What are ERC404 and DN404?
If we take a step back, ERC20 is the industry standard of fungible tokens enabling you to create and issue tokens which can be traded on Ethereum or EVM compatible chains. ERC721 is the unique representation of a non-fungible token (NFTs).
0xacme, the creator of ERC404 said – “ERC404 is an experimental, mixed ERC20 / ERC721 implementation, with native liquidity and fractionalization”.
So ERC404 essentially enables one to own a token which concurrently mints a corresponding NFT in the owner’s wallet. Also, if the owner sells or transfers the token, the NFT will be automatically burnt. This novel concept basically intertwines ERC20 and ERC721 worlds into one and opens up endless opportunities for creators.
Divisible NFT standard (DN404) is an iteration of ERC404. It “aims to be a hybrid ERC20 and ERC721 implementation that mints and burns NFTs based on an accouont´s ERC20 token balance”. – @Cygaar
The open source code ultimately acts as an NFT with fractionalization built in.
The importance of security audits of ERC404 and DN404 contracts
As the tokens will be liquid, it will inherit ERC20 functions, which opens the door to potential vulnerabilities, backdoors, insecure end points which could lead to the holders of the project losing a lot of money.
So, it is imperative that thorough security audits of the contracts from experienced cybersecurity specialists are conducted prior to any launch.