Today in this article we'll be talking about some of the emerging crypto Narratives and how they shape market dynamics.
In my last write, we touched introduction to narratives and I exposed us onto some popular crypto narratives that has been playing particular functions on the market.
ERC·404- New narrative on the Horizon.
Key Takeaways:
ERC-404 is an experimental token standard developed on the Ethereum blockchain that blends the characteristics of ERC-20 (fungible tokens) and ERC-721 (non-fungible tokens).
The fusion of ERC-20 and ERC-721 allows for the creation of semi-fungible tokens, which offer programmable scarcity and native liquidity.
ERC-404 tokens enables fractional ownership of NFTs, making high-value digital assets accessible to a larger audience.
How does ERC-404 work?
ERC-404 represents an innovative token standard developed on the Ethereum blockchain. It seeks to integrate the features of both ERC-20 tokens (fungible) and ERC-721 tokens (non-fungible or NFTs) within one unified standard. Consequently, ERC-404 tokens have the flexibility to exhibit fungible or non-fungible characteristics based on their individual implementations.
According to Cryptorank: The first project to use the ERC-404 standard was Pandora, which has an issue of 10,000 tokens and 10,000 NFTs. Each holder of a fungible token also receives an NFT associated with the fungible token. Each time a user buys or sells $PANDORA, the NFT is minted or burned.
https://cryptorank.io/insights/analytics/erc-404-new-narrative-on-horizon
Some assets utilizing the ERC-404 sources from CryptoRank includes:
Source: Cryptorank.io
Pandora: Pandora leads the way in adopting the ERC-404 token standard, consisting of 10,000 PANDORA ERC-20 tokens and 10,000 associated "Replicant" NFTs.
DeFrogs: DeFrogs comprises a collection of 10,000 tokens and their corresponding NFTs, featuring profile pictures (PFPs). The imagery for this collection is inspired by the well-known internet meme, Pepe the Frog.
Monkees: Demonstrating the versatility of ERC-404 beyond conventional NFTs, it delves into fractional ownership across a spectrum of digital asset classes including artwork, real estate, and intellectual property. Monkees is a PFP collection comprises 100 NFTs with ten attributes and six traits.
What are the Use cases of ERC-404.
The ERC-404 has garnered attention through its (3) three distinct attributes.
Hybrid Functionality: ERC-404 merges the traits of ERC-20 (representing fungible tokens) and ERC-721 (representing non-fungible tokens), enabling the development of semi-fungible tokens. These tokens offer programmable scarcity and inherent liquidity.
Fractional Ownerships: ERC-404 facilitates the direct ownership of a single NFT by multiple wallets, potentially leading to a scenario where this ownership can be tokenized for various purposes such as securing loans or staking assets in the future.
Built-in-liquidity: Think of ERC-404 as a fusion of tokens and NFT ownership, paving the way for the establishment of liquid markets for a project's tokens and associated NFT collections.
Advantages and Benefits.
Increased Liquidity: Enhancing liquidity by trading NFTs as fungible tokens on decentralized exchanges (DEXs) addresses issues such as low trading volume and high price volatility commonly encountered with unique NFTs.
Enhanced Interoperability: ERC-404 tokens possess versatility, finding application across diverse protocols and platforms within both the fungible token and NFT realms. They serve purposes such as collateral, governance, or utility tokens within DeFi protocols, while also functioning as assets, rewards, or currencies within NFT platforms.
Greater Flexibility: ERC-404 provides the capability to seamlessly transition between fungible and non-fungible modes, empowering creators and users to explore enhanced possibilities. It facilitates the creation of dynamic NFTs capable of adjusting their state and value according to predefined criteria, introducing an interactive dimension to NFTs.
Risks and challenges associated with ERC-404 in the Crypto space.
Notable exchanges like OKX and Binance have listed ERC-404 tokens, contributing to increased interest in the standard.
However, ERC-404 remains unrecognized by the Ethereum Foundation and lacks formal audits. This means that there is a greater risk of bugs and fraudulent projects, and investors must be mindful of this before allocating funds to new ERC-404 projects.
As of February 2024, ERC-404 has faced challenges regarding network congestion and is observed to cause a surge in higher volume transactional fees in it's trading activities leading to the introduction of alternative structures like DN-404.
Source: Cryptorank
In one of such scenario is a project transactional fees which shot up as high as $840 as compared to a bormal cost of $50 (Cryptorank, 24)
3. ERC 404 has caused criticism among ethereum devs for attaching "erc" (Ethereum request comments) to it's name claiming that the naming helped it gain popularity and gained a following around what it intended to do (Coindesk, 24).
In conclusion, the emerging ERC-404 token standard represents a significant advancement in the intersection of NFTs and traditional cryptocurrencies, offering enhanced liquidity through innovative design elements.
Through combining aspects of the ERC-20 and ERC-721 standards, ERC-404 allows users to trade tokens and their associated NFTs separately while maintaining automatic burning functionality when selling the token version.
This approach addresses long-standing issues regarding NFT liquidity and opens opportunities for dual-sided speculation within the Web3 space. With notable examples such as Pandora and Galaxy Fox gaining traction, ERC-404 presents itself as a promising trend worth monitoring for those seeking novel investment prospects and innovative applications in the world of decentralized finance.
I hope you've learnt a little about ERC-404. I promise to touch other narratives cited in earlier articles in my next post.
Stay tuned.
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