RRC-404

The ERC-404 standard, originally designed for the Ethereum blockchain, introduces a hybrid token type that combines aspects of both fungible (ERC-20) and non-fungible (ERC-721) tokens. This allows for fractional ownership of NFTs and the ability to trade them on decentralized exchanges (DEXs), providing liquidity for traditionally illiquid NFT assets.

However, the ERC-404 implementation has faced criticism for creating unpredictable behaviors and confusion around the mapping between fungible tokens and associated NFTs. RRC-404 takes a different approach by leveraging the native resource model of the Radix ledger to clearly separate fungible and non-fungible states while facilitating conversion between the two.

The key goal of RRC-404 is to simplify the concept of NFT liquidity and provide a more predictable and user-friendly experience compared to ERC-404. By using distinct fungible and non-fungible resources, RRC-404 aims to eliminate the potential for accidental loss or burning of NFTs during token transfers, a concern raised with the ERC-404 implementation.

The design of RRC-404 takes a fundamentally different approach compared to ERC-404 by leveraging the native resource model of the Radix ledger. Unlike Ethereum's ERC tokens, which are defined as smart contracts, Radix uses native resources with predefined behaviors that resemble physical money.

Distinct Fungible and Non-Fungible Resources

At the core of RRC-404 is the separation of fungible and non-fungible assets into distinct resource types. Instead of mapping a fungible token to every NFT as in ERC-404, RRC-404 ensures that a user can only hold either a fungible token or a non-fungible token at any given time.

This design choice eliminates the potential for accidental loss or burning of NFTs during token transfers, as there is no invisible mapping that could result in unintended consequences.

Conversion Between Fungible and Non-Fungible States

RRC-404 introduces a dedicated smart contract component that facilitates the conversion between fungible and non-fungible states. Users can interact with this component to "freeze" their fungible tokens into NFTs or "melt" their NFTs back into fungible tokens.

This conversion process is designed to be predictable and user-controlled, allowing holders to freely trade or transfer their assets in either state without worrying about unintended consequences.

Rarity Percentage Targets

Unlike ERC-404, which uses a hash function to determine the rarity of minted NFTs, RRC-404 introduces a novel approach based on rarity percentage targets. The smart contract logic aims to maintain a predefined percentage distribution for each rarity level (e.g., 42% green, 30% blue, 16% red, etc.).

When minting new NFTs, the contract prioritizes the rarity level that has deviated the most from its target percentage in the current circulating supply. This approach provides a degree of transparency and predictability regarding the distribution of rarities.

Time Delays and Royalties

To discourage frequent "rerolling" of NFTs, RRC-404 implements a time delay mechanism. Once an NFT is minted, there is a predefined period (e.g., 4 hours) during which it cannot be melted back into a fungible token. This introduces a cooldown period and encourages more intentional conversions.

Additionally, RRC-404 incorporates a small royalty fee (e.g., 1 $XRD) that is collected whenever a user performs a conversion between fungible and non-fungible states. This royalty mechanism provides a potential revenue stream for the creators or maintainers of the RRC-404 contract.

The core functionality of RRC-404 revolves around two main methods: Freeze and Melt. These methods allow users to convert between the fungible and non-fungible states of the token.

Freeze: Converting Fungible Tokens to NFTs

The Freeze method enables users to convert their fungible tokens into non-fungible tokens (NFTs). To initiate this process, the user must first withdraw the desired amount of fungible tokens from their wallet into a separate bucket.

Example code snippet for calling the Freeze method:

CALL_METHOD Address("your_address") "withdraw" Address("fungible_token_address") Decimal("amount")
TAKE_ALL_FROM_WORKTOP Address("fungible_token_address") Bucket("fungible_bucket")
CALL_METHOD Address("rrc404_component_address") "freeze" Bucket("fungible_bucket")
CALL_METHOD Address("your_address") "deposit_batch" Expression("ENTIRE_WORKTOP")

Melt: Converting NFTs to Fungible Tokens

To use the Melt method, the user must first withdraw the desired NFTs from their wallet into a separate bucket. Then, they can call the Melt method on the RRC-404 smart contract component, passing the bucket as an argument.

The component will check if the time delay period has elapsed since the NFTs were minted (e.g., 4 hours). If the delay has passed, the component will burn the NFTs from the provided bucket and mint the corresponding amount of fungible tokens, depositing them into the user's wallet.

CALL_METHOD Address("your_address") "withdraw" Address("nft_token_address") Decimal("amount")
TAKE_ALL_FROM_WORKTOP Address("nft_token_address") Bucket("nft_bucket")
CALL_METHOD Address("rrc404_component_address") "melt" Bucket("nft_bucket")
CALL_METHOD Address("your_address") "deposit_batch" Expression("ENTIRE_WORKTOP")

During both the Freeze and Melt processes, the RRC-404 contract collects a small royalty fee (e.g., 1 $XRD) to incentivize the creators and maintainers of the contract.

By separating the fungible and non-fungible states and providing user-controlled conversion methods, RRC-404 aims to simplify the process of managing NFT liquidity while maintaining predictable and transparent behavior.

The RRC-404 implementation offers several key benefits and advantages over the ERC-404 standard on Ethereum:

Simplicity and Predictability

One of the primary goals of RRC-404 is to simplify the concept of providing liquidity for non-fungible tokens (NFTs). By clearly separating the fungible and non-fungible states into distinct resources, RRC-404 eliminates the potential for unpredictable behaviors and accidental loss or burning of NFTs during token transfers.

Users can hold and transact with either fungible tokens or NFTs without worrying about unintended consequences, as there is no invisible mapping or coupling between the two asset types.

User Control and Intentionality

With RRC-404, users have complete control over the conversion process between fungible and non-fungible states. The dedicated smart contract component provides explicit methods (Freeze and Melt) for users to initiate these conversions intentionally.

This level of user control ensures that changes to asset states are deliberate and well-understood, reducing the risk of accidental or unintended actions that could result in the loss of valuable NFTs.

Transparency and Predictability of Rarity Distribution

Unlike ERC-404, which uses a hash function to determine the rarity of minted NFTs, RRC-404 introduces a novel approach based on rarity percentage targets. By aiming to maintain predefined percentage distributions for each rarity level, RRC-404 provides transparency and predictability regarding the distribution of rarities in the circulating supply.

While users cannot control the exact rarity of the NFTs they mint, they can have a general understanding of the likelihood of minting a particular rarity level based on the current supply.

Royalty Mechanism for Creators and Maintainers

RRC-404 incorporates a small royalty fee that is collected whenever a user performs a conversion between fungible and non-fungible states. This royalty mechanism provides a potential revenue stream for the creators and maintainers of the RRC-404 contract, incentivizing them to continue developing and supporting the standard.

Time Delay for Melting NFTs

To discourage frequent "rerolling" of NFTs, RRC-404 implements a time delay mechanism. Once an NFT is minted, there is a predefined period (e.g., 4 hours) during which it cannot be melted back into a fungible token. This cooldown period encourages more intentional and strategic conversions, rather than rapid speculation or farming.

Compatibility with Radix's Native Resource Model

By leveraging the native resource model of the Radix ledger, RRC-404 seamlessly integrates with the underlying blockchain infrastructure. This inherent compatibility ensures that the implementation adheres to the design principles and security guarantees of the Radix ecosystem, potentially simplifying future developments and integrations.

The RRC-404 implementation on the Radix blockchain presents several intriguing potential applications and use cases for enabling liquidity for non-fungible tokens (NFTs).

Fractional Ownership of NFTs

One of the primary motivations behind standards like ERC-404 and RRC-404 is to facilitate fractional ownership of NFTs. By allowing users to hold and trade fungible tokens representing fractional shares of an NFT, these standards open up new possibilities for investment, speculation, and shared ownership models.

With RRC-404, users can convert their fungible tokens into whole NFTs or vice versa, enabling them to buy or sell fractions of NFTs as desired. This could potentially increase the accessibility and liquidity of NFT markets, attracting a wider range of investors and collectors.

Liquidity for NFT Collections

RRC-404 can provide much-needed liquidity for NFT collections, which are traditionally illiquid assets. By allowing users to convert their NFTs into fungible tokens, RRC-404 enables these assets to be traded on decentralized exchanges (DEXs) and participate in various decentralized finance (DeFi) protocols.

This increased liquidity could attract more interest and investment in NFT projects, as holders would have the ability to easily enter or exit their positions without relying solely on peer-to-peer sales or centralized marketplaces.

Real-World Asset Tokenization

The concept of fractional ownership and liquidity for NFTs can be extended to the tokenization of real-world assets. RRC-404 could potentially be used to represent ownership shares in physical assets like real estate, art, or collectibles, enabling fractional investment and trading opportunities.

By tokenizing these assets as NFTs and providing a mechanism for liquidity through fungible tokens, RRC-404 could open up new avenues for democratizing access to traditionally illiquid and exclusive asset classes.

Gaming and Virtual Economies

The gaming and virtual world industries have been early adopters of NFT technology, using it to represent unique in-game assets, virtual land, and other digital collectibles. RRC-404 could potentially be integrated into these virtual economies, allowing players to convert their NFTs into fungible tokens and participate in various in-game marketplaces or economies.

This could create new gameplay mechanics, incentive structures, and trading opportunities within virtual worlds, further blurring the lines between digital and real-world economies.

Decentralized Finance (DeFi) Integrations

By providing a mechanism for converting NFTs into fungible tokens, RRC-404 could enable various integrations with decentralized finance (DeFi) protocols and applications. NFTs could potentially be used as collateral for lending or borrowing, or as underlying assets for derivatives or synthetic products.

This integration could unlock new use cases and financial instruments within the DeFi ecosystem, further expanding the potential applications and utility of NFTs beyond their traditional roles as collectibles or digital art.

As the adoption of blockchain technology and NFTs continues to grow, the RRC-404 implementation on the Radix blockchain could play a significant role in bridging the gap between fungible and non-fungible assets, enabling new forms of ownership, investment, and liquidity in various industries and ecosystems.

While the RRC-404 implementation on the Radix blockchain offers a promising approach to enabling liquidity for non-fungible tokens (NFTs), there are several potential areas for future development and challenges that need to be addressed.

Scalability and Performance

As the adoption of NFTs and tokenized assets grows, the scalability and performance of the underlying blockchain infrastructure will become increasingly important. The Radix ledger, powered by its novel Cerberus consensus protocol, aims to provide high throughput and low transaction costs. However, as demand increases, further optimizations and scaling solutions may be required to ensure efficient and cost-effective operations for RRC-404 and related applications.

Interoperability and Cross-Chain Integration

While RRC-404 is designed specifically for the Radix ecosystem, there may be a need for interoperability and cross-chain integration with other blockchain networks. This could involve bridging technologies or cross-chain asset transfer protocols, enabling RRC-404 tokens and NFTs to be exchanged or utilized across multiple blockchain ecosystems.

Regulatory Compliance and Governance

As the adoption of tokenized assets and fractional ownership models grows, regulatory bodies may introduce new guidelines or frameworks to govern these emerging asset classes. RRC-404 and its applications may need to adapt to evolving regulatory requirements, particularly in areas such as investor protection, anti-money laundering (AML), and know-your-customer (KYC) compliance.

Additionally, robust governance models may be required to manage the development, maintenance, and decision-making processes surrounding the RRC-404 standard and its implementations.

User Experience and Accessibility

While RRC-404 aims to simplify the concept of NFT liquidity, there may be opportunities to further improve the user experience and accessibility of the platform. This could involve developing intuitive interfaces, educational resources, and user-friendly tools to help individuals and organizations effectively navigate and participate in RRC-404-based ecosystems.

Integration with Decentralized Finance (DeFi) Protocols

As mentioned in the potential applications section, RRC-404 could enable various integrations with decentralized finance (DeFi) protocols and applications. However, this integration may require the development of new financial instruments, smart contract frameworks, and risk management strategies tailored specifically for tokenized and fractionalized assets.

Exploration of Alternative Approaches

While RRC-404 presents a novel approach to enabling NFT liquidity, it is essential to continue exploring and evaluating alternative methods or architectures. As the blockchain and cryptocurrency space continues to evolve, new techniques or paradigms may emerge that could further improve upon the concepts introduced by RRC-404.

Despite these potential challenges and areas for future development, the RRC-404 implementation on the Radix blockchain represents an exciting step towards unlocking liquidity for non-fungible tokens and bridging the gap between fungible and non-fungible assets. Continued innovation, collaboration, and adaptation will be crucial in realizing the full potential of this emerging technology.