Research Summary

The report discusses Ethereum’s new experimental token standard ERC-404, which integrates fungible tokens and non-fungible tokens (NFTs). It explores the potential risks and benefits of this new standard, comparing it with other token standards and protocols.

Key Takeaways

ERC-404: A Hybrid Token Standard

  • Integration of Tokens and NFTs: ERC-404 is a hybrid implementation of ERC-20 and ERC-721, the two mainstream asset standards on Ethereum. It allows for the interchange between fungible tokens and NFTs, blurring the boundaries between the two.
  • Native Liquidity: ERC-404 fits natively into NFT Marketplaces and Decentralized Exchanges (DEXs) without any third-party barriers. This native liquidity is a significant advantage of ERC-404 over other token standards and protocols.

ERC-404 and Pandora

  • Pandora’s Implementation: Pandora is the first project built around ERC-404. It is a collection of NFTs called Replicants, which can be traded on supported NFT marketplaces. It also has a PANDORA token with a maximum supply cap of 10,000, which can be traded on Uniswap.
  • Token-NFT Interchange: When a user purchases a PANDORA token, they also receive a newly minted Relicant NFT. Conversely, when a user buys a Relicant NFT, they also receive a PANDORA token. This interchangeability is a unique feature of Pandora’s implementation of ERC-404.

Risks of ERC-404

  • Not a Recognized Standard: Despite using the “ERC” standard framework, ERC-404 is not a recognized standard within the Ethereum Improvement Proposals. Without recognition from influential entities like Vitalik Buterin and the Ethereum Foundation, it may remain niche.
  • Shortcomings: ERC-404 has several shortcomings, including the inability for users to choose which NFT to sell when selling a token and the potential for rarity manipulation in the minting of new NFTs.
  • Experimental Stage: ERC-404 is still in a very early, experimental stage. The hype and Fear of Missing Out (FOMO) surrounding it are strong, with the price of PANDORA exceeding $21k and a market cap exceeding $210 million just six days after launch.

Actionable Insights

  • Monitor the Development of ERC-404: Given its potential to revolutionize the interchange between tokens and NFTs, it would be beneficial to keep a close eye on the development and adoption of ERC-404.
  • Consider the Risks: Before engaging with ERC-404 or similar experimental token standards, it’s crucial to consider the associated risks, including the lack of recognition, potential shortcomings, and the experimental nature of the standard.
  • Stay Rational Amid Hype: With the strong hype and FOMO surrounding ERC-404 and projects like Pandora, it’s important to approach these developments rationally and not follow blindly.

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