What Is ERC-404? The Experimental Standard Whose First Token Has Rocketed 12,000% in One Week

ERC-404 allows multiple wallets to directly own a single NFT and, in the future, create a use case where that specific exposure can be tokenized and used to take out loans or stake holdings.

AccessTimeIconFeb 9, 2024 at 11:04 a.m. UTC
Updated Feb 13, 2024 at 11:34 p.m. UTC
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  • Pandora’s the first of a framework that tries to make tokens and NFTs work simultaneously.
  • ERC-404 isn’t an “official” token standard, but that hasn’t stopped other developers from emulating Pandora’s success a week after its launch.

The first token based on a new, unofficial, and experimental type of Ethereum standard has given rise to a new multi-million sub-asset class in the crypto market.

Pandora (PANDORA), the first of the so-called “ERC-404” tokens, traded as high as $32,000 on Friday morning from a low of $250 in just under a week. It has a supply of only 8,000 tokens and traded some $76 million in volumes in the past 24 hours.

Pandora tokens have jumped from $250 to $30,000 in less than a week. (DEXTools)
Pandora tokens have jumped from $250 to $30,000 in less than a week. (DEXTools)

Several projects have already latched on to the hype and issued their own versions of ERC-404 tokens.

Some of these have airdropped a small part of their token supply to Pandora holders, boosting demand for the token while also creating hype for their own projects. While, some have launched on other blockchains, such as Arbitrum and Solana, in a bid to be the first mover in an entirely different ecosystem.

Prominent exchanges OKX and Binance have announced support for ERC-404 tokens on their Web3 wallets, adding legitimacy to the standard and further boosting hype.

What is ERC-404?

ERC-404 combines the popular ERC-20 and ERC-721 standards – for token issuance on Ethereum and non-fungible tokens (NFTs), respectively – into one that lets developers create fractionalized NFT collections that can be freely traded and used in the open market.

In their current form, NFTs exist as a one-for-one asset, unlike tokens, where holders can buy a fraction of a whole.

While fractionalized NFTs do exist, they typically depend on an entity that locks up those NFTs in a wallet and issues tokens that represent that NFT. Those fractionalized tokens are freely traded and may not accurately match the locked NFT’s value.

That’s one of the key problems ERC-404 sets out to solve. It allows multiple wallets to directly own a single NFT, and, in the future, create a use case where that specific exposure can be tokenized and used to take out loans or stake holdings.

“People in crypto hate friction,” ctrl, one of the developers of Pandora and ERC-404, told CoinDesk in a Telegram message.

“Every solution before ERC-404 had too much friction and was usually a wrapping solution that abstracted the original NFT that people wanted to fractionalize or make liquid,” he said. “Collectors hated this, and it limited adoption significantly. ERC-404s have these functions by default and don’t rely on confusing third-party protocols and solutions,” he added.

ERC-404 developers say on their GitHub page that while the two standards it combines “are not designed to be mixed,” the project “strives to do so in as robust a manner as possible while minimizing tradeoffs.”

“This standard is entirely experimental and unaudited, while testing has been conducted in an effort to ensure execution is as accurate as possible,” developer 0xacme said on Github. “The nature of overlapping standards, however, does imply that integrating protocols will not fully understand their mixed function.”

EIP in play to become official

However, ERC-404 is not an officially recognized Ethereum token standard, a set of rules and protocols that define how digital tokens should behave and interact within a specific blockchain ecosystem.

The team is actively working on an Ethereum Improvement Proposal (EIP) for the token standard. EIP is the process of introducing a new feature or functionality to Ethereum. The EIP process can take a while and isn’t quick to do, developers added.

“We really need to make sure we get it right and approach this with a bulletproof proposal,” ctrl said. “Considering we’re this weird nascent thing that’s spawned from a very informal side of the market.”

If approved, the standard will be an “official” one recognized by the Ethereum Foundation, a nonprofit that maintains the Ethereum blockchain, for use within the Ethereum ecosystem as an agreed-upon framework that is compatible with Ethereum-based applications.

Edited by Parikshit Mishra.

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Shaurya Malwa

Shaurya is the Deputy Managing Editor for the Data & Tokens team, focusing on decentralized finance, markets, on-chain data, and governance across all major and minor blockchains.


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