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ERC-404

ERC-404 is an experimental Ethereum token standard that blends fungible (ERC-20) and non-fungible (ERC-721) token properties. It enables fractional ownership of NFTs while maintaining ERC-20-style liquidity, making it useful for applications like NFT fractionalization, tokenized assets, and hybrid DeFi products.

ERC-404 is an experimental Ethereum token standard. It combines the functionalities of ERC-20 and ERC-721 to create semi-fungible tokens (SFTs). This hybrid standard allows NFTs to be broken into smaller, tradable units while maintaining the unique traits of the original NFT. ERC-404 supports both full NFT ownership and divisible tokenization. This enhances liquidity and accessibility in the NFT market.

ERC-404 uses a mint-and-burn mechanism powered by smart contracts. This allows NFTs to be divided into fractions that can be individually owned and traded. When someone buys a whole ERC-404 token, the smart contract mints the corresponding NFT and sends it to the buyer’s wallet.

On selling fractional tokens, the NFT is burned, and ownership is redistributed through the sale of its fractions. This process ensures the token’s value reflects the underlying NFT in real time.

  • Fractional Ownership: ERC-404 splits a single NFT into multiple fungible parts. This lets several users own fractions of the same asset.
  • Liquidity and Trading: Unlike standard ERC-721 NFTs, ERC-404 tokens can be traded on decentralized exchanges (DEXs) similar to ERC-20 tokens. This addresses the issue of NFT illiquidity.
  • Smart Contract Integration: ERC-404 combines the functionalities of ERC-20 and ERC-721. It supports both whole and fractional ownership seamlessly.

ERC-404’s hybrid nature allows for various practical applications:

  1. NFT Fractionalization and Ownership Sharing: High-value NFTs become accessible to more investors through fractional purchases. This democratizes the ownership of assets like digital art or virtual real estate.
  2. Liquidity for NFT Markets: NFT owners can trade fractions on platforms like Uniswap, improving market fluidity.
  3. Tokenized Real-World Assets (RWAs): ERC-404 extends to real estate, art, and music royalties. It allows fractional ownership of both physical and digital assets.
  4. DeFi Applications: ERC-404 supports NFT staking, lending, and borrowing within decentralized finance protocols. This integrates NFTs into broader financial systems.
  • Increased Liquidity: Fractional ownership makes trading and investing in high-value NFTs easier.
  • Accessibility: Investors can purchase NFT fractions instead of the entire asset, lowering the entry barrier.
  • Versatile Asset Management: Users can buy, sell, and manage NFT assets flexibly based on market demands.
  • Enhanced DeFi Integration: NFTs can be used as collateral or integrated into various DeFi protocols, expanding their financial utility.
  • Experimental Status: ERC-404 is not yet an officially recognized Ethereum standard. This poses risks related to security and stability.
  • Limited Adoption: As a new standard, ERC-404 has limited adoption compared to established ERC-20 and ERC-721 tokens.
  • Technical Complexity: Combining fungible and non-fungible properties introduces technical challenges and higher gas fees.
  • Regulatory Uncertainty: ERC-404 tokens may attract regulatory scrutiny due to their unique nature, affecting their adoption and functionality.

ERC-404 is a significant advancement in the Ethereum ecosystem. It promotes greater flexibility in digital asset management. As the standard matures and undergoes further testing and auditing, it could revolutionize the NFT market.

ERC-404 enhances liquidity and broadens investment opportunities. Continued development and increased adoption may establish ERC-404’s role in decentralized finance and beyond. This could lead to more inclusive and dynamic digital economies.

  • Pandora (PANDORA): The first project built on ERC-404, enabling fractional ownership and trading of high-value NFTs.
  • DeFrogs (DEFROGS): Uses ERC-404 for trading frog-themed NFTs, improving liquidity for its collection.
  • Monkees (MONKEES): A monkey-themed NFT project leveraging ERC-404 for seamless ownership and trading.
  • Anon (ANON): Enhances ERC-404 by improving liquidity and rarity functions within the NFT ecosystem.
  • Rugged Art (RUG): Adapts the ERC-404 model to feature pixelated penguins, demonstrating cross-blockchain adaptability.
  • Hybrid Token Standard: ERC-404 combines ERC-20 and ERC-721 features. It creates semi-fungible tokens that have both fungible and non-fungible properties. This expands the utility of NFTs.
  • Fractional Ownership: ERC-404 divides NFTs into smaller, tradable fractions. This makes high-value digital assets accessible to more investors and increases market participation.
  • Mint and Burn Mechanism: ERC-404 uses smart contracts to mint new tokens when fractional ownership is acquired and burn tokens when NFTs are repurchased. This maintains accurate ownership and value in real time.
  • Enhanced Liquidity and DeFi Integration: ERC-404 allows NFTs to be traded on decentralized exchanges and integrated into decentralized finance protocols. This significantly improves the liquidity and financial utility of digital assets.