ERC404 token Explained

By integrating the functionalities of the ERC20 and the ERC721 standards, ERC404 tokens introduce a hybrid standard that combines the benefits of fungible and non-fungible tokens (NFTs). With their new use cases, including fractional NFT ownership and optimized liquidity utilization, ERC404s create new opportunities and use cases in the decentralized finance (DeFi) and NFT markets.

Pandora (PANDORA), the first project to implement the ERC404 standard, has a market capitalization of nearly $40 million, even after weeks of significant price drops.

While Pandora’s increasing popularity provides new opportunities for investors and users within the sector, it should be noted that the ERC404 framework remains in an experimental phase. For that reason, market participants should be aware of the potential risks before interacting with ERC404s.

Key Takeaways

  • ERC404 tokens combine the features of ERC20 and ERC721 to enhance liquidity and offer fractional NFT ownership.
  • Pandora (PANDORA), the first project built on the ERC404 token standard, features a market capitalization of $38.5 million as of May 17, 2024, dropping from the all-time high of $275 million on March 1.
  • Although the token standard is experimental, ERC404s can be traded on various platforms, including the Uniswap decentralized exchange and the Blur NFT marketplace.

What Are ERC404s?

ERC404s represent a new standard within the blockchain space, blending the features of ERC20 and ERC721 tokens as part of a versatile framework. The key properties of ERC404 tokens include:

Hybrid DesignERC404s combine the fungibility of ERC20 and the uniqueness of ERC721.
Fractional OwnershipEnables dividing a non-fungible token into smaller, tradable parts.
DeFi CompatibilityDesigned to function seamlessly within decentralized finance ecosystems.
The key qualities that make ERC404 tokens unique

With ERC404s, individual NFTs can be divided into smaller fractions, making them more accessible and liquid while preserving their unique characteristics. Although ERC404 tokens are becoming more widespread among crypto users, their actual use cases and stability are still being investigated by market players.

Pandora’s ERC404 Framework Explained

Pandora's ERC404 framework
Pandora’s ERC404 framework (Source)

Pandora (PANDORA) stands as the first project to adopt the ERC404 framework, combining ERC20 and ERC721 token features to introduce fractional NFT ownership with increased liquidity. This smart blend fosters enhanced utility for ERC404s in decentralized finance (DeFi).

PioneerRepresents the first project to utilize the ERC404 framework.
Combines Two StandardsMerges ERC20 (fungible) with ERC721 (non-fungible) traits.
Enables FractionalizationOffers holders the ability to collectively own parts of an NFT.
DeFi IntegrationIntegrates into DeFi ecosystems to unlock new opportunities and use cases via decentralized finance protocols.
Market CapitalizationAfter a rapid growth to $275 million by March 1, PANDORA’s market capitalization has since fallen to $38.5 million (as of May 17, 2024).
Pandora ERC404 tokens’ key features

How Can I Purchase ERC404 Tokens?

The easiest way to buy ERC404 tokens, such as PANDORA, is to utilize a centralized exchange (CEX) or a decentralized exchange (DEX) like Uniswap that supports the token standard. On Uniswap, you can purchase PANDORA with relatively high liquidity (compared to other markets) via the WETH/PANDORA liquidity pool.

Alternatively, due to ERC404 tokens’ NFT-like features, you can also gain exposure to them on non-fungible token marketplaces such as Blur. On these platforms, you can purchase PANDORA and other ERC404 tokens as fractional NFTs.

The Verdict

ERC404s represent a smart blend of ERC20 and ERC721 token functionalities, offering enhanced liquidity and fractional NFT ownership. Despite its drop to a $38.5 million market capitalization, PANDORA showcased remarkable growth soon after its launch, laying the foundation for new ERC404 tokens to enter the cryptocurrency market.

Frequently Asked Questions (FAQ)

What is an ERC404 token?

It’s a new token standard blending ERC20 and ERC721 features. ERC404 tokens enable new use cases, including the fractional ownership of non-fungible tokens (NFTs) and the optimized utilization of liquidity within the DeFi and NFT sectors.

What is the difference between ERC404 tokens and other Ethereum token standards?

ERC404 tokens represent a unique combination of ERC20 and ERC721 features.

Unlike traditional ERC20 tokens, which are entirely fungible, and ERC721 tokens, which are non-fungible, ERC404 tokens blend these features to allow both liquidity and verifiable ownership to be combined in one asset. This hybrid standard enables a single non-fungible token (NFT) to be fractionally owned by multiple users.

What are the key characteristics of ERC404 tokens?

The key characteristics of ERC404 tokens include fractional ownership, enhanced liquidity, and the combination of fungibility and non-fungibility.

They are rare as an NFT but also divisible, like fungible tokens. This enables users to make smaller investments in high-value assets.

Are ERC404 tokens interchangeable with ERC721 or ERC1155 assets?

ERC404 tokens are not directly interchangeable with ERC721 or ERC1155 assets due to their unique hybrid structure.

What are the potential use cases of ERC404 tokens?

ERC404 tokens create new opportunities in the NFT and decentralized finance (DeFi) markets.

These tokens can be used to purchase high-value assets, such as real estate or art, with fractionalized NFT ownership. ERC404s also have the potential to create new asset types in gaming, digital collectibles, and other online content.

How do ERC404 tokens interact with smart contracts?

In the Ethereum ecosystem, smart contracts serve as digital, self-executing agreements facilitating interactions with protocols and assets like ERC404s.

These contracts can define the rules for fractional ownership, transferability, and other functions inherent to the token’s design. They can also execute transactions and other operations based on predetermined conditions without human intervention.

What are the advantages of ERC404 tokens over other coins?

ERC404 tokens offer several advantages due to their hybrid nature, including:

Accessibility: Lower barriers to entry for investments in high-value NFTs.
– Flexibility: Enhanced flexibility by combining both fungible and non-fungible properties.
– Innovation: New use cases in the DeFi and NFT sectors.

Seasoned crypto, DeFi, NFT and overall web3 content writer with 9+ years of experience. Published in Forbes, Entrepreneur, VentureBeat, IBTimes, CoinTelegraph and Hackernoon.

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