Newsletter #146: The ERC-404 Controversy
Good news: the NFT community continues to innovate.
This week’s featured collector is MasterWongNFT
MasterWongNFT’s collection spans a range of artistic expression ranging from tranquil landscapes and endearing wildlife to abstract digital art. View the full collection at lazy.com/masterwongnft
The results of last week’s poll: What do you believe is the future of NFT-based DAOs in product development and retail?
Last week’s poll reflects a strong belief among Lazy users in the potential of NFT-based DAOs in product development and retail, with 45% predicting they will become common due to their ability to revolutionize ownership and authenticity in these sectors. However, a notable 36% see a more limited role, possibly due to current technological and regulatory challenges, while 18% cite complexity as a barrier to widespread adoption. Overall, the results paint an optimistic picture of the prospects that NFT-based DAOs hold within the dynamic landscape of digital commerce, especially if their complexity is diminished.
The ERC-404 Controversy: Merging Fungible and Non-Fungible Tokens on Ethereum
The evolution of token standards on Ethereum has been marked by the establishment of ERC-20 fungible tokens and ERC-721 non-fungible tokens (NFTs). While ERC-20 tokens saw a surge in on-chain liquidity with the advent of Uniswap and other decentralized exchanges, NFTs have historically grappled with liquidity constraints. To address these issues, a variety of solutions have emerged over the past two years, including lending protocols, fractional protocols and more.
This week, anonymous developers have proposed a new standard. Although they are calling it “ERC-404,” it has not technically gone through the official standardization process. ERC-404 aims to innovate by combining the characteristics of ERC-20 fungible tokens with those of ERC-721 NFTs. It introduces a hybrid asset where each token maintains the tradable property of ERC-20 while being tied to a unique, non-fungible ERC-721 token. This standard seeks to enhance the liquidity of NFTs by enabling their fractionalized trade, akin to fungible tokens, yet allowing them to retain their distinct, non-fungible traits. This novel approach could potentially address the liquidity issues that have long plagued NFTs by leveraging the fluidity and accessibility of fungible tokens, creating a more versatile digital asset.
Despite the excitement, caution is advised due to the experimental nature of ERC-404 and the potential risks involved, especially in terms of its interaction with existing lending protocols. The developers are actively working on a formal Ethereum Improvement Proposal (EIP) to seek broader acceptance and legitimacy within the Ethereum community.
The ultimate impact and adoption of this particular innovation will depend on whether the proposed standard is accepted by the Ethereum community. Still, regardless of what happens, the introduction of ERC-404 alone is a welcome sign that the NFT community continues to innovate. And that is very good news!
This week’s poll: How likely are you to invest in a project that utilizes the ERC-404 standard?
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