- ERC404 tokens have exploded on Ethereum, led by Pandora’s $230 million trading volume.
- The top three ERC404 projects contributed 12% to Uniswap’s 24-hour volume on Ethereum.
- The frenzy has raised concerns that the rug will be pulled from the rug and gas prices will rise.
Less than a week after the creation of ERC404, Ethereum trading volume is now dominated by these hybrid tokens.
Pandora, the top of the ERC404 collection, has generated more than $230 million in total sales since its launch on February 2nd.
The PANDORA/WETH liquidity pool on decentralized exchange Uniswap is currently the third largest pool by trading volume, behind the dominant USDC/ETH and USDC/USDT.
The top three ERC404 projects, Pandora, MNRCH, and DeFrogs, recorded a total of $113 million worth of trades in the past 24 hours, accounting for 12% of Uniswap’s Ethereum trading volume.
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ERC404 is a token standard for Ethereum that combines characteristics of both cryptocurrencies and NFTs. This significantly increases the liquidity, or availability of funds, for NFTs, which are generally highly liquid assets.
Once a user holds at least one token of an ERC404 project, an NFT will be automatically minted. The user can then sell the tokens and burn his NFT, or list her NFT on marketplaces like Opensea.
However, the frenzy of trading around ERC404 tokens has consequences.
We are already seeing a lot of lag pulls (situations where the address that created the token pulls out its liquidity, leaving investors with nothing) and rising gas costs on Ethereum mainnet.
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As traders flock to the ERC404 token standard, some are starting to capitalize on this enthusiasm. On Wednesday, a token trading under the name Punks rose from $350 to more than $20,000 in just two hours. Now it’s almost worthless.
That’s because the wallet that created the token used a malicious contract that allowed the creation of an infinite number of Punks tokens. Shortly after Punks reached his $20,000, the wallet controller executed a contract, minting thousands of tokens and selling them to the PUNKS/WETH Uniswap pool.
Users who invested in this token lost everything, leaving the creator’s wallet with a profit of 42 Ether, or about $100,000.
Similar incidents have occurred in the past two days with four other ERC404 collections using variations of the Punks name.
ERC404 is also contributing to Ethereum’s rising gas costs. This standard is so new that it has not yet been optimized for gas costs.
Ethereum gas fees are what users pay to send transactions. Ethereum is designed to increase the cost of transactions 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 upcoming ERC404 improvements should reduce gas costs by 300-400%.
This will likely be welcomed by Ethereum mainnet users. Gas prices on the network averaged 53 Gwei over the past 24 hours, compared to an average of 29 Gwei over the past seven days.
Ryan Celaj is a data correspondent for DL News based in New York. To get tips, firstname.lastname@example.org.