Local Experts Elaborate Issues, Concerns with Ethereum ERC-404 Standard | BitPinas

• Local blockchain experts Christine Erispe and Paul Soliman offer views on ERC-404.
  • Erispe expresses skepticism due to the lack of auditing and peer review.
  • Soliman sees potential in its ability to create semi-fungible assets with broader market participation.
• Erispe raises concerns about the risks associated with adopting ERC-404, especially for applications beyond profile picture (PFP) NFTs. 
• Soliman advises caution in adopting ERC-404, citing its experimental nature, potential technical complexities, regulatory uncertainties, and challenges in integration with existing infrastructure.

Following the ongoing popularity of ERC-404, local key opinion leaders (KOLs) on blockchain have shared their insights regarding the new token standard. 

Opinion on ERC-404

Christine “Danki” Erispe, a core member of the local Ethereum-focus community ETH63, expressed her skepticism towards ERC-404. 

“When devs are working on the early phases of ERC standards, no one really goes about naming the project as an ‘ERC’. They use something descriptive like “Standard for Divisible NFTs (non-fungible tokens)”, but you never assume an ERC name until it is official. That made me very skeptical about the intentions of the project.”

Christine Erispe, Core Member, ETH63

Typically, a standard undergoes the Ethereum Improvement Proposal process. Upon approval by Ethereum contributors, it becomes integrated into the network as an Ethereum Request for Comment (ERC).

On the other hand, blockchain expert Paul Soliman, the CEO of BayaniChain, also offered another point of view regarding the new token standard. According to him, ERC-404 “combines the fungibility of ERC-20 tokens with the uniqueness of ERC-721 NFTs, creating “semi-fungible” assets with exciting possibilities.”

“Imagine owning a fraction of a rare artwork or participating in real estate through tradable tokens. Developers are also happy, as ERC-404 offers greater control and flexibility. Suddenly, wider market participation becomes a reality, attracting more buyers and sellers.”

Paul Soliman, CEO, Bayanichain

Additionally, he noted that the enhanced level of activity catalyzes a robust trading ecosystem, thereby augmenting liquidity and potentially stabilizing prices. The constraints imposed by scarcity and limited marketplaces will no longer confine NFTs to a state of illiquidity. He stated through the implementation of ERC-404, even distinctive digital assets can capitalize on the advantages associated with a dynamic and accessible market.

“Surely the whole Ethereum ecosystem will benefit with this new idea of a standard from a traditional database (header/line) design pattern point view which can maybe solve L1 high gas prices and scale issues,” he added.

Concerns 

Erispe raised concerns about adopting a token standard like ERC-404 without undergoing auditing or peer review, particularly for applications beyond profile picture (PFP) NFTs, such as the bond or securities market.

“Imagine naming something as a ‘standard’ without getting audited or even peer-reviewed, and then applications beyond PFP NFTs bought into it, say the bond or securities market or other RWA’s. That’s misleading, right? And highly risky for the users.”

Christine Erispe, Core Member, ETH63

Further, Erispe pointed out that there are existing semi-fungible token standards like ERC-3525 and ERC-3475, which address liquidity concerns for NFTs. She added that while she cannot “vouch for their security, at least they’re actually made by doxxed devs and were reviewed by Ethereum.”  

“At a lower level, the dangers of just mixing up implementations from two different token standards like ERC20 and ERC721 is that they often result in unexpected token behaviors, and these bugs are potential attack surfaces for, say arbitrary modifications, code injection, or reentrant calls,” she stressed.

Advice

When asked about the challenges or obstacles he foresees in the widespread adoption of ERC-404, Soliman stressed that caution is advised. 

“As an experimental standard which is not approved, it hasn’t gone through the official Ethereum Improvement Proposal (EIP) process, which involves community review and potential integration into the Ethereum ecosystem. ERC-404 is untested and complex, carrying inherent risks and requiring specialized expertise. Additionally, the regulatory landscape remains unclear, potentially hindering adoption.”

Paul Soliman, CEO, Bayanichain

Soliman highlighted that integrating ERC-404 offers exciting opportunities but demands thoughtful deliberation. Despite projects like Pandora showcasing its potential, there remain significant challenges. Its experimental nature mandates caution due to potential technical intricacies, unresolved regulatory issues, and potential security risks.

Moreover, incorporating ERC-404 into existing wallets and exchanges could present technical obstacles. Despite its groundbreaking potential, a careful approach is essential for successful integration.

“To address these issues, adhering (to) the EIP process for community vetting and collaborating with L2s for scalability are crucial. While ERC-404 promises true fractionalized NFTs and low fees, achieving that future demands navigating hurdles. Hoping that we can improve this experimental protocol because it really makes sense to the ecosystem,” Soliman concluded.

What is ERC-404?

ERC-404 is a new token standard on Ethereum that combines elements of ERC-20 and ERC-721, allowing for fractionalized NFT collections. Developed by anonymous creators “ctrl” and “Acme,” it enables the creation of semi-fungible tokens representing fractions of NFTs through token minting and burning mechanics. This standard facilitates native fractionalization of NFTs, enhancing liquidity and enabling various use cases like trading and gaming. 

ERC-404 is still an experimental standard with potential risks due to its unofficial status and lack of audits. Key features include fractional ownership, token minting and burning, and enhanced liquidity and trading options.

Read: What are ERC-404 Tokens & Why is it Gaining Momentum?

This article is published on BitPinas: Local KOLs Comments on the Emerging Token Standard ERC-404

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