Introduced just four days ago, the ERC-404 standard, developed by the Pandora project, presents a new approach to non-fungible token (NFT) collections, allowing developers to create fractionalized collections that are freely usable and openly tradable on NFT marketplaces.
However, a contender may already be on the horizon. Dubbed the “Divisible NFT” standard (DN404), a developer going by the pseudonym “cygaar” hinted at the new development in a recent X (Twitter) post.
The motivation behind DN404 lies in addressing perceived challenges and security issues associated with ERC-404.
In fact, the ERC-404 standard, designed to function as both a fungible and non-fungible token within a single contract, raised concerns. Notably, the risk of NFT theft by ERC-404 token-holders was identified when NFTs were placed in lending protocols not properly adapted to ERC-404’s unique requirements.
In response, the proposed DN404 solution involves two contracts — a “base” ERC20 and a “mirror” ERC721. Most trading activity occurs on the base contract, where tokens represent fractional ownership of NFTs and are compatible with decentralized exchanges.
Users automatically receive NFTs when holding a minimum token amount, and NFTs are minted or burned based on token accumulation. The mirror contract functions like a standard ERC721 token.
The primary objective is to establish a token standard with native fractionalization, enabling users to trade portions of NFTs without intermediaries.
Emphasizing the open-source nature of the code, the developer eventually cautioned users about potential risks associated with the use of this new solution, noting that the code is still in its alpha stages and has not undergone a formal audit.