In-Depth Analysis of ERC404: The Potential and Risks of New Asset Types

ERC404 is an experimental technical solution that combines the ERC20 and ERC721 standards, featuring native liquidity and fragmented semi-homogeneous characteristics. It establishes a corresponding inter-conversion relationship between NFTs and FTs through the protocol, and based on the protocol's characteristics, it achieves NFTs with variable built-in attributes.

Pandora is the first project based on the ERC404 standard, launched on February 2nd. 10,000 PANDORA ERC20 tokens correspond to 10,000 NFTs "Replicants". Pandora can be traded on Uniswap and also on NFT markets like OpenSea.

The main features of ERC404 include:

1. A lossy encoding scheme that allows ERC20 quantities and ERC721 IDs to be stored using the same data structure.

2. Design of pseudo-random numbers based on sequential IDs to achieve "pseudo-random card drawing"

3. Native Fragmentation and AMM Liquidity

4. Clearly separate the value and pricing power of different attributes of assets.

However, ERC404 also has some risks and flaws:

1. The uncontrollable issue of destroying multiple NFT assets

2. Higher gas consumption than regular transfers

3. The standard has not been validated over the long term and may contain unknown security vulnerabilities.

4. Not officially included in the Ethereum EIP proposal

5. Pandora is only a launch project and cannot capture actual value from the future development of ERC404.

Overall, ERC404 represents an innovative direction in the NFT field, with unique advantages and application potential. However, as an experimental standard, its development prospects still need market validation. Investors should rationally consider the related opportunities and risks.