July 16, 2024
New Hybrid NFT Standard Challenges ERC-404
NFT

New Hybrid NFT Standard Challenges ERC-404

Merely a week following the introduction of ERC-404, an unofficial Ethereum standard combining the functionalities of fungible and nonfungible tokens (NFTs), another team of developers claims to have outperformed it with DN404.

The “Divisible NFT” standard, like its ERC-404 counterpart, aims to be a hybrid ERC-20/721 token, allowing NFT holders to trade fractionalized portions of their NFTs. As pseudonymous developer “cygaar” stated in a February 12 post on X, their goal was to create a token standard with native fractionalization built in. While acknowledging the popularity of ERC-404, cygaar noted its shortcomings, stating that it doesn’t follow existing standards, is inefficient, and breaks at certain edge cases.

Unlike ERC-404, which requires protocols to be implemented to ensure proper functionality, DN404 takes a different approach. Cygaar explained that DN404 uses two contracts: “A ‘base’ ERC-20 with a ‘mirror’ ERC-721,” claiming they are fully compliant with protocols out of the box. The bulk of trading occurs on the ERC-20 token contract, involving fractions of the NFTs. When base ERC-20 tokens are transferred, mirrored NFTs are automatically burned and minted.

The ultimate goal of DN404 is to enable users to trade portions of NFTs without intermediaries and facilitate NFT trading on both NFT exchanges and decentralized exchanges. However, cygaar cautioned that the code “has not been formally audited, so you are using it at your own risk.”

Earlier, one of DN404’s developers, known as “quit,” highlighted a potential vulnerability in ERC-404. This vulnerability could allow ERC-404 tokenholders to steal NFTs deposited into lending protocols that are incorrectly configured for ERC-404. ERC-404 developer “ctrl,” however, dismissed these concerns, arguing that “quit” created a contract improperly using the standard, causing a vulnerability. According to “ctrl,” the project Pandora, set to launch ERC-404, is auditing a more mature iteration of the standard that addresses integration issues.

In the evolving landscape of Ethereum token standards, DN404 aims to offer a more efficient and compliant alternative to ERC-404, emphasizing native fractionalization for seamless NFT trading. As both standards undergo scrutiny and potential audits, the debate around their merits and vulnerabilities continues within the blockchain community.

Image by pikisuperstar on Freepik

Disclosure Statement: Miami Crypto does not take any external funding, or support to bring crypto news to the readers. We do not have any conflicts of interest while writing news stories on Miami Crypto.

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