Crypto Quill

A group of developers have introduced a new token standard called DN404, which claims to be a more efficient and compliant version of the experimental ERC-404 standard. DN404 aims to enable fractional ownership of non-fungible tokens (NFTs) and seamless trading of fractions on decentralized exchanges.

What is DN404 and how does it work?

DN404 stands for Divisible NFT, a token standard that combines the features of ERC-20 and ERC-721 standards. ERC-20 is the most widely used standard for fungible tokens, such as cryptocurrencies, while ERC-721 is the standard for NFTs, such as digital art and collectibles.

DN404 allows multiple wallets to directly own a single NFT, and use their share for trading or collateralizing loans. Unlike other solutions that require wrapping or locking NFTs in a contract, DN404 uses a two-contract approach: a base ERC-20 contract and a mirror ERC-721 contract.

The base contract represents the fractions of the NFTs, while the mirror contract reflects the ownership of the whole NFTs. When base tokens are transferred, the mirror NFTs are automatically burned and minted, ensuring that the fractions always match the NFTs. A wallet with a token amount equal to at least one base unit will receive an NFT on the mirror contract, and vice versa.

Why is DN404 better than ERC-404?

ERC-404 is an unofficial and experimental token standard that was launched by Pandora, a project that aims to create fractionalized NFT collections. ERC-404 also tries to merge ERC-20 and ERC-721 standards, but in a single contract that can act as both a fungible and a non-fungible token.

However, some developers have criticized ERC-404 for being inefficient, non-compliant, and vulnerable to exploits. According to cygaar, one of the developers of DN404, ERC-404 does not follow existing standards, consumes more gas than average NFT transactions, and breaks at certain edge cases.

Cygaar also claimed that ERC-404 could allow token holders to steal NFTs deposited into lending protocols that are not configured for ERC-404. He said that DN404 does not have this problem, as it is fully compliant with existing protocols out of the box.

What is the future of DN404 and ERC-404?

DN404 is still in development and has not been formally audited, so users are advised to use it at their own risk. The developers said they are working on optimizing the code and adding more features, such as staking and governance. They also said they plan to submit a formal Ethereum Improvement Proposal (EIP) to make DN404 an official standard.

ERC-404, on the other hand, has gained significant attention and traction in the crypto community, despite being unofficial and experimental. Pandora, the first ERC-404 token, has seen remarkable growth, with an over 6,100% increase in value and a trading volume exceeding $474 million in the past week. Several other projects have followed suit and issued their own versions of ERC-404 tokens, some of which have airdropped tokens to Pandora holders.

Prominent exchanges such as OKX and Binance have announced support for ERC-404 tokens on their Web3 wallets, adding legitimacy to the standard and further boosting hype. The developers behind Pandora said they are actively working on optimizing gas costs associated with ERC-404 transactions, and are also preparing a proposal to make ERC-404 an official standard.