New "DN404" Ethereum Standard Emerges: A Boost for NFT Fractionalization Amid ERC-404 Vulnerability Claims
Summary:
After the recent introduction of ERC-404, a new Ethereum standard, another group of developers has proposed a more efficient model called "DN404." This new Divisible NFT standard aims to serve as a hybrid of ERC-20/721 tokens, allowing NFT holders to trade fractionalized parts of their tokens. The DN404, more compliant with protocols, reportedly handles transactions more efficiently than its competitor. However, developers caution the code hasn’t undergone a formal audit. This new development comes amid claims of a potential vulnerability in the ERC-404 standard.
Just a week following the introduction of ERC-404, an informal protocol for Ethereum that meshes the capabilities of fungible and nonfungible tokens (NFTs), a fresh team of programmers claim that they've refined the concept with their "DN404." The new standard, like its competitor ERC-404, is designed to serve as a hybrid of ERC-20/721 tokens. NFT owners can, under this proposed standard, trade fractional parts of their NFTs with other people, according to anonymous developer "cygaar," who revealed this in a Feb. 12 X post. Cygaar added, "The ultimate objective was to design a standard that functioned as an NFT with an integral ability for fractionalization." While ERC-404 has gained traction, cygaar pointed out, "it doesn't adhere to existing standards, displays significant inefficiency, and fails in specific edge scenarios."
They spoke about most trading taking place on the central contract, which is a fully compliant ERC20 token that monitors user balances and directs the creation/destruction of the mirrored NFTs. The tokens are seen as NFT fractions, compatible with DEXes right out of the gate.
ERC-404's ability to communicate with ERC-20 tokens and ERC-721 NFT contracts is limited by the requirement for protocols to adopt ERC-404 to ensure its tokens operate as intended. Cygaar illustrated that DN404 employs two contracts, a primary ERC-20 and a secondary mirrored ERC-721, which are "fully compliant" with protocols "straight out of the box." This is attributed to the fact that most trading occurs on the ERC-20 token contract, which are fractional components of the NFTs. When the primary ERC-20 tokens are moved, the mirrored NFTs are spontaneously created and destroyed. When a wallet contains a token quantity equivalent to at least one unit, an NFT is received from the mirrored contract and NFTs are destroyed when the wallet balance falls below the minimum unit amount.
Cygaar's ultimate goal is to enable users to trade portions of NFTs directly, without third parties, and to enable NFTs to trade on both NFT markets and decentralized exchanges. However, they cautioned that the code has yet to undergo a formal audit and users should understand the risks involved in its use.
A developer from DN404, using the pseudonym "quit," suggested last week that ERC-404 may harbor a potential vulnerability. This could potentially enable ERC-404 token owners to abscond with NFTs deposited into lending protocols not properly set up for ERC-404.
A developer from ERC-404, going by "ctrl," dismissed these concerns in an interview with Cointelegraph, stating that the vulnerability arose due to quit's faulty contract that improperly utilized the standard. According to him, Pandora, the project ahead of ERC-404, was auditing a more refined version of the standard that addresses integration glitches.
Published At
2/13/2024 5:12:50 AM
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