Ethereum ERC404 Tokens Bring Innovation and Undesirable Consequences

Author: Ryan Celaj Source: DLnews Translation: Shan Oppa, Golden Finance

• ERC404 tokens in Ethereum It quickly became popular, with the Pandora project’s transaction volume reaching US$230 million.

• The top three ERC404 projects contributed 12% of Uniswap’s 24-hour trading volume.

• The craze for ERC404 has triggered concerns about “rug pulls” and high gas fees.

It’s been less than a week since the creation of ERC404, and transaction volume on Ethereum is now dominated by these hybrid tokens.

Since its launch on February 2, the total trading volume of the top ERC404 series Pandora has exceeded $230 million.

The PANDORA/WETH liquidity pool on the decentralized exchange Uniswap currently ranks third in terms of trading volume, second only to stablecoins USDC/ETH and USDC /USDT.

The top three ERC404 projects - Pandora, MNRCH and DeFrogs - accounted for a combined $113 million in transaction volume in the past 24 hours, accounting for Uniswap's Ethereum transactions 12% of the amount.

ERC404 is the token standard on Ethereum, which combines the characteristics of cryptocurrency and NFT. It greatly increases the liquidity (availability of funds) of NFTs, which are typically highly illiquid assets.

NFTs are automatically minted when a user holds tokens from at least one ERC404 project. Users can then sell the tokens, thereby destroying the NFT, or list the NFT  on marketplaces such as Openseas.

But the frantic trading surrounding ERC404 tokens also has consequences.

There has been some pull - the addresses where tokens were created pulling up liquidity, leaving investors with nothing - and rising gas costs on the Ethereum mainnet .

ERC404 craze

As traders flock to the ERC404 token standard, some Already taking advantage of this craze. On Wednesday, a token called Punks traded from $350 to over $20,000 in just two hours. Now, it's almost worthless.

This is because the wallet that created the token used a malicious contract that allowed the creation of an unlimited number of Punks tokens. Shortly after Punks reached $20,000, the wallet’s controller executed the contract, minted thousands of tokens, and then sold them into the PUNKS/WETH Uniswap pool.

Users who invested in the token lost everything, while the creator's wallet gained 42 ether (approximately $100,000).

Similar incidents have occurred over the past two days with four other ERC404 collections using variations of the Punks name.

ERC404 also leads to an increase in Ethereum’s Gas cost. Given that the standard is too new, it has not yet been optimized for gas costs.

Ethereum Gas fee for trading Pandora ERC404 tokens

Gas fees on Ethereum are fees paid by users in order to send transactions. Ethereum is designed to increase transaction costs during busy periods to protect the network from spam attacks.

The founder of Pandora Collection recently said in the project's Telegram chat that the next ERC404 improvements should reduce gas costs by 300% to 400%.

This may be welcomed by Ethereum mainnet users. Gas charges on the network have averaged 53 Gwei over the past 24 hours, compared to the previous 7-day average of 29 Gwei.