ERC-20

What is ERC-20?

ERC-20 is the universal standard for "fungible" tokens on the Ethereum blockchain. Fungible means that every token is exactly the same as every other token of the same type, making them interchangeable and ideal for currencies and utility tokens.

How does ERC-20 work?

1. The smart contract maintains a ledger of how many tokens each Ethereum address owns.
2. It implements a set of mandatory functions, including transfer, approve, and transferFrom.
3. Users can send tokens directly to others or approve another contract to spend tokens on their behalf.
4. The contract also tracks the totalSupply and the token's decimal precision (usually 18).
5. Because it is a standard, any wallet or exchange can automatically support any new ERC-20 token.

Why does ERC-20 matter?

ERC-20 created a common language for tokens, allowing for massive interoperability. Before ERC-20, every token had its own unique code, making it difficult for wallets and exchanges to support them.

Key features of ERC-20

• Fungible and interchangeable
• Mandatory functions for transfers and approvals
• High interoperability across the ecosystem
• Fixed or dynamic total supply
• Simple and widely audited

Examples of ERC-20

Stablecoins like USDC and USDT are ERC-20 tokens. Governance tokens for protocols like Uniswap (UNI) and Aave (AAVE) also follow the ERC-20 standard, allowing them to be traded on any DEX.