ERC-404 vs. DN-404: Pioneering the Future of NFT Standards

The world of non-fungible tokens (NFTs) is evolving rapidly, with new standards and innovations emerging to address the limitations of existing frameworks. DN-404 and ERC-404 are groundbreaking standards that aim to revolutionize the NFT landscape by combining the functionalities of ERC-20 and ERC-721 tokens. These standards introduce the concept of semi-fungible tokens, which promise increased market liquidity and accessibility within the NFT space.

This article delves into the key features and differences between the DN-404 and ERC-404 standards, exploring their potential impact on the future of NFTs. It also examines the recent surge in popularity of ERC-404 (with the Pandora token rising 12,000% in just one week) and compares it to DN-404, a direct competitor supported by multiple networks. The article also discusses the potential challenges and security considerations associated with these new standards, and provides a conclusion and future outlook for the NFT ecosystem.

Key Takeaways:

• DN-404 is a newer standard for NFTs on the Ethereum blockchain, crafted to address and rectify the limitations found in the ERC-404 standard.

• These standards lay out the necessary rules and protocols for the creation, ownership and trading of NFTs, thereby enabling developers to build NFT-centric applications and marketplaces.

• DN-404 is designed with two separate contracts, one for tracking user balances and another for handling NFTs. However, ERC-404 aims to create a single contract that can serve as both a fungible and non-fungible token.

What Are DN-404 and ERC-404?

DN-404 and ERC-404 are two experimental token standards that aim to combine the functionalities of ERC-20 and ERC-721 tokens, creating what are known as semi-fungible tokens. These standards introduce new possibilities for fractional ownership and more efficient trading within the NFT space.

DN-404 (Divisible NFT 404):

• Proposed by pseudonymous developer and a team of collaborators

• Uses a dual-contract approach: an ERC-20–based contract for divisible token shares, and a mirrored ERC-721 contract for unique NFTs

• Manages user balances and NFTs separately, promising a smoother user experience and more efficient handling of tokens

• Built upon established ERC-20 and ERC-721 standards, ensuring full compliance

• Enables native NFT fractionalization and trading of NFT fractions without intermediaries

• Still in its experimental phase, and hasn’t undergone formal auditing

ERC-404:

• An unofficial Ethereum token standard that combines features of both fungible and non-fungible tokens

• Initiated by the Pandora team, the first ERC-404 experiment (Pandora) rose 12,000% in just one week

• Uses a single contract that can interact with both ERC-20 and ERC-721 contracts

• Operates by burning and re-minting tokens according to basic/fractional transfers, making it a mixed implementation of ERC-20 and ERC-721

• Has faced scrutiny over its impact on network congestion and gas fees, with Ethereum gas fees soaring to an eight-month high due to the ERC-404 craze

• Not officially recognized by the Ethereum Foundation, thus putting assets at risk as the standard hasn't undergone scrutiny for security and the rigorous vetting process of the Ethereum Improvement Proposal

Both DN-404 and ERC-404 are still in their early stages, and haven’t been thoroughly tested or audited, making them potentially unsafe. However, these standards offer a glimpse into the future of NFTs, where increased liquidity and accessibility could revolutionize NFT transactions.

Main Features of DN-404

DN-404 is a groundbreaking NFT standard that seamlessly integrates the functionalities of ERC-20 and ERC-721 tokens, enabling fractional ownership of NFTs and aiming to revolutionize market liquidity and accessibility within the NFT space. This dual-token standard pairs a base ERC-20 token with a mirror ERC-721 token, allowing for seamless compliance with existing protocols and enabling fractional trading of NFTs.

Key features of DN-404 include:

1. Modular Approach: DN-404 utilizes a modular approach, breaking down the process into two interconnected smart contracts: an ERC-20 token contract and a mirror ERC-721 NFT contract. This dual-contract system facilitates easier and more direct trading on exchanges.

2. Automatic Minting and Burning: When base ERC-20 tokens are transferred, the corresponding mirrored NFTs undergo automatic minting and burning. This ensures that the ownership of NFT fractions remains synchronized with the ERC-20 token holdings.

3. Reduced Complexity and Gas Fees: DN-404 offers several advantages over ERC-404, including reduced complexity, lower gas fees and improved compatibility with established NFT and fungible token standards. This makes DN-404 a more efficient and cost-effective solution for fractional NFT ownership and trading.

4. Elimination of Intermediaries: DN-404 allows users to trade portions of NFTs without using intermediaries, and enables NFTs to be traded on both NFT exchanges and decentralized exchanges. This opens up new possibilities for both creators and collectors in the NFT ecosystem, providing more flexible and efficient transactions.

Understanding NFT Dutch Auctions

NFT Dutch auctions use a bidding technique whereby the price for a given asset is determined based on all bids before the auction starts, with the price gradually dropping at specific time intervals until the asset is sold or the auction ends. High-demand NFT collections often start a Dutch auction at a high price such as 1 ETH and lower it by 0.1 ETH every 10 minutes until people start buying the NFTs. 

The primary reason for the popularity of Dutch auctions in NFT art sales is a gas war on a blockchain that results in high transaction fees during public sales.

The Dutch auction style is used to redirect the excess minting fees from the miners toward the artists, or channel them to fund specific charities or a community DAO. “Fragments of an Infinite Field” by Monica Rizzolli is an example of a successful Dutch auction for a generative art collection. Its starting price was 10 ETH, which decreased every five minutes to a resting price of 0.25 ETH. 

Dutch auctions for NFTs provide several benefits:

1. A more democratic trading environment than for traditional IPOs reflects real-time market conditions, resulting in a fair and equitable price for both the artist and the buyer.

2. Fewer bid transactions reduces associated gas fees, making NFT trades more cost-effective.

3. They take a dynamic and flexible approach with transparency, a democratic bidding process and the elimination of wash trading.

4. Artists can increase their revenue by setting a high initial price and ensuring that their works are only sold when the market perceives them to be valuable.

5. They provide an engaging and interactive experience for collectors by adding a layer of strategy and anticipation.

The adoption of Dutch auctions by renowned platforms adds credibility and professionalism to the NFT market, fostering mainstream adoption. However, Dutch auctions require bidders to clearly understand an asset's value, which can be intimidating for newcomers. Nevertheless, Dutch auctions will likely remain a key feature in the NFT landscape, reshaping how assets are priced, perceived and valued within the NFT community.

Comparative Analysis: DN-404 vs. ERC-404

DN-404 and ERC-404 are both experimental token standards that aim to revolutionize the NFT landscape by combining the functionalities of ERC-20 and ERC-721 tokens. However, there are significant differences between the two standards in terms of their approach, efficiency and potential impact on the NFT ecosystem.

It’s important to note that both DN-404 and ERC-404 are experimental and unofficial proposals that have not yet gone through the formal Ethereum Improvement Proposal (EIP) process. Neither standard is approved by Ethereum as an official token standard. Pseudonymous developer has criticized the design of the ERC-404 standard for not following existing standards, being inefficient and breaking at certain edge cases, highlighting the need for alternatives like DN-404.

Despite the differences between DN-404 and ERC-404, both standards have the potential to revolutionize how NFT transactions are conducted. The emergence of these standards could lead to increased liquidity and accessibility within the NFT space, opening up new possibilities for creators and collectors alike. However, it’s crucial for developers and users to carefully consider the potential challenges and security risks associated with these experimental standards before adopting them in their projects.

Potential Challenges and Security Considerations

Despite the potential of the DN-404 and ERC-404 token standards to revolutionize the NFT landscape, there are several challenges and security considerations that users and developers should be aware of:

1. Experimental Nature: Both DN-404 and ERC-404 are still in their experimental phases, and haven’t undergone formal auditing, thus posing potential risks for early adopters. As these standards are relatively new, they may undergo significant changes and/or upgrades that could lead to challenges in adapting for projects that have adopted them.

2. Security Vulnerabilities: The experimental nature of these standards also introduces the possibility for exploitation by bad actors looking for loopholes, bugs and vulnerabilities. For example, a vulnerability highlighted by a developer known as quit could potentially enable the unauthorized acquisition of NFTs through incorrectly configured lending protocols.

How to Obtain Velocity Pass 2.0 by Bybit and Oracle Red Bull Racing

Velocity Series 2.0 builds on the groundbreaking collaboration between Bybit and Oracle Red Bull Racing (ORBR) to launch fractional NFTs on the DN-404 token standard, offering an upgraded experience for art enthusiasts and racing fans to immerse themselves in the evolving story of the Velocity Series.

The Velocity Series 2.0 fuses art and blockchain technology, featuring unique digital art collections inspired by real-time data and the exhilarating exploits of the iconic RB20 F1 car.

The 2.0 Passes Velocity Pass features an excitingly new design. An additional 1,000 passes will be added to the Velocity Series collection, creating a total supply of 2,000.

Series 2.0 Pass Sale Details

The excitement revs up on Apr 12, 2024, 2PM UTC, when the Velocity Pass 2.0 sale begins. Among the 1,000 Velocity Pass 2.0 NFTs in this edition, up to 900 will be offered to the public via a Rebate Dutch Auction.

In this Dutch auction format, all collectors will pay the price of the last NFT sold, and individuals who have paid above the final price will receive their respective rebates after the sale. The bidding will begin at a price of 5 ETH, lowered incrementally until a floor price of 0.5 ETH is reached.

How to Trade Velocity Pass 2.0

• Primary Market:

• Purchase Velocity Series 1.0 pass (Series 1.0 pass holders will be airdropped the Series 2.0 pass), or

• Participate in the upcoming Dutch auction

• Secondary Market:

• Purchase from the NFT Pro secondary market

• Purchase tokens through Bybit Swap

Velocity Series 2.0 will introduce two types of passes, Gold and Blue, which can be traded on the market. The Blue passes will be available through the Dutch auction, and Gold passes will be airdropped to OGs.

Gold pass holders will receive special benefits from Red Bull this year, continuing to enjoy airdrops from subsequent projects from ORBR and others exclusively for pass holders. Stay tuned to Bybit’s NFT page for more details. 

Conclusion and Future Outlook

As the NFT ecosystem continues to evolve, innovative standards like DN-404 and ERC-404 are paving the way for a more accessible and liquid market. These groundbreaking proposals combine the best features of ERC-20 and ERC-721 tokens, enabling fractional ownership and efficient trading of NFTs. While both standards are still in their experimental phases and face potential challenges, they offer a glimpse into the future of NFTs and the possibilities they hold.

As the adoption of these standards grows, it’s crucial for developers and users to carefully consider the associated risks and security implications. By working together to address these challenges and refine the standards, the NFT community can unlock the full potential of semi-fungible tokens and create a more inclusive and dynamic ecosystem. 

As the technology matures and gains wider acceptance, DN-404 and ERC-404 are poised to play a significant role in shaping the future of NFTs, and the digital asset landscape as a whole.

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