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A Look Into The New Semi-fungible Ethereum Standard.
Known token standards on Ethereum can be categorized into two types: fungible ERC-20 tokens and non-fungible ERC-721 tokens (NFTs). ERC-404 is a new unofficial and experimental token standard that aims to merge features of both types to create a “semi-fungible” token.
Keep reading to discover what ERC-404 tokens are and how they operate.
What is ERC-404?
Created by pseudonymous developers “ctrl” and “Acme”, ERC-404 is a new token standard designed specifically for digital assets on the Ethereum blockchain.
Token standards establish the guidelines and procedures that govern how tokens function on blockchain platforms, in this case, Ethereum. The ERC-404 token standard merges features of ERC-20 and ERC-721, allowing for the development of “semi-fungible” tokens with combined characteristics of both fungible and non-fungible tokens.
How does ERC-404 work?
Non-fungible tokens (NFTs) in general, are unique and cannot normally be divided into smaller parts, which means you cannot own a fraction of an NFT. To address this limitation, ERC-404 introduces a method of fractionalized NFT in a system where tokens can be minted and burned. But how does it work?
Tokens are associated with an NFT, so when you purchase a full token, the linked NFT is minted to your wallet. In contrast, selling a fraction of a token results in the linked NFT burning. Now if a wallet containing fractional tokens gathers enough to form a complete token, a new NFT is automatically minted.
Why ERC-404 is special!
The ERC-404 allows for native fractionalization of NFTs, introducing new fundamental concepts and mechanisms on top of them. This not only enables the trading of NFTs, but also more importantly, allows for experimentation with them. The ultimate goal of the creators of this token standard is to develop an NFT that encourages certain trading/engagement aspects to farm unique trait sets, while supporting native fractionalization, fractional ownership, liquidity.
Pandora, a project using ERC-404, claims that it enables NFTs created using this standard to maintain a token value that mirrors a real-time minimum price as it allows “actual native liquidity”. Instead of having to wait for a buyer, ERC-404 holders can sell their tokens whenever they wish as long as there is a liquidity pool available. What’s more, rather than locking up or wrapping their NFTs and issuing shares against them, users can fractionalize their NFTs natively without the need for third-party protocols and solutions.
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