A new hybrid NFT standard is in town, so ERC-404 better watch out

Some developers have introduced DN404, an additional test hybrid token and NFT standard, claiming to have resolved the shortcomings of ERC-404.

Just one week has passed since the release of ERC-404, an unofficial Ethereum standard designed to combine the features of fungible and nonfungible tokens (NFTs). According to another group of developers, DN404 does this better.

Similar to its ERC-404 competitor, the "Divisible NFT" standard "aims to be a hybrid ERC-20/721 token." According to a pseudonymous developer named "cygaar" in an X post on February 12, the proposed standard essentially permits NFT holders to trade fractionalized chunks of their NFT with others.

"Our ultimate objective was to develop a token standard that would function as a native fractionalization NFT," Cygaar continued. Despite its popularity, they said, ERC-404 "doesn't follow existing standards, is inefficient, and breaks at certain edge cases."

Even though ERC-404 is compatible with ERC-20 tokens and ERC-721 NFT contracts, protocols must be implemented in order for ERC-404's tokens to work as intended.
However, Cygaar clarified that DN404's method employs two contacts, a "mirror" ERC-721 and a "base" ERC-20, and asserts that it is "fully compliant" with protocols "out of the box."

This is due to the fact that the majority of trading takes place on the ERC-20 token contract, which Cygaar defined as "fractions of the NFTs." The mirrored NFTs are instantly burned and created upon the transfer of base ERC-20 tokens.

When the wallet contains less than the minimum base unit amount, NFTs are destroyed. Wallets with a token quantity equal to at least one base unit will get one NFT on the mirrored contract.

According to Cygaar, the ultimate objective was to enable users to transact NFTs on decentralized exchanges and NFT exchanges, as well as to trade NFTs in part without the need for middlemen.

But the code "has not been formally audited, so you are using it at your own risk," the developer said.

Safety of ERC-404 questioned

Under the pseudonym "quit," one of DN404's developers announced last week that there might be an ERC-404 vulnerability that allows token holders to steal NFTs placed into lending protocols that aren't properly set up for ERC-404.

In an interview with Coin telegraph last week, ERC-404 creator "ctrl" dismissed the worries, claiming that "quit" created a contract that misuses the standard and creates a vulnerability.

He claimed that a "more mature iteration of the standard which addresses integration" was being audited by Pandora, the project that is set to implement ERC-404.