ERC-404: The experimental blend of fungible and non-fungible tokens

ERC-404 emerged as an experimental approach to bridge two dominant Ethereum token models—fungible ERC-20 and non-fungible ERC-721—into a single, composable asset. It promises NFT-like uniqueness with fungible-like liquidity, enabling “liquified NFTs” that can be traded and fractionally owned without traditional vault wrappers. While the idea captured significant attention, it remains outside the formal Ethereum Improvement Proposal (EIP) process and therefore is not an official standard. Understanding where ERC-404 fits among existing token standards and what it means for users, builders, and marketplaces is key to evaluating its role in 2025’s on-chain economy.

The backdrop: ERC-20, ERC-721, and ERC-1155

Ethereum’s token landscape is shaped by mature standards:

• ERC-20 defines fungible tokens and powers most on-chain assets today, including stablecoins and governance tokens. See the canonical specification in the EIP repository: ERC-20.
• ERC-721 introduced unique, non-fungible tokens—NFTs—and created a common substrate for provenance, marketplaces, and wallets. Reference: ERC-721.
• ERC-1155 generalized multi-token use cases by allowing both fungible and non-fungible types in one contract, reducing gas and improving composability. Reference: ERC-1155.

For an overview of how these standards are used by developers and applications, see the Ethereum developer docs on token standards: Token standards overview. If you’re new to how standards are proposed and ratified, the EIP process is documented here: Ethereum Improvement Proposals.

What ERC-404 tries to do

ERC-404 is commonly described as a hybrid mechanism: a fungible base token that dynamically mints and burns corresponding NFTs based on ownership changes and supply thresholds. In practical terms, holders can acquire fractional exposure to an NFT-like object via the fungible side, while full “unit” ownership can materialize as an NFT that marketplaces recognize. This aims to combine:

• Liquidity and pricing from fungible markets (AMMs, order books)
• Uniqueness, metadata, and marketplace compatibility from NFTs

Unlike ERC-1155’s multi-token flexibility, ERC-404 explicitly attempts to synchronize an ERC-20 supply with a parallel set of ERC-721 tokens, often using bespoke mint/burn and transfer logic to keep both representations aligned.

Why the community calls it experimental

The approach is intriguing but non-trivial:

• Compatibility trade-offs: Some ERC-404 implementations deviate from strict ERC-721 behaviors, which can trip indexers, marketplaces, or wallets expecting standard events and ownership invariants. Best practices for NFT metadata and trait handling remain anchored in standards like OpenSea’s guidance for metadata: NFT metadata standards.
• Event semantics: Mirroring fungible transfers to NFT mint/burn events introduces edge cases that tooling needs to understand and support.
• Gas and UX: Complex mint/burn synchronization can raise gas costs and cause confusing wallet UX. Developers should consider Ethereum gas fundamentals when designing hybrid flows: Gas, transaction fees, and optimization.

Because ERC-404 is not a formal EIP, each implementation can vary. That flexibility enables innovation, but it also requires careful auditing, testing on testnets, and cautious rollout.

DN-404: a notable refinement

In 2024–2025, community efforts coalesced around “DN-404” (Divisible NFT), designed to preserve ERC-721 compatibility while achieving fractional ownership. DN-404 emphasizes predictable behavior, better composability with existing NFT infrastructure, and more gas-efficient architecture compared to early ERC-404 patterns. For technical details, review the DN-404 reference implementation: DN-404 repository.

This trend indicates developers are looking for hybrid models that behave like canonical ERC-721 NFTs from the perspective of indexers and marketplaces, while still enabling divisible exposure and liquid markets.

Potential use cases

• Liquidity for high-value NFTs: Turn historically illiquid single items into tradable positions, enabling fractional entry and exit without separate vault wrappers.
• Basket indexes or “floor exposure”: Aggregate positions across multiple NFTs or collections and let fungible markets price the exposure.
• Dynamic membership or access passes: Tokens that can represent both unique credentials and flexible stake-like quantities.
• On-chain art and generative assets: Algorithms that react to supply fragmentation or consolidation, allowing new, programmable forms of ownership.

Risks and considerations

• Marketplace compatibility: If an implementation diverges from ERC-721 semantics, marketplaces or indexers may misinterpret ownership or fail to display items correctly. ERC-721 remains the anchor for display and transfer semantics: ERC-721.
• Liquidity fragmentation: Parallel NFT and fungible markets can split liquidity, amplifying volatility and slippage.
• MEV and pricing: Mint/burn coupling may open non-obvious MEV vectors; validating price oracles for hybrid assets is harder than for pure ERC-20 tokens.
• Approvals and signatures: Complex flows often rely on token approvals and permit-style signing for UX improvements. If you use permit, understand the ERC-2612 standard and its security model: ERC-2612 (Permit).
• Regulatory ambiguity: Fractionalized ownership of unique assets may raise questions depending on jurisdiction. Teams should seek independent legal counsel.

What matters in 2025

As of 2025, hybrid token experiments continue to mature, with DN-404 gaining traction among builders seeking cleaner ERC-721 compatibility. Many developers now treat ERC-404 ideas as a proving ground for design space rather than a final destination, prioritizing:

• Strict adherence to NFT standards for tooling and marketplace interoperability
• Gas-efficient mechanics that minimize user confusion and cost
• Clear, auditable logic to avoid unexpected mint/burn behavior

If you’re evaluating a project:

• Check whether the implementation aligns with ERC-721 and ERC-1155 expectations for events and ownership semantics. Reference: ERC-1155.
• Review documentation for how fungible and NFT layers stay synchronized.
• Confirm audit coverage and testnet deployments.
• Validate marketplace display and trading support.
• Understand the EIP status and whether the team intends to pursue standardization: EIP process.

Developer guidance

• Start from established standards where possible to ensure compatibility with wallets, indexers, and marketplaces. See the developer overview: Token standards overview.
• Prefer composable event design that respects ERC-721 conventions for ownership and transfer.
• Consider DN-404 architectures if fractionalization is required and marketplace compatibility is critical: DN-404 repository.
• Document mint/burn rules and edge cases explicitly; state how rounding and thresholds are handled.
• Optimize for gas and user clarity. Poor UX around approvals, signatures, and fractionalization can undermine adoption.

Wallet UX and security

Hybrid tokens introduce more complex signing and approval flows, and users may interact with both ERC-20-like and NFT-like contracts within the same asset. Hardware wallets help mitigate risks by isolating private keys and providing clear transaction prompts. If you plan to hold or actively trade experimental assets, consider a hardware wallet that emphasizes open-source firmware, reliable EVM support, and readable signing screens. OneKey focuses on transparent security and smooth EVM interactions, which can be useful when you need to review complex contract calls or manage approvals in hybrid token ecosystems.

Bottom line

ERC-404 spotlights a real demand: making unique assets more liquid without giving up the features that make NFTs valuable. While the approach is still experimental and not standardized, its ideas have influenced newer designs like DN-404 that aim for stronger compatibility and better UX. For users and builders, the path forward involves rigorous adherence to existing standards, careful engineering of mint/burn synchronization, and clear documentation. As the ecosystem evolves, hybrid ownership models may become a recognized pattern—provided they integrate cleanly with the tooling and marketplaces that power Ethereum today.