When I first started seeing references to ERC-404 tokens on social media early this week, I thought it was a funny joke — a non-existent token referencing the error message you sometimes see while surfing the web, HTTP 404, meaning “page not found.” When I learned a little later that the project is real, I thought it was a little less funny.
This is an excerpt from The Node newsletter, a daily roundup of the most pivotal crypto news on CoinDesk and beyond. You can subscribe to get the full newsletter here.
The problem begins and ends with the project’s branding: ERC refers to “Ethereum Request for Comments,” the set of technical standards used to launch tokens on Ethereum. It’s a failsafe meant to ensure new token standards are up to snuff — something the community has vetted as a viable, safe and useful proposal.
As written on the Ethereum GitHub:
“The goal of ERCs is to standardize and provide high-quality documentation for the Ethereum application layer.” Further, “Before you write an ERC, ideas MUST be thoroughly discussed on Ethereum Magicians or Ethereum Research. Once consensus is reached, thoroughly read and review EIP-1, which describes the EIP/ERC process.”
See also: Ethereum’s Political Philosophy Explained | OpinionERC-404 did away with all of that. While now called an “unofficial” and experimental token architecture, ERC-404 was launched into the world by a four-person team without any documentation or buy-in from the wider community. And it’s certainly caused a controversy.
“It’s not really the ERC that people have an issue with, so much as the cheapening of what is traditionally seen as off-limits, the development process of Ethereum itself,” Paul Dylan-Ennis, a lecturer and assistant professor in the College of Business at the University College Dublin and author of a book covering Ethereum governance, said in a direct message.
Indeed, the core idea behind ERC-404s is to make it easier to fractionalize, split ownership and improve liquidity when trading non-fungible tokens (NFTs). There might genuinely be something to the idea. ERC-404 combines two existing token standards, ERC-20 and ERC-721, used for minting regular Ethereum-based tokens and NFTs, respectively, in a bid to create “semi-fungible” tokens.
Ctrl, one of Pandora’s pseudonymous developers, told CoinDesk they’re now working to submit an EIP, or Ethereum Improvement Proposal, the way to get officially recognized by the Ethereum Foundation. He mentioned elsewhere getting an approved EIP is “one of the more bureaucratic things you can do.”
At press time, however, no formal proposal has been submitted. In a twist, the webpage where such a proposal might exist — https://eips.ethereum.org/EIPS/eip-404 — turns up an HTTP404 message. It might be too little too late.
You can argue that ERC-404 was released in the spirit of permissionless development, one of the features and strengths of building on blockchains. The whole point of Ethereum, aka the World Computer, is that people can build and release without running it by a gatekeeper. But in a sense, by picking the name ERC-404, it’s an act of stolen valor.
See also: Chris Dixon Talks Techno-Optimism, Permissionless Innovation and Blockchains
This attempt to legitimize the project has understandably kicked up dust. The official X/Twitter account for a key piece of Ethereum infrastructure, @lightclients, said responding to one of the project’s developers, who has since deleted their X/Twitter account: “erc-404 doesn’t exist, stop picking a random number out of thin air.”
Laurence Day, a well-known jester, developer and legal commentator in Ethereum circles said: “I’m so sorry but slapping ‘experimental’ on an ERC to subvert the fact that this is something that has no consensus over design, break events in weird ways and is showing us up as mercenary shitcoiners that I can’t and don’t want to defend.”
Others have raised concerns over the safety of the technical design of ERC-404s, considering that they are unaudited. An X user, @quit, ran an experiment and found that a wrongly configured protocol could be easily exploitable. While others still have said that there’s little meat to the project.
“It’s just a remake of an old idea that’s been tried multiple times, but with a twist where it has a disingenuous name,” kaden.eth, an Ethereum security engineer and researcher, said in a direct message.
The first such ERC-404 token, Pandora, was launched on Feb. 2 and now has a $188 million market cap. The way it works could help explain how other ERC-404s are supposed to function: Every time someone buys a Pandora token (released with an initial supply of 10,000 tokens) they mint a corresponding “Replicants” NFT.
If they spend a fraction of their token, the entire NFT is destroyed. However, ERC-404 allows people, potentially multiple parties, to combine fractions of Pandora tokens to mint a new NFTs (the replicants series has different levels of rarity built in, so the replacement NFT could theoretically be worth more or less than the original).
This isn’t the only way to mix and match tokens and NFTs, and a number of other projects have launched ERC-404 tokens with different characteristics.
Whether or not there needs to be a new way to fractionalize NFTs, it’s clear ERC-404s have caught people’s attention. Prominent exchanges OKX and Binance seem to think the non-standard standard has legs, and have announced support for the classification — helping to legitimize the effort.
None of this is meant to direct ire at the project founders, who appear to have legitimate intentions. There is nothing wrong with identifying a problem, and coding up a solution; after all, crypto is supposed to be a world without gatekeepers. And, in a way, it is a clever marketing hack, a way to draw attention to something that may otherwise have gone unnoticed.
See also: ‘Absolute Essentials of Ethereum’ by Paul Dylan-Ennis
But the branding itself also indirectly signals more confidence in the effort than it deserves, at least until it is properly vetted. As Dylan-Ennis said: “They are hoodwinking people into believing it’s a new formal standard.” And that’s the thing about open, permissionless protocols: at the technical level, code is law. But Ethereum also has a culture, and sometimes there are rules to follow.
