What is ERC-20? A Guide to the Ethereum Token Standard
Things to know:
The ERC-20 token standard was the first token standard on the Ethereum network, allowing developers to create fungible (otherwise known as interchangeable) tokens. Let’s dive into what an ERC-20 token is and why this Ethereum token standard is so important.
What is the ERC-20 Token Standard?
ERC-20 is a fungible token standard on the Ethereum blockchain. It enables to creation of fungible tokens, which are interchangeable with one another — contrary to non-fungible tokens (NFTs), which are unique and non-interchangeable.
The ERC-20 token standard is critical because it provides a common interface for tokens, ensuring compatibility between various tokens in the Ethereum ecosystem. This standard allows developers to create tokens that compatible with other products and services.
ERC-20 tokens play a significant role in the blockchain industry, as they can represent various assets, such as reputation points, digital currencies, shares in a company, or even physical commodities like gold. This versatility enables the creation of various decentralized applications (dApps) and projects built on the Ethereum network.
The history of ERC-20 tokens
The ERC-20 Standard launched in November 2015 when Ethereum developer Fabian Vogelsteller published the innovation in an Ethereum Improvement Proposal (EIP). With this EIP, standard functions and rules were introduced to support fungible tokens including; totalSupply, balanceOf, transfer, approve, transferFrom and allowance. This allowed anyone to create tokens on the Ethereum network with relative ease.
Today, the ERC-20 token standard has become crucial in the Ethereum ecosystem, due to its applications in decentralized finance, governance, and more. So many parts of the crypto ecosystem, such as DAOs, DeFi, and even NFT marketplaces rely on fungible crypto tokens. In fact, some of the most popular cryptocurrencies in existence operate as ERC-20 tokens; particularly stablecoins such as USDT and USDC.
How does the ERC-20 token standard work?
The ERC-20 standard uses the aforementioned set of functions and events to activate additional functionalities ETH isn’t capable of.
Essentially, the ERC-20 standard ensures that every ERC-20 token follows a specific structure, allowing them to interact seamlessly with various applications, wallets, and exchanges. This standard simplifies token management and reduces the risk of compatibility issues between different projects in the ecosystem.
You can learn more about the technical details in Ethereum’s ERC-20 docs.
What are ERC-20 Tokens Used For?
Now that we understand the basics of the ERC-20 standard, let's dive into its various use cases and applications in the world of web3.
Stablecoins
Stablecoins, coins pegged to traditional currencies, such as USD Coin (USDC), often operate on the Ethereum network as ERC-20 tokens since they offer a compatible and interoperable standard across EVM chains.
Governance tokens
Governance tokens grant holders voting rights in decentralized organizations, often called DAOs. Using the ERC-20 token standard, creators of DAOs can create and distribute tokens easily and securely.
Build a DAO with an ERC-20 governance token →
Utility tokens
Utilty tokens provide access to a project's platform or services, so the ERC-20 token standard provides these projects an easy way to create multiple tokens for users and guarantee each token’s authenticity.
Asset-backed tokens
Tokens representing ownership of physical or digital assets, like tokenized gold or real estate. Today, you may also receive ERC-20 tokens that represent your stake on a platform through liquid staking.
In-game currencies and items
ERC-20 tokens can be used for virtual currencies or items within video games. This has the power to streamline the management of in-game economies and empower individual creators.
Create an in-game currency with ERC-20 tokens →
Benefits of ERC-20 Tokens
The ERC-20 token standard offers several benefits for creating fungible tokens on the Ethereum blockchain:
Standardization
ERC-20 defines a common set of rules and functions for token creation, simplifying the development process and ensuring consistency across different tokens. ERC-20 tokens leverage the power of Ethereum's smart contracts, allowing for complex, automated transactions and decentralized applications. And since ERC-20 provides a standardized framework, developers can save time and resources by focusing on their token's unique features instead of building from scratch.
Interoperability
ERC-20 tokens can easily interact with various wallets, exchanges, and decentralized applications (dApps) on the Ethereum network, increasing their utility and accessibility. As the most popular token standard, ERC-20 simplifies integration with third-party services like exchanges, payment processors, or portfolio trackers.
Security
The ERC-20 token standard has been extensively tested and reviewed by the Ethereum community, leading to improved security and reliability for compliant tokens.
Programmability
ERC-20 tokens can be tailored to serve a specific purpose or function, making them suitable for a wide range of applications, from utility tokens to stablecoins and governance tokens. ERC-20 tokens can incorporate programmable features, such as automated rewards, staking mechanisms, or token burns, enabling innovative business models and use cases.
Borderless transactions representing fiat currencies
ERC-20 tokens facilitate seamless, borderless transactions without the need for intermediaries, making them ideal for international remittances, global crowdfunding, and cross-border payments. Many stablecoins operate as ERC-20 tokens for that very reason.
Cost-effectiveness
Creating and managing ERC-20 tokens is often more cost-effective than traditional financial instruments or alternative blockchain tokens.
List of Top ERC-20 Tokens
ERC-20 tokens have reached mainstream adoption on the Ethereum ecosystem, and most tokens for the above applications are compliant with the ERC-20 standard. These include:
USD Coin (USDC)
USDC coin is an ERC-20 token which operates as a stablecoin pegged to the US dollar, providing price stability in the volatile world of cryptocurrencies. It was created by financial solution company Circle and launched in September 2018. USDC is a popular ERC-20 token for DeFi, as it allows traders to take profit without moving funds off chain. It also plays a role in cross-border payments and is widely used in exchanges as a base trading pair.
Chainlink (LINK)
Chainlink is a utility token used to pay for services on the Chainlink decentralized oracle network. The ERC-20 token was launched in June 2017 by Sergey Nazarov and Steve Ellis.
Maker (MKR)
MKR is another ERC-20 token operating as a governance token which grants voting rights in the MakerDAO ecosystem, influencing decisions related to the DAI stablecoin. It was created in 2017 by Rune Christensen alongside the launch of the DAO.
Decentraland (MANA)
MANA is an ERC-20 token that operates as a virtual currency for the Decentraland metaverse, a web3 virtual world. It can be used for for purchasing virtual land, items, and services and also fuels a market of user-generated content, as you can sell in-game items to other users in return for more MANA.
Aave (AAVE)
AAVE is an ERC-20 token with two purposes. First it’s a governance token, but it’s also a utility token for the Aave DeFi platform, allowing holders to participate in decision-making and earn staking rewards.
0x (ZRX)
ZRX is an ERC-20 token that was launched in 2017 by Will Warren and Amir Bandeali via the 0x protocol. Essentially it facilitates decentralized token trading and exchange on the platform. As a utility and governance token, it allows users to vote on the future of the platform and also earn rewards via staking.
Enjin Coin (ENJ)
Launched in 2017 by Maxim Blagov and Witek Radomski, ENJ is an ERC-20 token designed for use in the blockchain gaming ecosystem. ENJ can be used used to create, manage, and trade blockchain-based virtual assets for video games and other digital experiences.
How to create an ERC-20 token smart contract
Creating an ERC-20 token typically requires writing, testing, and deploying a smart contract using the Solidity programming language.
Alternatively, you can use thirdweb Explore — a library of open-source, pre-built audited smart contracts to find battle-tested templates for ERC-20 smart contracts — with extensions & features based on your needs, all deployable in minutes:
How to create an ERC-20 Token quickly
The Token contract is suited for creating a digital currency and is compliant with the ERC20 standard. It can be purchased & traded between users on an exchange, utilized to buy and sell NFTs in a marketplace, and more.
Use Cases & Examples
- Create your own cryptocurrency
- Sell your NFTs on the Marketplace in your custom token
- Reward users with tokens for some action they take
Create an ERC-20 token in minutes→
How to create an ERC-20 Token Drop
The Token Drop contract is a way of releasing your ERC20 tokens for a set price. It allows you to define the conditions for when and how your users can claim your tokens; including allowlists, release dates, and claim limits.
Use Cases & Examples
- Release your new cryptocurrency for a set price such as 1 MATIC per token.
- Allow a specific set of wallets to claim your ERC20 tokens before releasing them to the public.
- Allow users to claim your tokens up until a specific date.
How to create an ERC-20 Airdrop
Airdrop ERC-20 tokens or the chain's native token (e.g. ether for Ethereum mainnet) to a list of recipients. The contract is suitable to use when you want to transfer ERC-20 tokens or native tokens to a list of recipient addresses, where these recipients are not expected to individually claim their airdrop; they just receive it in a transfer.
Create an ERC-20 token airdrop→
How to create an ERC-20 Staking Contract
This contract allows users to stake their ERC-20 tokens and get ERC-20 tokens as staking rewards (different from the staked tokens).
Build an ERC-20 token staking contract→
How to create an ERC-20 Token Contract with multiple recipients
The Split contract lets you specify multiple wallet addresses that are recipients of any revenue or royalty split. The Split contract will store the funds, and when any user calls the distribute function, the funds will be distributed to the recipients according to the percentages you define.
Use Cases & Examples
- Use as a "team wallet", where funds are distributed between the members of your team with set percentages
- Share revenue from your primary minting in an NFT drop
- Share revenue from royalty sales with members of your team, such as an artist
These ERC-20 token smart contracts showcase the versatility and potential of the standard in the Web3 ecosystem. By leveraging these contracts, developers can create innovative solutions and unlock new use cases for ERC-20 tokens.
Start building an ERC-20 contract with multiple recipients→
Concluding thoughts: The future of ERC-20 tokens
ERC-20 tokens play a vital role in the Ethereum ecosystem, providing a standardized framework for creating and managing a wide variety of digital assets. With their versatility and ability to interact with numerous platforms and applications, ERC-20 tokens have transformed the way value is exchanged and utilized in web3 — further aligning incentives between companies and their users, and serving as a critical component in the development & expansion of the decentralized economy.
We hope this blog post has helped you better understand what the ERC-20 token standard is, what its use cases are on the blockchain, and how you can get started with ERC-20 smart contracts.
If you have any questions, join 33,000+ other builders in our Discord community, or reach out to the team directly for more info on how to get started with ERC-20 tokens.
And if you want to start building web3 apps with ERC-20 smart contracts, get started with thirdweb’s web3 tools & SDKs — they’re free!
Frequently Asked Questions (FAQs)
Are all Ethereum tokens ERC-20 compliant?
No, not all Ethereum tokens are ERC-20 compliant. There are other token standards on Ethereum, such as ERC-721 and ERC-1155, which are used for different purposes like creating non-fungible tokens (NFTs).
Can I store ERC-20 tokens in any Ethereum wallet?
Yes, as long as the wallet supports the ERC-20 standard, you can store any ERC-20 token in it. Examples of popular Ethereum wallets that support ERC-20 tokens include MetaMask, Ledger, and Trezor.
How do I buy or trade ERC-20 tokens?
You can buy or trade ERC-20 tokens on various decentralized and centralized exchanges, such as Uniswap, SushiSwap, Binance, or Coinbase. Always make sure to use a reputable platform and follow the proper steps for buying or trading tokens.
Are ERC-20 tokens the same as Ether (ETH)?
No, ERC-20 tokens are separate digital assets created on the Ethereum blockchain, while Ether (ETH) is the native cryptocurrency of the Ethereum network.