March 27, 2024
Divided Opinions Surround Newly Introduced ERC-404 Tokens
Latest Cryptocurrency News

Divided Opinions Surround Newly Introduced ERC-404 Tokens

A revolutionary Ethereum token standard, ERC-404, blending ERC-20 and ERC-721 technologies, has garnered both praise and criticism within the blockchain industry. ERC-404, introduced by anonymous developers “ctrl” and “Acme” under the Pandora project earlier this year, enables fractionalized ownership of nonfungible tokens (NFTs) like Bored Ape Yacht Club.

The inaugural ERC-404 token from Pandora, issued on Feb. 6, has seen remarkable returns, surging by 530%, currently trading at $23,484 with a market cap of $235 million. The developers plan to further enhance the protocol by reducing gas fees by 28% to 50% in upcoming roadmap steps.

Despite the buzz surrounding ERC-404, some industry veterans express reservations. Miguel Prada, co-founder and tech lead at Diva Staking, raises concerns about ERC-404 deviating from standard ERC procedures, questioning its true classification as an ERC token. While acknowledging its potential in adding liquidity to the illiquid NFT market, Prada highlights limitations, particularly in trading fractionalized tokens representing diverse asset classes.

“The fact it is not a standard is a significant limitation that means it will be constrained by those who integrate it independently. It could become a de-facto standard with time, but nobody knows if any DeFi project or exchange will ever accept such a token.”

Ryan Lee, chief analyst of Bitget Research, echoes concerns, emphasizing ERC-404’s experimental nature and its exclusion from the Ethereum Foundation’s ERC standard. Lee points out the surge in value for many ERC-404 tokens post-creation but warns of challenges in achieving widespread adoption.

“It must be emphasized that within the ERC standard, there are already many similar protocols that merge Fungible Token and NFT, such as ERC3475, ERC3525, etc. The current speculation around Pandora can be seen as the market’s desire for innovative things and new types of assets on the Ethereum network, but its longevity still needs time to be tested.”

On the contrary, Akash Mahendra, head of developer relations at layer-1 blockchain Haven1, hails ERC-404 as a “game changer.” Mahendra sees it as an unprecedented opportunity for users to own tokens conforming to both ERC-20 and ERC-721, akin to holding an exchange-traded fund (ETF) in decentralized finance (DeFi).

“This new, experimental standard has the potential to turn the world’s second-largest blockchain into a leader in real-world asset tokenization and opens up a wide variety of new avenues for utility.”

Mahendra elaborates on the flexibility ERC-404 offers, allowing users to purchase full ERC-404 tokens, resulting in the NFT being minted to their wallet. Alternatively, users opting for fractional ownership gain exposure to price movements as an ERC-20 token without minting rights.

Despite the growing momentum, ERC-404 awaits official acceptance by the Ethereum Foundation and is pending review as an Ethereum Improvement Protocol. Mahendra, even as a proponent, urges caution due to the lack of an official approval stamp, emphasizing the associated risks:

“This is a risk investors must be mindful of before allocating to new ERC-404 projects,” he said. “Without an audit, there is always a greater risk of bugs and, therefore, a greater potential for losses. So tread carefully as we await the verdict on this exciting innovation.”

Image by benzoix on Freepik

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