ERC-20

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Sovereign Assets • Layer 1s • Payment Networks

Ethereum fungible token standard

ERC-20 is the most widely used token standard on the Ethereum blockchain. It defines a common set of rules and functions that all compliant tokens must follow—enabling seamless creation, transfer, and interoperability between wallets, DeFi apps, and exchanges. ERC-20 tokens are programmable assets used for stablecoins, utility tokens, governance, and more.

Use Case: Projects can launch their own tokens (like $USDC, $UNI, or $XCN) on Ethereum without building a new blockchain, and users can store, trade, or interact with them across DeFi apps using the same infrastructure.

Key Concepts:

Smart Contract Token — ERC-20 defines how these programmable tokens are created and managed on Ethereum
Token Standards Index — The blueprint that ensures all ERC-20 tokens follow the same rules and are interoperable
Fungibility — All ERC-20 tokens of the same contract are interchangeable and identical
Custom Minting — Some ERC-20 tokens allow new supply to be created or destroyed programmatically
Gas Price — Transaction fees paid in ETH to transfer or interact with ERC-20 tokens
Stablecoins — Many stablecoins (USDC, USDT, DAI) are ERC-20 tokens
Liquidity Pool — ERC-20 tokens power AMM-based decentralized exchanges
Governance Token — DAO voting tokens often follow ERC-20 standard
Native Asset — ETH is the native asset; ERC-20 tokens are built on top

Summary: ERC-20 transformed Ethereum into a universal asset layer, powering the growth of DeFi, stablecoins, DAOs, and tokenized economies with secure, standardized digital assets.

Aspect	ERC-20	Native Asset (ETH)
Origin	Created by smart contract	Built into protocol
Fungibility	Yes (all units are identical)	Yes (all units are identical)
Transferability	Between any Ethereum address	Between any Ethereum address
Custom Rules	Programmable via contract	Protocol-defined only
Gas Fees	Requires ETH to transfer	Used to pay gas fees
Examples	USDC, UNI, DAI, XCN, LINK	ETH

ERC-20 Core Functions

standard functions every ERC-20 token must implement

Read Functions
totalSupply() — Total tokens in existence
balanceOf(address) — Token balance of address
allowance(owner, spender) — Approved spending amount
name() — Token name (optional)
symbol() — Token symbol (optional)
decimals() — Decimal places (optional)

Write Functions
transfer(to, amount) — Send tokens directly
approve(spender, amount) — Allow spending
transferFrom(from, to, amount) — Spend approved tokens

These three functions enable all DeFi interactions, from swaps to staking to lending

Events (Logging)
Transfer(from, to, value) — Emitted on every transfer
Approval(owner, spender, value) — Emitted on approval

Events enable wallets and apps to track token movements without querying every block

Common Extensions
mint(to, amount) — Create new tokens
burn(amount) — Destroy tokens
pause() — Freeze all transfers
blacklist(address) — Block specific wallets
These are NOT part of standard but commonly added

Developer Note: The approve + transferFrom pattern enables DeFi composability. You approve a DEX to spend your tokens, then the DEX’s contract calls transferFrom to execute swaps.

ERC-20 Token Categories

major types of tokens using the ERC-20 standard

Stablecoins
Pegged to fiat currency
$USDC — Circle (USD-backed)
$USDT — Tether (USD-backed)
$DAI — MakerDAO (crypto-backed)
Used for payments, DeFi, trading pairs

Governance Tokens
DAO voting power
$UNI — Uniswap governance
$AAVE — Aave protocol
$CRV — Curve Finance
Vote on protocol upgrades, treasury

Utility Tokens
Access or payment within ecosystem
$LINK — Chainlink oracle payments
$GRT — The Graph queries
$XCN — Chain utility
Required to use protocol services

Wrapped Assets
Cross-chain representations
$WBTC — Wrapped Bitcoin
$WETH — Wrapped Ether
$stETH — Staked ETH (Lido)
Enable non-ERC-20 assets in DeFi

Ecosystem Impact: Over 500,000 ERC-20 tokens have been created. The standard’s simplicity and composability made Ethereum the center of the token economy.

ERC-20 vs Other Token Standards

comparing fungible token standards across networks

Standard	Network	Pros	Cons
ERC-20	Ethereum	Widest adoption, most tooling	High gas fees on L1
BEP-20	BNB Chain	EVM-compatible, lower fees	More centralized
SPL	Solana	Ultra-fast, very cheap	Different tooling, less mature
XRPL IOU	XRP Ledger	Native trust lines, fast	Different model, less DeFi
Cardano Native	Cardano	Protocol-level, no contract	Smaller ecosystem

Migration Note: ERC-20 tokens can be bridged to other EVM chains (Arbitrum, Base, Polygon) easily. Cross-chain bridges also enable movement to non-EVM chains, though with added trust assumptions.

ERC-20 Security Checklist

what to verify before interacting with any ERC-20 token

Green Flags
✓ Verified contract on Etherscan
✓ Audited by reputable firm
✓ No hidden mint functions
✓ Ownership renounced or multisig
✓ Transparent tokenomics
✓ Listed on major exchanges

Red Flags
✗ Unverified source code
✗ Owner can mint unlimited tokens
✗ Hidden pause or blacklist functions
✗ Honeypot mechanics (can’t sell)
✗ Tax on transfer (hidden fees)
✗ Anonymous team, no track record

Approval Safety
Approvals are permanent until revoked
Unlimited approvals = max risk
Approve only what you need
Revoke unused approvals regularly
Use revoke.cash or Etherscan
Check before signing any transaction

Verification Tools
Etherscan (contract verification)
TokenSniffer (scam detection)
De.Fi Scanner (audit database)
GoPlusLabs (security API)
Revoke.cash (approval manager)
CoinGecko/CMC (legitimacy check)

Golden Rule: Never approve unlimited spending to unknown contracts. Scams often exploit approvals—you approve a malicious contract, and it drains your wallet later. Review every approval carefully.

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