potential for extending liquidity and expanding applications is immense, despite existing challenges that ongoing development and the push for completion of the EIP-404 standard is aiming to solve.
The ERC-404 token is compatible with any wallet and application on the Ethereum network. By deriving the characteristics of both the ERC-20 and ERC-721 standards, the new experimental token can be freely exchanged, transferred, and adopted for native fractionalization of assets.
ERC-404 has a number of unique technical features that make it innovative. The biggest upside of the ERC-404 standard is the promise of its use cases and applications. Among the most applicable avenues that are being explored for its use are the following:
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Tokenization of Assets ERC-404s would not only lower the entry threshold into these industries for a huge number of retail investors, but would also ensure an influx of liquidity.
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DeFi Lending, borrowing and yield farming could benefit from the ERC-404 standard, as it would allow the introduction of new types of assets for use as collateral. The fractionalization of assets would also allow participants to break down the value of portfolios and liquidate them to generate additional income.
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Gaming and NFTs Asset ownership, transferability and interoperability are core value propositions for ERC-404 utilization in the gaming and NFT sectors. The new standard would allow developers to fractionalize in-game assets, thus opening up an entirely new dimension in gameplay mechanics and virtual economies.
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Supply Chain Management Transparency, verification, and efficiency in supply chain management applications are aspects that ERC-404 could help solve by simplifying the issuance of unique IDs to various supplies. The tethering of fractionalized NFTs to a single original could help trace product origins, while burn mechanics can prove to be invaluable in ensuring efficient tracking and storage of perishables.
The ERC-404 is a fractionalized digital asset, while ERC-20 is a specific type of fungible digital asset, and the ERC-721 is a class of unique digital assets. There are no known token IDs for ERC-404 at this stage, just like for the ERC-20; while the ERC-721 boasts a unique token ID for each asset.
Here are some examples of pioneering projects that have spearheaded the implementation of ERC-404s:
Pandora – one the very first projects to use ERC-404, are used for minting 10,000 “Replicant NFTs”, which are in turn linking 1 ERC-404 to 10,000 ERC-20 tokens. Users receive a minted NFT on their wallets upon purchasing a $PANDORA token, which saw a market price of up to $32,000 per unit on February 9, 2024. DeFrogs – a collection of NFTs, this time deriving from 10,000 Pepe the Frogs. DeFrogs uses a variation of the ERC-404 token, labeled as the first ever ERC-404 PFP collection – and is the first one to also implement a deflationary model. Monkees – another PFP collection on the ERC-404 standard, which includes only 100 unique NFTs, each with ten special attributes and a combination of six traits.
Checking out these projects, will help to illustrate how ERC-404s are being used today (especially the Pandora project, who are the main proponents driving the adoption of the EIP-404 proposal).
Since the ERC-404 is still under development and is classified as an experimental asset type, the technical limitations it can face in the future and when applying massive scale are yet to be seen.
Resources: https://members.delphidigital.io/projects/erc404 https://github.com/Pandora-Labs-Org/erc404 Show Less
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