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After years of development, Ethereum (ETH) has formed a complete ecosystem that allows developers to innovate and create complex DAPP (Decentralized Application) applications based on Ethereum.After years of development, Ethereum (ETH) has formed a complete ecosystem that allows developers to innovate and create complex DAPP (Decentralized Application) applications based on Ethereum.

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What is ERC-20?

Jul 16, 2025MEXC

After years of development, Ethereum (ETH) has formed a complete ecosystem that allows developers to innovate and create complex DAPP (Decentralized Application) applications based on Ethereum. ERC-20 is the key to enabling innovation for anyone on Ethereum. So, what exactly is ERC-20?

1.What is ERC-20?

ERC stands for Ethereum Request for Comment, which is a proposal for improvements to tokens and the Ethereum ecosystem. After an ERC proposal is submitted, the Ethereum community discusses it and decides whether to accept it.

ERC-20 was proposed by Ethereum co-founder Fabian Vogelsteller in November 2015. It is an application programming interface (API) standard for tokens in smart contracts, allowing developers to create cryptocurrencies that comply with smart contracts and integrate them into third-party applications.

The specific functionalities of ERC-20 include: ① Creating tokens, ② Controlling the total supply of tokens, ③ Allowing token transfers, ④ Retrieving the current account balance of tokens, and ⑤ Approving a certain amount of tokens from one account to be used by a third-party account. Due to the practicality and simplicity of the ERC-20 token standard, it quickly gained wide acceptance in the industry, making a thriving Ethereum ecosystem possible.

2.Advantages and Disadvantages of ERC-20

2.1 Advantages of ERC-20

① Easy Token Creation

ERC-20 provides a standardized template for creating tokens, allowing developers to quickly develop their own tokens. With just a few simple steps, developers can effortlessly establish and run a new token, saving considerable time and effort.

② Excellent Interoperability

The standardized approach of ERC-20 enables tokens to be easily transferred and exchanged. This fosters collaboration between different projects and communities, and users can seamlessly perform token swaps.

③ Security

Creating ERC-20 tokens requires compliance with smart contracts, which have the feature of automatic execution, making transactions more secure and ensuring risk-free exchanges.

2.2 Disadvantages of ERC-20

① Fraud Risk

Issuing tokens based on ERC-20 is relatively easy and conducive to innovation. However, the technology cannot guarantee that all developers have good intentions, leading to a small number of fraudulent projects. Investors need to be cautious and conduct research before making investments.

② Inability to Carry Additional Information

Apart from transfer details, ERC-20 tokens cannot carry additional information, which increases communication costs. For instance, when using ERC-20 tokens to purchase goods, specific product information cannot be conveyed, thus raising offline communication costs.

③ Additional Transaction Congestion

As there are numerous tokens issued based on ERC-20, the high-frequency trading of ERC-20 tokens can potentially cause congestion on the Ethereum blockchain network due to its performance limitations.

3.Two Types of Common ERC-20 Tokens

3.1 Stablecoins

Cryptocurrencies often experience extreme volatility, making assets that offer stability highly valuable. Stablecoins are a type of cryptocurrency designed to have a stable price, usually pegged to relatively stable assets such as the US dollar or gold. Stablecoins act as a bridge between traditional financial markets and the cryptocurrency market, bringing higher liquidity to the crypto space. Holding stablecoins can partially mitigate asset volatility and increase confidence in the cryptocurrency market.

Based on different anchoring assets and methods, stablecoins can be categorized as: ① Fiat-collateralized stablecoins, such as USDT (Tether) and USDC (USD Coin), ② Algorithmic stablecoins, such as CrvUSD and FEI, and ③ Cryptocurrency-collateralized stablecoins, such as DAI.

3.2 Application Tokens

Application tokens are tokens issued by decentralized applications (DAPPs) and are commonly used for purposes such as project voting, staking for interest, and rewarding users. Taking APE as an example, APE is an ERC20 token within the Bored Ape Yacht Club ecosystem. APE tokens can be used for staking to earn interest and participating in project governance, among other functions. Apart from APE, many well-known tokens are also application tokens based on the ERC-20 standard, such as LINK, UNI, MKR, YFI, and others. In addition to DAPP project teams issuing ERC-20 tokens, cryptocurrency exchanges have also started issuing their own tokens. For instance, the MX token issued by MEXC exchange offers various benefits to its holders. These benefits include trading fee discounts, priority participation in Kickstarter and Launchpool events, airdrops of new tokens, potential returns from the appreciation of the MX token value, and more.

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