A groundbreaking Ethereum token standard, known as ERC-404, has caused quite a stir in the blockchain industry, receiving both praise and criticism from industry experts. This new standard combines the technology of ERC-20 tokens, widely used in the blockchain world, with that of ERC-721 tokens, commonly used in the creation of nonfungible tokens (NFTs). One of the notable applications of ERC-404 is in the fractionalization of NFTs, where ownership of a single NFT can be divided among multiple wallet holders.
ERC-404 was developed earlier this year by two pseudonymous developers, “ctrl” and “Acme,” as part of a project called Pandora. On February 6, Pandora issued the first ERC-404 token, which has since seen an impressive return of 530% and currently trades at $23,484 with a market cap of $235 million. The developers behind ERC-404 have ambitious plans for the future, including a goal to reduce protocol gas fees by 28% to 50%.
Despite the excitement surrounding ERC-404, not everyone is convinced of its potential. Miguel Prada, co-founder and tech lead at Diva Staking, points out that the standard does not follow the typical ERC procedures, raising doubts about its classification as an ERC token. While Prada acknowledges the value of ERC-404 tokens in bringing liquidity to the illiquid NFT market, he warns of significant limitations, particularly when it comes to NFTs representing real-world assets.
Ryan Lee, chief analyst of Bitget Research, shares similar concerns about ERC-404’s path to widespread adoption. Although most ERC-404 tokens have experienced a surge in value upon creation, Lee highlights that the protocol is still experimental and has not been formally included in the Ethereum Foundation’s ERC standard.
However, Akash Mahendra, head of developer relations at Haven1, sees ERC-404 as a game changer. Mahendra explains that this new standard allows users to purchase and own tokens that adhere to both ERC-20 and ERC-721, offering a decentralized finance equivalent to owning an exchange-traded fund. By holding a fraction of an NFT as an ERC-20 token, users can benefit from price movements without the need for minting rights.
Despite the growing momentum, ERC-404 has not yet been officially accepted by the Ethereum Foundation and is still pending review as an Ethereum Improvement Protocol. Mahendra also highlights the risks associated with investing in ERC-404 projects that have not undergone an audit, emphasizing the potential for bugs and potential losses. As the verdict on this exciting innovation awaits, investors are advised to tread carefully.
In related news, gas fees on the Ethereum network have reached an 8-month high amidst the ERC-404 craze.