What is ERC-404? A Future Asset with Both Token and NFT Attributes

ERC-404 is an experimental token standard that creatively combines the divisibility and high liquidity of ERC-20 fungible tokens with the uniqueness of ERC-721 non-fungible tokens (NFTs).

Its core lies in the “mint and burn” mechanism: when your total token holdings reach 1 full token, the system automatically mints a corresponding NFT for you; if you sell part of your tokens so that your holdings fall below 1, the corresponding NFT is automatically burned.

01 Birth of the Standard: From “Not Found” to “New Discovery”

The name ERC-404 is inspired by the widely known “404 - Not Found” internet error code, symbolizing its exploration of a path not formally paved before. This experimental standard was introduced in February 2024 by developers using the pseudonyms “ctrl” and “Acme.”

Its emergence was not out of thin air, but to solve the long-standing liquidity dilemma in the NFT market. Before ERC-404, the market had already tried a variety of solutions.

For example, users could deposit NFTs into third-party protocols such as Fractional or Flooring Protocol in exchange for ERC-20 tokens representing fractional ownership issued by the protocol. However, this approach relies on users’ trust in the protocol, and the value of the tokens may become decoupled from the underlying NFTs.

Meanwhile, concepts such as “graphic-token interchange” demonstrated by BRC-20 inscriptions and projects like Deez Nuts on Solana also provided important inspiration for the birth of ERC-404.

02 Core Mechanism: Understanding the “Dual Nature” of NFT-Tokens in Smart Contracts

The key to understanding ERC-404 lies in its “dual nature” of NFT-tokens. It is not a simple compromise, but rather uses a precise set of smart contract logic to let a token exist in two states simultaneously.

The entire process is executed automatically by the smart contract. When you buy or transfer tokens and your balance changes, the contract instantly calculates and triggers NFT minting or burning.

The core of this process is a “lossy” metadata handling mechanism: when an NFT is burned due to token splitting, its unique metadata (such as art features, rarity attributes) is lost. When tokens are recombined to trigger NFT minting, the system generates a completely new set of metadata according to preset rules.

This means that the NFT you get by accumulating token fragments may have completely different attributes from the one previously destroyed, bringing a dynamic experience similar to “blind boxes” or “card draws” to the asset.

03 Value: Breakthrough in Liquidity and New Use Cases

The most direct value of ERC-404 is injecting unprecedented liquidity into the NFT market. It splits high-value, complete NFTs into small, affordable ERC-20 tokens, greatly lowering the investment threshold.

This opens up the possibility for a wider range of people to participate in investment in digital art, virtual real estate, and even luxury goods.

It creates a native, standardized “fractionalization” solution. Unlike previous approaches relying on independent third-party protocols, ERC-404’s fractionalization and recombination functions are built into the token standard itself. Assets can flow seamlessly between decentralized exchanges (like Uniswap) and NFT marketplaces (like OpenSea), sharing bilateral liquidity.

The dynamic nature of NFTs also gives rise to new application scenarios. In games, the attributes of a weapon or skin NFT may “evolve” with the circulation and recombination of tokens. In digital art, the appearance of a work may change according to the proportion of tokens held by the community, creating more interactive art forms.

04 Current Challenges: Risks and Controversies of an Experimental Standard

Despite its promising future, it is important to recognize that ERC-404 is still a highly experimental and unofficial standard. It has not yet been formally approved by the Ethereum Foundation, nor entered the Ethereum Improvement Proposal process. This means its security and stability have not been tested on a large scale over a long period.

High gas fees are a major obstacle to its early adoption. Due to frequent minting and burning of NFTs, the on-chain operations are complex, resulting in transaction costs sometimes exceeding the value of the tokens themselves.

There are also arbitrage risks and price discrepancies. In theory, a complete ERC-404 token (corresponding to one NFT) should have converging prices on both DEX and NFT markets.

However, since the liquidity pools and pricing mechanisms of the two markets are independent, price differences often occur in practice, providing opportunities for arbitrageurs but also creating price uncertainty for ordinary holders.

In addition, the novelty of the code itself comes with security risks. Complex contract logic may hide undiscovered vulnerabilities that could be exploited maliciously. Market speculation is intense; the first project, Pandora, saw its price plummet sharply from a peak of over $30,000, with extreme volatility.

05 Ecosystem Evolution: From ERC-404 to More Possibilities

The success of ERC-404 has prompted a rapid response and innovation from the community. To address shortcomings such as high gas fees and implementation complexity, developers have proposed various improvements.

Among them, DN404 is one of the main competitors. It uses a clearer dual-contract architecture: a base ERC-20 contract manages token balances, while a mirrored ERC-721 contract manages NFTs. This design is considered more compliant with Ethereum standards, has lower potential security risks, and has already been supported by several platforms including Trader Joe.

In addition to competition between technical standards, application projects based on the ERC-404 concept are also emerging. The ecosystem, represented by Deez Nuts, demonstrates its vitality.

Some ERC-404 concept token information for reference

(Data as of the end of November 2025; market conditions change in real time, please refer to the latest data on Gate)

Note: Cryptocurrency prices are highly volatile. The above data is only a snapshot at a specific point in time and does not constitute investment advice. Please be sure to check the latest market conditions on Gate before trading.

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Outlook

As of December 8, the latest price movements of Deez Nuts (DN) on Gate reflect a microcosm of the entire ERC-404 ecosystem: forging ahead in exploration, with both opportunities and volatility.

The market is still grappling with the duality brought by this new standard—on one hand, the exciting release of NFT fractional liquidity; on the other, the chill of undefined standards and severe price fluctuations.

Whether this “Not Found” zone of Ethereum will eventually develop into a thriving “new continent” depends on the emergence of more secure and efficient technical solutions in the future, as well as the realization of real-world applications that go beyond pure financial speculation.