A revolutionary Ethereum token standard, known as ERC-404, has caused a stir in the blockchain industry, garnering both praise and criticism from experts. ERC-404 combines the technology of ERC-20 tokens with that of ERC-721, which is used in the creation of nonfungible tokens (NFTs). One notable application of ERC-404 is in fractionalized NFTs, where the ownership of a single NFT, like the Bored Ape Yacht Club, is divided among multiple wallet holders under the ERC-404 standard.
ERC-404 was developed earlier this year by anonymous developers known only as “ctrl” and “Acme” as part of the Pandora project. The first ERC-404 token, also called Pandora, was released on February 6 and has since generated an astonishing 530% return. Currently, Pandora ERC-404 tokens are trading at $23,484 with a market cap of $235 million. The next step for the developers is to reduce protocol gas fees by 28% to 50%.
Despite the excitement surrounding ERC-404, not everyone is optimistic about its future. Miguel Prada, co-founder and tech lead at Diva Staking, points out that some negative feedback revolves around ERC-404 not following standard ERC procedures, technically making it not an ERC token. While acknowledging the value of ERC-404 tokens in bringing liquidity to the illiquid NFT market, Prada warns of significant limitations, especially when dealing with NFTs representing real-world assets.
Ryan Lee, chief analyst of Bitget Research, agrees with Prada’s concerns. Although he acknowledges the surge in value of most ERC-404 tokens upon creation, he believes widespread adoption may be challenging. Lee emphasizes that ERC-404 is still considered experimental and has not been formally included in the Ethereum Foundation’s ERC standard.
However, Akash Mahendra, head of developer relations at Haven1, views ERC-404 as a game changer. Mahendra explains that users can now purchase and own tokens that adhere to both ERC-20 and ERC-721, similar to owning an exchange-traded fund in the decentralized finance world. By holding a fraction of an NFT as an ERC-20 token, users can gain exposure to price movements without minting rights.
Despite the growing momentum, ERC-404 has yet to receive official acceptance from the Ethereum Foundation and is still pending review as an Ethereum Improvement Protocol. Mahendra cautions investors about the risks associated with investing in new ERC-404 projects without an official audit, as there is a higher potential for bugs and losses. As the community awaits the verdict on this exciting innovation, Mahendra advises caution.