In-depth Analysis of ERC404: A New Standard with Both Potential and Risks

ERC404 is an experimental new standard that combines features of both ERC20 and ERC721, characterized by native liquidity and semi-fungibility. It establishes a corresponding conversion relationship between NFTs and FTs through the protocol, enabling NFTs with convertible built-in attributes.

Core Features of ERC404

• Fragmentation and native liquidity of the standard layer
• The inherent card-drawing logic and interchangeability of the NFT series
• The value and pricing rights of assets with different attributes are clearly allocated.

Main Differences from Traditional NFTs

1. Native liquidity: FT can provide liquidity on DEX, automatically generating NFTs.
2. Endogenous card drawing mechanism: Pseudo-random number generation based on Token ID generates different attributes.
3. Value Diversion: FT reflects underlying value, NFT embodies rarity premium.

Potential Application Prospects

• Full Chain GameFi
• Functional/Tool NFTs
• Complex financial operations integrated with DeFi facilities

Existing Risks

• The standard has not been verified over a long period, and there may be security risks.
• Issues such as uncontrollable NFT destruction and high Gas fees.
• Not officially included in the Ethereum EIP proposal
• The development of the first project Pandora still has uncertainties.

ERC404, as an emerging standard, showcases innovative directions in the NFT field, but its development prospects still need to be tested by the market. Investors should prudently assess the associated risks.