What is DN-404? The New NFT Experiment Explained

Written by

Eddie Mitchell

Cryptocurrency Writer

Published Feb 15, 2024 at 5:02 PM
Last updated Feb 16, 2024 at 3:29 PM

In true Web3 fashion, the release of a novel and new experimental technology has already been met with competition as another hybrid non-fungible token (NFT) standard enters the market.

And on that note, DN-404 – or 'Divisible NFT 404' – is the newest experimental NFT standard developed for Ethereum that promises advantages over the newly created and similar ERC-404 token.

So let's take a closer look at the new DN-404 token and why people are talking about it.

ERC-404 explained

Before we get into the ins and outs of what is DN-404, we must first look at its recent predecessor – the experimental ERC-404

Combining the qualities of fungible ERC-20 tokens and non-fungible ERC-721 token standards, the unofficial ERC-404 standard allows for more efficient fractional ownership of NFTs and has recently gained a lot of attention in the crypto community following its launch by Pandora at the start of February 2024.

Although fractionalized NFTs already exist, they have struggled to gain traction due to a lack of market liquidity and flexible use-cases for NFTs, and this was what ERC-404 set out to fix. It allows multiple wallets to directly own an NFT, and fractions can be split and merged freely, which can give rise to novel and dynamic NFT use cases.

DN-404 meaning

DN-404 also allows for fractional ownership of NFTs similar to that of ERC-404, however its design seems more purposeful, as DN-404’s pseudonymous developer 'Cygaar' sees ERC-404 as a token standard that lacks some essential qualities.

Cygaar DN-404 tweet @0xcygaar

Explaining their contention, Cygaar writes: “The premise of ERC404 was to create a single contract that can act as both a fungible and non-fungible token. However, this can't be done without introducing exploits and breaking standards. Our approach instead uses two contracts - a "base" ERC20 with a "mirror" ERC721.”

ERC-404 received a great deal of criticism for certain inefficiencies, as well as non-compliance with existing standards that can result in huge issues later down the line. The developer argues that by dividing these elements into two separate contracts, potential risks and issues that will arise in during interactions with Web3 platforms such as decentralized exchanges (DEXs) and decentralized finance (DeFi) can be reduced. 

For example, as pointed out by pseudonymous DN-404 developer ‘

’, a possible vulnerability could see ERC-404 token-holders steal NFTs that had been deposited into staking/lending pools that were not properly configured for ERC-404. 

Streamlined and simplified trading

DN-404 is designed to be backwards compatible with existing approved standards. Instead of fusing ERC-721 and ERC-20 contracts into one, both token standards can both function as independent products “...but under the hood they run on shared 404 rails”, explained

, adding: "Protocols always know exactly what you're transferring, because each contract address follows just one standard.” 

The trading mechanism of DN-404 is centred around the ERC-20 contract that will facilitate the seamless exchange of fractionalized NFT portions. The DN-404 burn rate goes as follows, whenever a wallet holds at least one base unit of the token, they are allocated an NFT. They are burned if the wallet balance falls below this minimum requirement.

Cygaar tweet 12.02.24
This means that most trading can be done on the base ERC-20 token contract, which will track balances and manage the minting and burning of mirrored NFTs. Cygaar writes: “You can think of these tokens as fractions of the NFTs. They're compatible with DEXes out of the box.”

Furthermore, ERC-404 is considered to be a gas-inefficient and costly for transactions. According to another DN-404 developer, it’s 20 per cent cheaper than comparable implementations, and “upwards of 99% cheaper on edge cases”.

DN-404 example

Unlike the ERC-404 release that saw the first tokens make absurdly large market gains, there is no DN-404 market to speak of, and therefore currently no DN-404 price.

At present, there seems to be one DN-404 token called SHOE from DEX platform, Trader Joe. 

Trader Joe tweet
With a supply of 19,404 tokens, they were distributed entirely to 22,140 active wallets of users who use the Trader Joe NFT platform, Joepegs, as well as holders of NFT projects that were created from the platform’s accelerator, Joe Studios. 

The platform affirms that DN-404 could “pave the way for DEXs to evolve”, granting users greater token variations and varieties, which also caters to a broader DeFi audience who are always looking for new trading opportunities.

What’s next for DN-404?

As highlighted by its creators, DN-404 is not a project and is a completely open-source code available for anyone to tinker with. But, as Cygaar notes, this code is still in its alpha stages yet to be formally audited and reminds people that they are using it at their own risk.

Developers are also reminding users that DN-404 is not a project and the team did not launch any collections. It has also not been through the Ethereum Improvement Proposal (EIP) process, and are therefore not calling it a ‘standard’.

That said, considering that ERC-404 tokens gained so much popularity in such a short space of time, it’s not unreasonable to expect a swathe of dedicated DN-404 projects and platforms to soon arise. 

One could argue that these new experimental token standards exists as a direct consequence of the NFT bubble that consumed the crypto market in 2021 and quickly faded, leaving many NFT owners wondering what they can do, if anything, with their digital collectibles.

Evidently, there is enough fervor amongst NFT fans, developers, and investors, to see broader use cases for NFTs developed at the core of crypto technologies.

Frequently Asked Questions

What is DN-404?

DN-404 is an experimental hybrid cryptocurrency token for Ethereum that combines the features and mechanisms of fungible and non-fungible token (NFTs) to create NFTs that can be fractionally owned by multiple users, without exposing them to potential security risks posed by ERC-404.

 

Is DN-404 the next ERC-404?

Both DN-404 and ERC-404 tokens are both aiming to achieve fractionalized NFT ownership and establish dynamic NFT use cases, although they are using slightly different approaches. ERC-404 houses the hybrid within a singular smart contract, whereas DN-404 functions with two smart contracts.