Watch out ERC-404, there’s another hybrid NFT standard in town

DN404, another experimental hybrid token and NFT standard was launched by a group of developers that claim they’ve fixed the inefficiencies of ERC-404.

Only a week after the launch of ERC-404 — an unofficial Ethereum standard created to blend the functions of fungible and nonfungible tokens (NFTs) — another team of developers claims to have done it better with “DN404.”

The “Divisible NFT” standard, like its ERC-404 rival, “aims to be a hybrid ERC-20/721 token.” The proposed standard essentially allows NFT holders to trade fractionalized portions of their NFT with others, according to pseudonymous developer “cygaar” in a Feb. 12 X post.

“Our end goal was to create a token standard that could act as an NFT with native fractionalization built in,” cygaar added. They claimed while ERC-404 has been popular, “it doesn’t follow existing standards, is inefficient, and breaks at certain edge cases.”

Most trading will be done on the base contract – this is a fully compliant ERC20 token that tracks user balances and handles the minting/burning of the mirrored NFTs.

You can think of these tokens as fractions of the NFTs. They're compatible with DEXes out of the box.

— cygaar (@0xCygaar) February 12, 2024

While ERC-404 can interact with ERC-20 token and ERC-721 NFT contracts, it still requires protocols to implement ERC-404 to ensure its tokens function as designed.

Cygaar, however, explained that DN404’s approach uses two contacts: “A ‘base’ ERC-20 with a ‘mirror’ ERC-721” and claims they’re “fully compliant” with protocols “out of the box.”

This is because the bulk of trading happens on the ERC-20 token contract — described as “fractions of the NFTs,” explained Cygaar. When base ERC-20 tokens are transferred, the mirrored NFTs are burned and minted automatically.

A wallet with a token amount equal to at least one base unit will receive an NFT on the mirrored contract and NFTs are conversely burned when the wallet holds below the minimum base unit amount.

Related: Ethereum NFTs rally, with EtherRock and BAYC leading sales

Cygaar said the ultimate goal was to allow users to trade portions of NFTs without any intermediaries and allow NFTs to trade on both NFT exchanges and decentralized exchanges.

The developer however warned the code “has not been formally audited, so you are using it at your own risk.”

ERC-404’s safety questioned

Lat week, one of DN404’s developers, known by the pseudonym “quit,” claimed there was a possible ERC-404 vulnerability, which could see ERC-404 tokenholders steal NFTs deposited into lending protocols incorrectly configured for ERC-404.

9/ You might be able to guess what happens.

This is a valid withdrawal amount, because the depositor has a balance much higher than the request.

However, Pandora interprets it as an ERC721 transfer, and thus our token depositor is able to steal the NFT from our NFT depositor. pic.twitter.com/sQwn9828Jp

— quit (,) (@0xQuit) February 8, 2024

ERC-404 developer known as “ctrl” brushed off the concerns when speaking to Cointelegraph last week and argued quit made a contract that improperly uses the standard, causing a vulnerability.

He said Pandora, the project impending ERC-404, was auditing a “more mature iteration of the standard which addresses integration.”