ETH’s Hybrid Token Sector Heats up as ERC-404 Rival Emerges

• A group of Ethereum developers have launched a rival ERC-404 implementation.
• The alternative DN-404 promises to offer the benefits of ERC-404 at a lower cost and with greater security.
• DN-404 developers opt for a more frictious implementation of existing token standards.

An experimental token standard merging qualities of fungible ERC-20 tokens and non-fungible ERC-721 tokens is whipping up excitement in the Ethereum space in February 2024. This new token type, ERC-404 , has gained traction as it promises to solve NFT liquidity and fractionalization issues.

But with the experimental standard generating multiple efficiency and security concerns, a team of developers has come out with a rival implementation that promises to tackle the emerging pain points.

DN-404 Goes Live

After a few days of work, on Monday, February 12, a group of Ethereum developers released their take on the ERC-404 token standard, “Divisible NFTs” (DN-404).

As highlighted by one of the developers, “cygaar,” the DN-404 standard on the surface works similarly to the ERC-404 standard. In simple terms, when a user holds one base unit of a token, they automatically receive a corresponding NFT. Again, when a user’s holdings drop below one base unit, the corresponding NFT is burned.

As with the experimental ERC-404 standard, this mechanism allows users to trade NFTs as usual or trade parts of them as tokens, enabling native fractionalization and addressing liquidity concerns.

Despite achieving the same results, DN-404 developers argue that their implementation saves on transaction costs and significantly reduces security vulnerabilities . 

How DN-404 Differs from ERC-404

The core difference between DN-404 and ERC-404 lies in how they are designed under the hood.

Unlike ERC-404, which attempts to merge the functionality of an ERC-20 token with that of an ERC-721 token under a single contract, DN-404 employs two separate but linked contracts.

On the Flipside 

• Like ERC-404, DN-404 has also not been audited and carries some risk.
• The DN-404 team has not launched a token project using the developed standard.

Why This Matters

The experimental ERC-404 standard has garnered attention for providing a novel solution to NFT liquidity concerns. DN-404 potentially makes this solution more efficient and secure.