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##  [TL；DR]: 
Pandora is the first token based on ERC404, which is an open source experimental standard for creators and developers, integrating the characteristics of ERC20 and ERC721, with native liquidity and fragmentation.

The ERC404 standard not only solves the problem of low liquidity in NFTs by implementing ownership fragmentation, but also further unleashes the liquidity potential of NFTs through financial means such as borrowing and derivatives.

The initial version of the ERC404 protocol had rules for generating new NFTs, which could lead to loss of NFT uniqueness, unreasonable token transfer logic, and high contract execution gas costs.

## Introduction
Recently, the crypto community has shown strong interest in a new token standard called ERC404, which aims to enhance the liquidity of NFTs and cleverly combines the characteristics of ERC20 and ERC721.

In this context, the price of the first token that Pandora based on the ERC404 standard continues to rise, even breaking records. So, where exactly did ERC404 originate from? What does it mean? And how will ERC404 showcase future opportunities? This article will provide a thorough interpretation.
 
## What is the ERC404 Standard?
The recently popular on-chain token Pandora is the first token based on ERC404, which has sparked a wave of FOMO in the market. In fact, ERC404 is an open source experimental standard for creators and developers, integrating the characteristics of ERC20 and ERC721, with native liquidity and fragmentation.

According to public information, the token standard was created by @maybectrlfreak (ctrl) and @searnseele (Searn), and the core standard was published by former Coinbase engineer @0xacme on Github.
![](https://gimg2.gateimg.com/image/article/1708514805img_v3_0288_fbff7929-3c4b-4d48-858f-2fc04468e8ix.jpg)
Source: GitHub
 
ERC404 originates from the EMERALD contract attack event, which has a vulnerability that allows anyone to transfer and deplete seaweed from a predefined pool. Although this incident resulted in CTRL losing $30,000, he also saw the potential of ERC404. After CTRL, Acme, and Searn failed to provide repair suggestions, they decided to launch Pandora on their own.

So, what exactly is this ERC404? Simply put, it draws on the strengths of the ERC20 and ERC721 standards, allowing tokens and NFTs to coexist harmoniously while also being able to conduct independent buying and selling. This is like solving a big problem, allowing the originally incompatible ERC20 and ERC721 to coexist peacefully.

Take the recent Pandora for example. When a user buys the Pandora token on the chain, they will receive a brand new NFT for every Pandora token they buy. When users want to change hands on this token, the previous NFT will disappear and a brand new NFT will be born.

Even more miraculously, the rarity of this newly generated NFT is still random, which breaks the norm and creates a new way for tokens and NFTs to interact.
 
## Pandora's Popularity Skyrocketing: Graph Coin Exchange+Dynamic Rarity
Pandora, as the first token based on the ERC404 protocol, has seen a continuous increase in market popularity recently. According to CoinMarketcap, the market value of the coin has dropped from the highest of $253M to $141M, with transactions reaching $30M within 24 hours.

The gameplay of this token is quite novel, as explained earlier. Let's briefly break it down here.

The Pandora project has released 10,000 NFTs (called Pandora NFTs), which are no different from common <a href="/price/ethereum-eth" target="_blank" class="blog_inner_link">Ethereum</a> NFTs and can be freely traded on NFT platforms such as OpenSea and Blur. At the same time, it also issued 10,000 ERC-20 tokens (Pandora ERC20), which are no different from ERC-20 tokens traded on <a href="/price/uniswap-uni" target="_blank" class="blog_inner_link">Uniswap</a> and can be traded on any DEX.

This design enables Pandora to have high liquidity and convenient trading of ERC-20 tokens upon issuance. Every time a user purchases a Pandora ERC20 token on Uniswap, they not only receive the token, but also automatically receive a Pandora NFT with random attributes, which can be a regular or rare style, with a total of 5 colors for scarcity differentiation.
 ![](https://gimg2.gateimg.com/image/article/1708514855img_v3_0288_7d3495a1-519d-49a2-a82c-d903ac20faix.jpg)
Source: pandora.build

In summary, the ERC404 standard not only solves the problem of low liquidity in NFTs by implementing ownership fragmentation, but also further unleashes the liquidity potential of NFTs through financial means such as borrowing and derivatives. This liquidity design that integrates the characteristics of NFTs and ERC-20 tokens is an innovative feature that existing NFTs and ERC-20 tokens do not possess, unleashing the liquidity of NFTs. As you can see, there is a lot of room for imagination.
 
## Future Prospects of ERC404 Token Standard
Since Pandora emerged and disrupted the market, a series of ecosystem projects have also emerged.

For example, the first art collectible of the ERC404 standard, Palatte, the on chain leverage protocol that supports the ERC404 standard; Wasabi Protocol, Pandora Altcoin project ANON, and so on. For a while, many people saw the rise of ERC404 as a signal of strong ETH recovery this year.

However, it should be noted that although Pandora tokens and ERC404 standards bring innovative fragmented NFT ownership and liquidity solutions, we must also face their existing problems and challenges.

The initial version of the ERC404 protocol had rules for generating new NFTs, which could lead to loss of NFT uniqueness, unreasonable token transfer logic, and high contract execution gas costs.

In addition, ERC404 is still an experimental standard. The overall standard has not been finalized, and the contract has not been audited.

Recently, the Pandora team has also taken some remedial measures. To ensure the security of the vault, the official has established a new 2/4 multi signing mechanism to transfer ownership of PANDORA tokens, liquidity pools (LP), and valuable assets in the vault to the new mechanism, thereby further strengthening security in the process of expansion and construction practices. These four signers are all equipped with dedicated cleaning hardware wallets specifically designed to perform transaction operations through a multi signature mechanism.

Overall, ERC-404 has achieved trading not only on partially centralized exchanges (CEX) but also revolutionized traditional NFT products by building a unique "graph coin symbiosis relationship." The history of the crypto industry has proven that every innovation in asset issuance triggers long narratives and discussions, just like the in_script_ions in the <a href="/price/bitcoin-btc" target="_blank" class="blog_inner_link">Bitcoin</a> ecosystem, or the hybrid standard and programmable tokens in the Ethereum ecosystem.

Although it is not possible to predict the future development of ERC404 and whether it can combine with other projects to generate new innovative points, this management method of integrating previously incompatible token standards into a set of smart contracts is undoubtedly a major breakthrough and innovation in the asset issuance model.
 ![](https://gimg2.gateimg.com/image/article/1708514906img_v3_0288_460e98bd-f764-440f-a0e9-24059a09baix.jpg)
Source: @Pandora_ERC404
 
Finally, as the saying goes, ERC404 is always accompanied by high volatility, and the recent 70% pullback indicates a huge game of consensus in the Pandora market. Therefore, investors need to remain calm, pay attention to safety, and invest cautiously.



<div class="blog-details-info">
<div>Author:**Carl Y.**, Gate.io Researcher
<div>Translator:Joy Z.
<div class="info-tips">\*This article represents only the views of the researcher and does not constitute any investment suggestions.
<div>\*Gate.io reserves all rights to this article. Reposting of the article will be permitted provided Gate.io is referenced. In all cases, legal action will be taken due to copyright infringement.
</div>


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This article introduces the recently popular ERC404 token standard and the gameplay of the first token Pandora, and reveals the potential risks of this token standard, pointing out that investors should view the market rationally.

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Pandora Continues to be Hot, What is the Upstart ERC404 Token?