GM DOers! 😎
Let me introduce you to the hottest topic in web3 right now: ERC-404 – a standard turning NFTs and fungible tokens into one. 🫂
The first project built upon ERC-404 is called $PANDORA. If you bought this token on Monday, you’d be up 20x. 🤯
But WTF is Pandora? And WTF is ERC-404? Why is everyone talking about it? Can you still make money off this? Or is this just another fad?
Today, I’ll answer all your questions by introducing you to the concept of ERC-404.
More importantly, I will also give you 3 practical examples of how this could be used in the future.
Clarification: ERC-404 is an unofficial token standard because it skipped the usual checks and approvals from the Ethereum community, raising possible security concerns.
Nevertheless, let’s learn about it. ⏬
Pandora – The First Example of ERC-404 🎁
ERC-404 in simple terms:
👉 When you buy 1 token, you get 1 NFT as part of the deal.
👉 When you sell your token, the NFT gets burnt.
“Okay, why the f*ck does this matter, Kyle?”
Well, because of fractionalization. People are getting excited about this mainly because it allows an NFT to be divided into pieces.
Consider wanting to speculate on a $20,000 NFT without risking too much of your $ETH.
With ERC-404, you could just buy a fraction of that NFT (e.g. $100) in order to catch the upside.
$PANDORA is the first real example of how this works in practice. They’ve issued 10,000 NFTs, and 10,000 tokens.
👉 If you buy 1 $PANDORA, you get a Pandora NFT.
👉 If you buy a Pandora NFT, you get 1 $PANDORA.
Even now that 1 $PANDORA is $31k, you can still buy a fraction of the token, say 0.1 $PANDORA.
This can open a whole array of possibilities for NFTs and tokens, but more on that in a second.
First up, I just wanted to address that we’ve already seen different iterations of fractionalization of NFTs in the past.
However, all of those were different as they’d require users to swap an NFT for tokens, by locking it in a smart contract (risky).
With the idea of ERC-404, the token is the NFT.
Now let’s explore 3 practical examples where this concept could be successfully applied.
1. Solving Art Illiquidity 🎨
Creating and storing art onchain just makes sense:
It proves authenticity and ownership.
It facilitates secure and transparent sales (ownership transfer).
It enables artists to earn royalties on resales.
But one huge problem – that’s always been a problem with art – is illiquidity. Both physical art and NFTs cost a lot of money today and it’s very difficult to sell them.
ERC-404 makes art easier to buy and sell by letting people own parts of it, not just the whole thing – and that’s pretty cool.
2. IRL Real Estate 🏠
Moving real estate onchain is a smart move – it streamlines buying, selling, and co-owning properties, making the whole process more transparent and secure.
Yet, current web3 tools fall short in fully unlocking the potential of real estate investments because they don't handle fractional ownership well:
👉 ERC-20 tokens fail to capture the unique aspects of each property.
👉 ERC-721 tokens struggle with dividing a property into shares that many people can own.
The only way around this today is using smart contracts, however, those often come with risks.
ERC-404 could be helpful here as it enables a property to be split into shares, meaning that a single property (like a house) can be owned by multiple people simultaneously.
That’s a pretty interesting concept that could open up investment opportunities to more people.
If this onchain real estate is something that excites you, then you’re in luck.
We recently hosted the CEO of Lofty on our podcast & talked about how they enable people to buy and sell real estate like using stocks. 🤯
Tune in.
3. Changing the Gaming Landscape 🕹
I could see ERC-404 being particularly useful in gaming.
Let's say you're playing a game like CSGO, and there's a new way to reward your skill.
Every time you top the leaderboard in kills for a match, you get a point. These points are like tokens (ERC-20).
Once you've stacked up 10 of these points, you get to create a special skin for your AK-47 in the game. Skins are a cosmetic design for weapons, changing their look.
Once you craft this skin, it turns into an NFT, meaning it's a one-of-a-kind item that you can keep or sell online using an NFT marketplace.
ERC-404 could be key to a setup like this, as it’d efficiently connect fungible and non-fungible tokens, making this transition smoother.
For more examples of how ERC-404s can be used in gaming, I recommend reading Tpan’s piece on ERC-404s.
Is ERC-404 the Next Big Thing or a Hype Cycle? 🚩
Right now, ERC-404 is a hype cycle! 🚨
First up, this is not an official token standard, meaning it hasn’t been vetted for security flaws through the formal Ethereum proposal process.
Will be putting out my ERC420 token standard this week
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Secondly, the team behind this standard – Pandora – is anon and that’s always a red flag. 🚩
Thirdly, it’s still very early days. This thing was launched on Monday and everybody is acting like it’s a revolutionary thing already.
In reality, at the moment, this standard is being used by random meme projects like DeFrogs, Rug or Froggy Friends. This is not what the future looks like. 😂
With all of that said, I think this is a very innovative idea. Enabling native liquidity and fractionalization in NFTs makes a ton of sense.
I'm excited to see developers experiment with this over the coming months but investors and DOers should probably stay away right now.
Remember, your only job in this cycle is to not f*ck this up, so don’t risk more than you can afford to lose.
Thanks for reading. And remember, you're strong, you’re powerful, you’re alpha! ❤
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Disclaimer: This article is for informational purposes only and not financial advice. Conduct your own research and consult a financial advisor before making investment decisions or taking any action based on the content.
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