The ERC-404 token standard introduces a fresh concept to the Ethereum ecosystem by combining features of both NFTs (Non-Fungible Tokens) and cryptocurrencies. This innovative approach allows for fractional ownership of NFTs. It makes it easier to trade and invest in high-value digital assets.

Crypto Accountants explore how ERC-404 works and its benefits, challenges, and potential for the future.

What is ERC-404?

ERC-404 is a new token standard designed to merge the qualities of ERC-20 (fungible tokens) and ERC-721 (non-fungible tokens). It allows NFTs to be divided into smaller, tradable fractions, similar to owning shares in a company.

This makes expensive NFTs more accessible to a broader audience.

How Does ERC-404 Work?

The core mechanism behind the ERC-404 token standard is called mint-and-burn. Here’s how it works:

Fractional Ownership

Instead of owning an entire NFT, you can own smaller fractions of it. For example, if an NFT is worth $100,000, you could own 1% of it.

Minting New NFTs

Once you gather enough fractions of an NFT, you can mint a whole new NFT, which will appear in your wallet.

Burning

When fractions are combined to create a whole NFT, the original fractions are “burned” or removed from circulation.

This process increases liquidity and makes buying, selling, and trading NFTs in smaller, more affordable pieces easier.

Key Features of ERC-404

Fractional Ownership: Multiple people can own parts of an NFT rather than have to buy or sell the whole thing.
Increased Liquidity: By breaking NFTs into smaller pieces, it becomes easier to trade them, allowing more people to participate in the market.
Dynamic Trading: With ERC-404, NFT fractions can be traded like any other cryptocurrency, creating a more active and engaging market.

Top ERC-404 Tokens

Some of the highest-valued tokens using the ERC-404 standard include:

Pandora (PANDORA): Valued at $24,672, it holds the top spot by market capitalization.
Anon. Etherrock404: A newer entrant with a market value of $1,662.
Cosmic (COSMIC): Priced at $943.89.
DeFrogs (DEFROGS): Valued at $2,101.85.

Platforms Supporting ERC-404

Several platforms and exchanges have already started supporting ERC-404 tokens:

DeFrogs: A collection of 10,000 NFTs featuring Pepe the Frog, marking the first use of ERC-404 for profile pictures (PFP).
Pandora Airdrops: New NFT collections have airdropped small fractions of tokens to Pandora holders.
Exchanges like Binance and OKX: These major exchanges now support ERC-404 through their Web3 wallets, making trading more accessible.

Potential and Challenges of ERC-404

Like everything else, ERC-404 presents both potential and challenges. Let’s understand:

Potential

Solves Liquidity Problems: Traditional NFTs require an immediate buyer, but ERC-404 tokens can be traded in liquidity pools, providing constant market access.
Shared Ownership: With fractionalization, even high-value NFTs become accessible to more people, allowing more widespread investment in digital assets.

Challenges

Experimental Standard: ERC-404 is still in its early stages and hasn’t undergone the same security audits as other Ethereum standards. This means there could be undiscovered risks.
Technological Barriers: Since this is a new concept, integrating ERC-404 across various wallets and platforms will take time.

Last Notes!

The ERC-404 token standard can potentially reshape how we think about NFTs and cryptocurrency. It opens the door for more people to participate in digital assets. However, as it is still experimental, there are risks to consider as it continues to evolve.

Despite the challenges, ERC-404 represents an exciting step forward in the future of digital ownership and trading.

Contact us at Crypto Accountants for more information.

ERC-404 Token Standard: A New Era for Cryptocurrencies