ERC-404 tokens are revolutionizing the landscape of token standards, combining the best of both worlds from ERC-20 and ERC-721. Pioneered by developers operating under the pseudonyms "ctrl" and "Acme," this standard has given birth to a new generation of tokens boasting a collective market capitalization of just under $200 million. 

In this EduResearch, we delve deeper into the dynamics of ERC-404 tokens and provide you with some noteworthy projects to pay attention to & take home.

Key Takeaways📍

• ERC-404 introduces a novel approach where tokens possess both fungible and non-fungible attributes simultaneously

• ERC-404 allows for the creation of tokens that offer both native liquidity and fractionalization

• ERC-404 opens up a window of opportunities for several innovative use cases

What Is ERC-404?😅

ERC-404 is a token standard merging ERC-20 and ERC-721, making tokens fungible and non-fungible at the same time.

Each ERC-404 token has its own special ID, similar to ERC-721 tokens. But here's the twist: unlike ERC-721 tokens, ERC-404 tokens can be split into smaller parts, just like ERC-20 tokens. 

This means you can easily trade both fungible and non-fungible assets using the same token contract. Think of it as an ERC-20 token tied to an ERC-721 token. When the ERC-20 token is split into fractions for trading, it loses its non-fungible status. But when these fractions combine to form a whole token again, a new non-fungible token is born. This innovative approach opens up new possibilities for Ethereum smart contracts.

Features Of ERC-404 Tokens⚙️

The ERC-404 token standard stands out due to three unique features:

1. Hybrid Functionality

ERC-404 tokens merge the fungible nature of ERC-20 tokens with the uniqueness of ERC-721 tokens. 

Each ERC-404 token is linked to an NFT, blending the characteristics of both token types and offering a versatile asset class in the crypto space.

2. Fractional NFT Ownership

ERC-404 introduces fractional ownership of NFTs by associating fungible tokens with individual NFTs. 

This feature enables NFTs to be divided into smaller, tradable units, enhancing liquidity and accessibility within the NFT market.

3. Dynamic Minting and Burning

ERC-404 implements a dynamic minting and burning mechanism to adjust to token transactions. 

When fractional token portions representing parts of an NFT are traded, the associated NFT can be either minted or burned accordingly. This flexible process ensures seamless exchanges and modifications in NFT ownership based on underlying fungible token transactions.

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Potential Use Cases For ERC-404 Tokens🫵

For the longest time, NFTs have remained indivisible, posing a significant challenge in the market. However, with the introduction of ERC-404 tokens, a revolutionary change is underway. By enabling fractional ownership, ERC-404 tokens offer a solution to the liquidity issue plaguing the NFT ecosystem. 

Now, buyers and sellers can trade portions of an NFT without the necessity of finding a buyer for the entire asset, a breakthrough addressing a longstanding limitation in the traditional NFT market. This fusion of fungibility and non-fungibility heralds a new era of possibilities for NFT projects and applications. Here are just a few examples:

• Art & Collectibles: Fractional ownership can democratize access to high-value artworks and rare collectables, allowing a broader audience to invest in and appreciate cultural assets.

• Gaming & the Metaverse: In the gaming world and virtual realms, assets like in-game items and virtual land can now be efficiently divided and traded, fostering a more liquid and dynamic gaming economy

• Decentralized fundraising: Startups and projects can leverage ERC-404 tokens to offer fractionalized shares, enabling community investment and decentralized funding opportunities previously inaccessible to many.

Top 3 ERC-404 Tokens🥉

Several projects have emerged as frontrunners in the ERC-404 ecosystem:

1. Pandora (PANDORA)🎁

Pandora is was the first ERC-404 token/collection ever developed. Pandora comprises NFTs and fungible tokens. The system includes 10,000 PANDORA tokens and 10,000 Pandora boxes. In ERC404, owning one full token entails possession of the NFT, and vice versa. Therefore, users always hold both when their wallet controls either a full token or an NFT.

Similar to fungible tokens, $PANDORA is tradable on AMMs. However, like NFTs, Pandora boxes can also be traded on NFT platforms like Blur or Opensea. When a user buys $PANDORA on an AMM, the contract automatically generates an NFT for them. Conversely, purchasing a Pandora box automatically grants the user a $PANDORA token.

Pandora generated a lot of hype among crypto investors. Pandora’s market cap skyrocketed to over $100 million just days after launch. 

2. DeFrogs (DEFROGS)🐸

Market Cap: $8m

DeFrogs is another ERC-404 project that has followed Pandora’s success. The project comprises 10,000 frog-themed profile picture NFTs (PFPs) created with the ERC-404 standard. When users purchase the DeFrogs token, they simultaneously create an NFT. Leveraging the ERC-404 standard guarantees that the project can offer reliable liquidity for investors whenever they wish to exit their positions.

Inspired by the Pepe(PEPE) memecoin project, DeFrogs has seen considerable ups and downs since its launch. Within a span of less than ten days, its value dropped from $1,596 on February 7, 2024, to its current trading price of $544.68. However, during this period, it also reached an ATH of $3,987. 

3. Rug (RUG)🐧

Inspired by the success of Pandora and the Solana NFT collection, "Flippies," whose creators vanished in 2022, leaving investors empty-handed due to a "rug pull" scam, The Rug project seeks to integrate these pixel penguins into the ERC-404 ecosystem. Despite the scam, the Flippies collection continues to enjoy popularity, prompting efforts to transition them to a more secure and transparent environment.

The RUG token has a total supply of 10,000 tokens, with 75% allocated for liquidity provision on DEXs such as Uniswap and Jupiter. To attract loyal Solana Flippers enthusiasts, 20% of the token supply will be distributed to current holders, while the remaining 5% will be distributed as giveaways.

What’s Next For ERC-404?👀

As ERC-404 tokens continue to gain momentum, the future holds immense potential for further innovation and adoption. With its ability to bridge the gap between fungibility and non-fungibility, ERC-404 is poised to redefine the crypto landscape, unlocking new possibilities and opportunities for developers, investors, and enthusiasts alike.

Despite facing challenges, the emergence of these new tokens represents a significant development in the NFT sector. However, due to their unofficial status, many NFT platforms do not offer support for them. Furthermore, their introduction may contribute to the proliferation of unaudited token standards in the market, posing additional risks. Nevertheless, the rapid surge in demand for these tokens suggests considerable potential for them in the future.

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