The NFT sector is buzzing about ERC-404s, a new standard enabling the conversion between NFTs and fungible tokens, merging uniqueness with liquidity.

A project named Pandora popularized the concept last week when it launched the so-called ERC-404 standard. Pandora contains a collection of 10,000 NFTs that are linked to 10,000 PANDORA tokens created on Ethereum’s ERC-20 standard. 

When a PANDORA token is purchased from a liquidity pool, a unique NFT known as a “Replicant” is created. This process links the fungible token with a one-of-a-kind digital asset, embodying distinct characteristics. If the owner decides to sell the PANDORA token, the associated NFT is burned, meaning it’s permanently removed from circulation.

Additionally, the ERC-404 standard introduces an element of semi-fungibility through dynamic interaction between the fungible token and its non-fungible counterpart. Specifically, when a PANDORA token is moved between wallets, the associated Replicant NFT “regenerates,” taking on new characteristics. This mechanism allows for a blend of NFT uniqueness with the liquidity of fungible tokens.

The ERC-404 framework also allows for the minting or burning of NFTs in relation to the ownership status of PANDORA tokens, enabling fractional buying and selling. This means that users can engage in transactions involving fractions of a PANDORA token—and by extension, fractions of the underlying NFT.

In the two weeks since launching on Feb 2., the “experimental and unaudited” NFT standard had already seen roughly $95 million in trading volume as of Friday morning, by far the most over that period according to CryptoSlam. 

The token was more of a mixed bag. PANDORA fell 55% in a week from its Feb. 9 high of over $32,000, according to CoinGecko. It was trading at around $14,400 at press time. 

Following the success of Pandora’s ERC-404, other developers tried their hand at sort-of-fungible tokens. Asserting the ERC-404 “doesn’t follow existing standards, is inefficient and breaks at certain edge cases,” a group of devs released the DN-404 standard earlier this week. DN-404 is an attempt to create NFT fractionalization while complying with the existing Ethereum ERC-20 and ERC-721 standards.

Notably, neither standard is yet recognized by the Ethereum Foundation as an official token standard. That would depend on a passed Ethereum Improvement Proposal (EIP). 

Aside from trading hype, a 404-type standard has real promise. NFTs have historically suffered from illiquidity, but semi-fungible tokens could deepen the pool by letting NFTs be traded in fractions. And the “re-roll” mechanism caused by moving a 404 from one wallet to another could have interesting implications for Web3 games, for instance.

Source: Jack Kubinec – blockworks.co