How Do Erc-404 Work? NFT That Become Token
The first two standards invented on the Ethereum blockchain were Erc-20 and later Erc-721.
Erc-20 is a technical standard used greater to create fungible tokens on Ethereum. Fungible tokens are interchangeable with each other and have no unique characteristics. This means that each token is identical and interchangeable with another token of the same type (1 ETH=1 ETH).
They have a set of standard functions such as "transfer" to transfer tokens, "balanceOf" to check the balance of an address and "approve" to authorize another entity to withdraw tokens.
Erc-721 are used instead to create non-fungible tokens (NFT) on Ethereum. NFT are unique digital tokens that represent unique digital assets and can be distinguished from each other. Each token is unique and cannot be replaced by another token, they can represent unique digital objects such as digital art, game tokens, etc In addition to the basic transfer and balance functions, they can include additional features such as verifying authenticity and displaying the properties of the object represented by the token (rarity, game features, etc.).
ERC-404
Erc-404 is described as an experimental standard that combines features of Erc-20 and Erc-721 tokens. This hybrid approach allows for the creation of tokens that possess both unique fungible and non-fungible properties. The standard aims to facilitate native liquidity and asset splitting, addressing some of the limitations present in traditional token projects. The Pandora protocol operates on the Erc-404 standard and introduces a new mechanism where the purchase of a token grants the buyer a corresponding NFT.
This NFT is randomly generated and may vary in rarity. If the token is subsequently sold, the associated NFT is burned, creating a dynamic interplay between fungible and non-fungible features. The project introduced a unique concept where the value and rarity of NFT can influence trading strategies. For example, traders could engage in arbitrage based on the rarity of NFT obtained through the purchase of Pandora tokens, potentially selling rare NFTs at a premium. If you purchase 1 Pandora on Uniswap, when you confirm the transaction, you will exchange your $ETH for 1 Pandora tokens plus 1 NFT. The NFT you receive is randomly generated, just like regular NFTs. Pandora NFTs are available in various rarity levels:
-Red boxes: +/- 5.86% 🟥
-Orange boxes: +/- 11.72% 🟧
-Purple boxes: +/- 19.53% 🟪
-Blue boxes: +/- 23.44% 🟦
-Green boxes: +/- 39.45% 🟩
If you want to sell your Pandora token, you can resell it on Uniswap but your NFT will be destroyed in the process. Transferring the NFT to a new wallet will not affect it. Only transferring the token will result in burning the old NFT and generating a new one. Other 404 tokens are DeFrogs (DEFROGS) and Monarch (MNRCH).
An application of this standard can be found with the wrapped 404 of Libertas Omnibus (NFT Erc-721). Basically, this NFT was dropped randomly to ZkSync users and was then added as liquidity on Syncswap in Erc-404 format (as if it were a token that can be bought, sold, received rewards by providing liquidity). It is possible to make it liquid or transform it back into NFT, as long as you have 1 whole token (because NFTs cannot be split). Obviously this process will produce an NFT of the same collection but random.
