The rising popularity of ERC-404 tokens has been shadowed by security concerns raised by crypto developers regarding the experimental standard yet to undergo an audit. This mixed implementation of ERC-20/ERC-721 standards allows for owning a fractional part of what’s termed a “fractional” non-fungible token (NFT), introducing a novel approach to NFT liquidity and trading.
Understanding ERC-404
ERC-404 aims to facilitate NFT trading with more reliable liquidity pools of fungible tokens. It achieves this by invalidating transfers below a certain threshold (total NFT amount), a choice that has sparked debate among developers. Solidity developer and auditor, known as Quit, critiqued the standard for its peculiar transaction validation mechanism.
Technical Insights and Challenges
Quit’s analysis highlighted numerous similarities with the base standards and modifications in the transaction confirmation mechanism. Transactions within the “minted token range” result in ERC-721 asset movement, while values above or at zero are processed as ERC-20.
A significant concern raised by Quit is the “very expensive maintenance” of a function mimicking ERC721Enumerable, responsible for listing all tokens owned by an account. The cost of transferring an NFT from standard collections like Azuki and Pandora can reach up to 45,000 and over 100,000 Gwei, respectively.
High Gas Costs and Functionality
“[In ERC-404] transactions burn/mint NFTs according to balance changes of sender/receiver. For asset recording, we need a list of non-fungible tokens owned by the sender,” Quit explained, shedding light on the high gas costs associated with the process.
Experimental Nature and Developer Intentions
The official GitHub page labels ERC-404 as experimental, stating that the two combined standards “are not meant to be mixed.” However, developers are determined to merge them “as reliably as possible, minimizing compromises.”
Conclusion
The ERC-404 token standard represents an innovative step towards integrating the liquidity of fungible tokens with the uniqueness of NFTs. Despite its potential to revolutionize NFT trading, the security concerns and high gas costs highlighted by experts like Quit underscore the need for thorough audits and optimizations. As the crypto community eagerly watches the development of ERC-404, the balance between innovation and security remains a pivotal aspect of its potential success.