ERC 404 Token Standard on Ethereum

In the modern day blockchain industry it seems that every week there is something new emerging. And what everyone has been talking about lately is a bold experiment that tries to merge the best of both ERC-20 and ERC-721 worlds - the ERC-404 Ethereum token standard.

But what is ERC-404? Is it a joke? Does it work? Is it usable and popular, or awaiting its glory moment? Does it have a future? We shall try and answer these questions further in this article.

ERC-404 - What is it?

ERC-404 represents a part of a newly emerged crypto token classification - Semi-Fungible Tokens, or SFTs. It was developed as a progressive method to create a hybrid token that possesses the characteristics of both ERC-20 (fungible tokens) and ERC-721 tokens (non-fungible tokens, or NFTs), essentially making it a semi-fungible token (SFT).

The ERC-404 token came out in February 2024 and its creators are known only by their pseudonyms - "ctrl" and "Acme”. It was in fact named after the web page error code “404”, works on the Ethereum network, and has since gained a lot of attention and reaches a high market cap, depending on the specific project.

How does ERC-404 work?

To better understand how the ERC-404 token works, we need to first scan over ERC-20 and ERC-721’s characteristics.

 - ERC-20 refers to fungible tokens on the Ethereum network, which by definition are interchangeable and can be exchanged for other assets of the same worth. Fungible tokens can be divided into smaller partitions.

 - ERC-721 refers to non-fungible tokens, or NFTs, on the Ethereum network, which are not and cannot be divided. Its tokens are single unique digital assets.

ERC-404 allows for NFTs to be partially segmented and sold, bought and owned in such fractions by multiple users, done by linking them to a non-fungible token. Such partitioning of the asset is typical for ERC-20 tokens but goes against the nature of NFTs (ERC-721 tokens). For this reason the approach of the ERC-404 standard is considered as bold and innovative.

The mechanism of the ERC-404 standard is known as a “mint-and-burn”. Smart contracts are used to enable the fractioning and ownership of its NFTs. A single NFT can be purchased in segments that can be referred to as segment shares, NFT shares, or tokens. By purchasing all the segments of an ERC-404 asset, it is then completed and the smart contract mints a new NFT. Without owning all the segments, the NFT doesn’t yet exist. Respectively, when a user sells fractions of an ERC-404 asset, the smart contract then burns it, i.e. destroys it, breaking it down to NFT fractions. Ownership is then transferred over to the buyer, or buyers.

Benefits of “mint-and-burn”

The benefits of using and trading in ERC-404 assets brings several unique benefits to the Ethereum ecosystem and its users:

 1. Increases NFT and high-value assets market liquidity - by allowing NFTs to be fractioned and traded, the ERC-404 standard essentially creates high-value assets, that promote new, better and more interesting investment opportunities;

 2. Promotes versatile asset management - the ERC-404 characteristics give the users the flexible opportunity to easily adapt to market requirements and updates, and to seamlessly make changes, sell or buy an entire NFT or just a part of it, as needed;

 3. Advanced ownership - through the fractioning ownership process multiple users can be owners of an NFT’s token, making it more accessible for the broader public;

 4. More accessible pricing - fractioning an NFT makes it more affordable price-wise to anyone who purchases a segment of it, making it beneficial for both buyers and creators alike.

 5. Prospects in integration - ERC-404 assets show great potential when integrated to DeFi platforms and other dApps, as they further widen their value and usage, and become more compatible with lending, staking and yield farming.

 6. EVM Cross-Platform usage - since the ERC-404 standard works on the Ethereum network, it can also operate on other EVM-based platforms, providing numerous opportunities for cross-blockchain collaboration and expanding applications.

Use cases ERC-404 tokens

ERC-404 tokens promise a wide and colorful range of use cases, despite it still being in its experimental stages. Fractionizing non-divisible assets such as NFTs has turned out to be a highly desirable mechanism used on the Ethereum blockchain. Different fields have shown ERC-404 activity involving investment, trading, development and design. The potential of owning and selling partitioned NFTs in both smaller and larger projects continues to expand since the release of the ERC-404 standard.

Here are some of the use cases applied to ERC-404:

 1. DeFi - ability to now access assets that have been previously inaccessible;

 2. Gaming - improved gameplay progression and access to in-game items;

 3. Real estate - makes real estate investments and assets more accessible within the blockchain ecosystem​;

 4. Art - access to fractionable collectibles and premium art item NFTs;

Comparing ERC-404 to ERC-20 and ERC-721

Issues the ERC-404 faces

Despite all of its benefits ERC-404 is not without its challenges. 

 1. Official status - ERC-404 is not an officially recognized token standard. It is still in its experimental stages and can raise serious integrity concerns. 

 2. Limited adoption - since ERC-404 is just emerging, its adoption is not as wide-spread as other established standards.

 3. Technical challenges - since ERC-404 is relatively new and its the first such hybrid technology of its kind, it is bound to undergo changes and updates, making it potentially unstable and insecure.

 4. Higher gas fees - ERC-404 can have potentially higher gas fees than ERC-20 or ERC-721 tokens, due to its complexity and innovative but not as well tested hybrid nature. 

Top ERC-404 Projects

Here are some of the ERC-404 projects that are taking the attention in the world of fungible and non-fungible tokens.

 1. Pandora - A platform that allows the fractionalizing of high-value NFTs for collective ownership and trade, Pandora is the first project built on the ERC-404 standard.

 2. Nifty Gateway - While mainly known for its NFT drops, this platform has utilized fractional ownership options for collectors to invest in high-value NFTs by purchasing smaller fractions.

 3. Fractional Art - This project specializes in segmenting digital art and collectibles, enabling multiple owners of high-value NFTs. It aims to democratize access to digital art investments.

 4. Myco - Represents a decentralized platform focusing on tokenizing real-world assets, including art and real estate.

 5. Artory - A project that aims to create a secure registry for art, allowing for fractional ownership and transparent tracking of art origins.

Conclusion

ERC-404 is proof of how the Ethereum ecosystem continues to grow and progress in its development along with the demands of modern-day users. ERC-404 may as well be just the beginning of a new wave of more flexible, easily accessible and manageable crypto assets and token standards. If it gets established as an official standard it can surely promise the advancement and expansion of a better and more dynamic digital economy.