ERC-404 tokens have been the talk of the town in the crypto community since they burst onto the scene in early February 2024. However, after experiencing a rapid surge in growth over the past week, the fervor surrounding this experimental Ethereum token standard seems to be cooling off.
ERC-404 Sector Market Cap Fluctuates
In the last 24 hours, the total market capitalization of tokens utilizing the experimental ERC-404 standard has seen increased volatility. At one juncture, this metric plummeted by over 30%, before eventually stabilizing with losses around 7%, as per CoinGecko data at the time of this writing.
These dramatic fluctuations corresponded with sharp declines in the prices of popular tokens built on this unofficial Ethereum token standard. For instance, PANDORA, the foremost and most widely recognized token utilizing this standard, experienced a drop of up to 24% from its peak of approximately $24,000 on Sunday, February 11, falling below the $15,000 mark. However, as of now, the asset has recovered some of these losses and is trading above $19,000.
The downturn in prices is attributed to profit-taking by early investors who reaped substantial gains during the token’s price surges last week. Additionally, news of another team of developers working on a more cost-effective standard called Divisible NFTs or DN-404 has likely contributed to investor hesitation.
Understanding the ERC-404 Craze
The ERC-404 standard merges the fungible ERC-20 standard with the non-fungible ERC-721 token standard. In practice, this token standard operates by linking issued tokens to NFTs. If less than one token is sold, the linked NFT is destroyed, and if tokens are accumulated to obtain a whole token, a corresponding NFT is minted. This model enables users to trade NFTs as usual or sell fractions of them as tokens.
This experimental standard has garnered significant attention for its innovative approach to addressing NFT liquidity and fractionalization challenges. However, being experimental and unofficial, ERC-404 projects potentially face higher risks of exploitation. Moreover, the model incurs additional transaction costs since users not only pay to move tokens but also for NFT minting and burning costs. This gas inefficiency has spurred calls for code optimization.
On the Bright Side
Despite the price decline, ERC-404 tokens have managed to recover a considerable portion of their losses.
Developers still have the opportunity to optimize the ERC-404 token standard to address existing inefficiencies.
Why It Matters
The ERC-404 standard represents the latest narrative to captivate the crypto market, attracting hundreds of investors and over $200 million in market capitalization to tokens associated with it.
