Pandora ERC-404 token.. What is ERC-404 token?
Since the beginning of February, a token has become a hot issue: ERC-404. Although this token is only 10 days old and still in its infancy, it has already caused quite a stir, with many tokens now being issued in the ERC-404 format. While it may seem late to start explaining the ERC-404 token now, considering that this is not a one-time content and that we will likely see this form of token frequently in the future, I've decided to organize content around it. To start with the background of the emergence of ERC-404, it's important to note that with the rise of NFT technology in recent years, many NFT projects have been launched, and trading volumes on various NFT trading platforms like OpenSea have increased. However, the liquidity issue of NFTs has always been a concern. The liquidity for 'selling' NFTs exists on OpenSea, but the liquidity for 'buying' is lacking, leading to low trading volumes and a rapid decrease in prices when the demand for NFTs drops. The emergence and success of Blur can be attributed to bringing the demand for NFTs to the trading platform. Despite this, since the minimum and maximum units for selling NFTs on Blur are 1, the trading volume hasn't reached the level of ERC-20 tokens. Except for a brief period when NFTs were in vogue, the app that uses the most gas on the Ethereum chain is Uniswap. Because ERC-20 tokens can be sold in large quantities and fractions, many people have thought that if NFTs could be sold like tokens, it would be ideal. The significant impact of ERC-404 in the market stems from the ability to bring these NFTs to Uniswap for sale.
To be precise, NFTs themselves are not sold on Uniswap. The basic property of ERC-404 is that if a user has one ERC-20 token, they 'automatically' mint one NFT. An ERC-20 token and an NFT are created at the same address, but it's crucial to understand that while the ERC-20 token is the substance, the NFT serves as an avatar. The reason NFT is considered an avatar is that when one token is sold, the NFT owned is burned, and the buyer mints a new NFT. Although an avatar, the change in the avatar's NFT also affects the substance, the ERC-20. When an NFT is transferred, the corresponding amount of tokens is also transferred. A unique aspect of ERC-404 is that because the substance is ERC-20, it allows for fractional purchases, but an NFT is minted when it reaches one unit. If you have one ERC-20 token and sell 0.1 of it, the remaining token is less than one, so the NFT is burned. With the Pandora token adopting ERC-404, the total ERC-20 tokens are ten thousand, meaning ten thousand NFTs could be created if distributed one per address. However, many people buy in fractions, resulting in many burned NFTs, so currently, there are only 5700 Pandora NFTs. Technically, 'selling' is mentioned for simplicity, but it's actually about changing the ownership address of the NFT. Therefore, even if not sold but transferred, the same applies, meaning that both the substance token and the avatar NFT cease to exist in the address when transferred or sold.
The form of ERC-404 can bring various changes, with the most significant being the shift in platforms generating trading volumes, as mentioned at the beginning. The main trade of NFTs, which used to occur on OpenSea, has moved to Blur, and now shifting to Uniswap is a considerable change. However, not all trading volumes will move to Uniswap because if the quantity of tokens changes, NFTs are burned or minted, leading to the risk of losing valuable NFTs. Thus, for NFTs with rarity, OpenSea or Blur might be used to sell rare NFTs. However, for collections without rarity or of low rarity, it's expected that most trading volumes will shift to Uniswap. Many existing NFT projects still face liquidity issues, so it's likely that we'll soon see Wrapped ERC-404, which can convert existing NFTs into the ERC-404 format.
Additionally, this structure can lead to dynamic changes, with Pandora serving as a prime example. When one token is transferred to another address, the existing NFT is burned, and a new NFT is minted, with the red Pandora box NFT appearing at a 5% chance and selling for about 10 ethers. Therefore, users often 'Re-roll' by alternating between two addresses until the red Pandora box NFT appears. The transaction costs, including gas fees, and the 5% chance typically require about 20 transactions, leading to a unique change where the gas fees used affect the price of the Pandora coin. As more people own the token, those taking fractions increase, reducing the number of NFTs. The feature that demand increases while the supply of NFTs decreases seems to have been well received in the market. Therefore, it can also be said that using tokens as the substance and NFTs as avatars fits very well.
Since this is an early token, optimization for gas fees is not yet in place, and since ERC404 is not officially adopted as a token form, there are still points to be changed, but already about 20 tokens have been created and traded in the ERC-404 format. The market seems too fast... Anyway, DN-404 optimized for gas fees is coming out, and another form of token is appearing, but it seems certain that this hybrid model will be named 404. The 404 error, typically used for Not Found errors in development, will either become a token that cannot be found in the future or an unprecedented token that could not be seen before, which remains to be seen.
Image source: Generated through OpenAI's DALL·E
