Ethereum Launches ERC-404, What are the Advantages?

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Ethereum recently launched a new token standard called ERC-404. This token is the result of an experiment conducted by two anonymous developers using the pseudonyms "ctrl" and "Acme".

This token combines the features of a fungible token (ERC-20) and a non-fungible token (ERC-721), thereby creating a semi-fungible token that hasfungibility which is conditional.

What are Fungible and Non-fungible Tokens?

Fungible tokens are tokens that have the same value and properties. So, these tokens can be exchanged or divided into smaller units. Examples of fungible tokens are Bitcoin, Ethereum, and other utility tokens.

Non-fungible tokens are tokens that have different values ​​and properties. Thus, these tokens cannot be exchanged or divided into smaller units. Examples of non-fungible tokens are digital works of art, collections, or property.

What Are Semi-fungible Tokens?

Semi-fungible tokens are tokens that have the features of both fungible and non-fungible tokens, depending on the purpose or time of use. This token can function as a non-fungible token when in its entirety, or as a fungible token when divided into fractions.

This token uses a mint and burn mechanism, namely printing and burning tokens, to regulate its fungibility.

How Does ERC-404 Work?

ERC-404 works by tying non-fungible tokens (ERC-721) with fungible tokens (ERC-20). So, this token forms a semi-fungible token. This token only represents a non-fungible token when it is in its intact form.

When these tokens are divided into fractions for trading as fungible tokens, the non-fungible tokens tied to them are burned. When two complementary fractions (e.g. 0.4 and 0.6) are combined to form a whole token, a new non-fungible token is minted.

What are the Advantages and Disadvantages of ERC-404?

ERC-404 has several advantages, including:

• Increase the liquidity and market accessibility of non-fungible tokens, which are typically difficult to trade or own due to their high prices and narrow markets.
• Enables fractionalization of non-fungible token ownership, meaning token owners can sell a portion of their tokens without having to part with the entire token.
• Create dynamic assets that can change according to market demand and supply, and provide flexibility and creativity for developers and users.
• Opening up opportunities to integrate semi-fungible tokens with other DeFi protocols, such as lending, exchanges, or insurance.

ERC-404 also has several disadvantages, including:

• It is still experimental and has not received official recognition as a standard Ethereum token, so it has the potential to pose security and legal risks.
• Difficult to integrate with existing infrastructure and applications, as they require special support from wallets, exchanges or other platforms.
• Requires high gas fees to carry out transactions, as it involves a complex mint and burn process.

What are Examples of Projects Using ERC-404?

Although still new, ERC-404 is already attracting attention and interest from the crypto community, and several projects have already started using it. Some examples of projects that use ERC-404 are:

PANDORA 

This project combines art and mathematics to create unique and beautiful semi-fungible tokens. PANDORA uses an algorithm called cellular automata to generate different geometric patterns for each token.

These tokens can be split into fractions that can be traded as fungible tokens, or recombined to form new non-fungible tokens.

DeFrogs 

This project combines collectibles and gaming to create cute and adorable semi-fungible tokens. DeFrogs is a collection of digital frogs that have various characteristics and personalities.

These tokens can be split into fractions that can be traded as fungible tokens, or recombined to form new non-fungible tokens. These tokens can also be used to play games and win prizes.

Monkees 

This project combines music and crypto to create an interesting and meaningful semi-fungible token. Monkees is a collection of digital monkeys representing songs from the legendary band The Beatles.

These tokens can be split into fractions that can be traded as fungible tokens, or recombined to form new non-fungible tokens. This token can also be used to listen to The Beatles' songs and earn royalties.

What does the future hold for ERC-404?

ERC-404 is an innovation that challenges the boundaries between fungible and non-fungible tokens, and opens up new opportunities for the crypto industry. However, ERC-404 also still needs a lot of development and improvement to become a reliable and secure token standard.

Currently, “ctrl” and “Acme” are collaborating to create a proposal for an Ethereum Improvement Proposal (EIP) for ERC-404. This involves active development and community discussions to address shortcomings and establish a solid structure for semi-fungible tokens.

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