When I first saw the ERC 404 token standard floating around my Twitter timeline, I wanted to thoughtfully write a post about it to understand if this was just another fad. It existed in the cryptocurrency space. After discovering the standard for a month or so and seeing a couple of projects explode (price-wise) behind it, I think it’s worth sharing this post.
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In this post, we learn about the latest (unofficial) Ethereum token standard that we believe introduces ERC-404, a completely new way to create liquidity in the NFT space.
What is ERC 404?
First, you need to understand what ERC 404 is and how it differs from the standards we see today. ERC404 is open and mixed. ERC-20 and ERC-721 An implementation designed to provide native partitioning while supporting seamless integration with existing protocols.
Simply put, ERC 404 is a token standard that combines the divisibility of ERC-20 tokens into NFTs, allowing new and unique ways for NFT artists to partition their work and create more liquidity for holders.
How does ERC-404 work?
Using the ERC 404 token standard, NFT project founders can now launch NFT collections and meme coins (or tokens) simultaneously. From what we see, ERC 404 will be a way for NFTs to remain relevant as meme coin cycles begin to take over the edge of the cryptocurrency space.
ERC 404 works as follows:
If you purchase an entire ERC 404 token, you will automatically receive an NFT when you purchase the entire token. The flip side of this is that when you purchase a portion of an ERC 404 token, you are purchasing the underlying ERC 20 token, which is traded like a meme coin. If you commit to owning a full token, you will again automatically get the primary NFT in your collection. If you go to a DEX like Uniswap and sell a portion of your tokens to create liquidity, the NFT will be burned and you will receive the $ amount of the tokens you just sold.
When I first saw this example, I wanted to dig deeper into the idea and understand how it could revolutionize the NFT space. This has been a very interesting market so far. As I write this, the BTC halving event has not occurred (yet). We’ve already approved a BTC ETF along with an ETH ETF, with little to no retail hype like we’ve seen in 2021.
Here is a visual representation of how ERC 404 works:
Key Takeaways:
- ERC 404 is still experimental and has not been officially approved as an EIP (Ethereum Improvement Proposal).
- The ERC 404 token standard allows NFTs to be more liquid and represented as native tokens. Owning a full token allows you to mint an NFT, and splitting ownership creates a native token.
- The supply of NFT collections is limited like regular NFT collections, which means we could see some crazy numbers with token price action. Example) If BAYC enters the ERC 404 contract, the token price will be equal to the current floor price of 12.5 ETH ($44,642), but if someone does not own the NFT and wants ownership and exposure to BAYC, they can purchase a portion of the underlying $BAYC token and make a profit. (even if it exists).
We hope this changes after the halving and the ETH ETF hits the market, but so far NFTs as a whole have not received much attention outside of Pudgy Penguins, which passed through BAYC for a short period of time. I think something like ERC 404 could have a ripple effect on a new wave of interest in the NFT space.
From a rationalization perspective, ERC 404 creates tremendous opportunities for liquidity for people.
$FLIES is out of the box at $PANDORA.
Two big projects that caught my attention were $FLIES and $PANDORA (the project that started this standard). Pandora has really been the innovator in creating the standard and now has a launchpad for people who want to create dynamic collections using this token standard. Flies are a recent discovery of mine and appear to be a new collection endorsed by XCOPY, an NFT artist with a cult following.
On Opensea, Flies appears to be a collection that has issued 1 NFT. If you go to Coingecko, you will see that the native token is trading at the same price as one of these NFTs on the Opensea marketplace. I should go on the record and say that I do not own either of these tokens and should view this purely from an educational perspective.
It may be worth paying attention to what is happening with ERC 404 tokens, as it is only a matter of time before new pseudonym creators experiment with them and create new communities at the Pudy Penguin or BAYC level. Everything is possible and on the table is this bull market And I expect it to be just as crazy as the last couple.
What does ERC 404 mean?
I think my favorite part about cryptocurrency is the fact that innovation is alive and well. I love being on the cutting edge of technology, and I find it fascinating what people can build on top of these new standards that are gaining traction. As I mentioned earlier in this post, I don’t own any ERC 404 tokens (yet), but I definitely want to keep a close eye on developments in the burgeoning ecosystem. There’s no telling how far this will go, but with how much attention and overvaluation NFTs have received in the last cycle, I think it’s worth taking the time to at least keep everyone informed about what’s going on in this space.