What Are Token Standards?

Why Follow Token Standards?

Interoperability

Token standards ensure that all products built on the same framework can interact and work together seamlessly. When a project's tokens adhere to a unified standard, newly issued tokens can remain compatible with existing platforms and applications, such as wallets. For example, ERC-20 tokens can integrate seamlessly with other products and services that follow the same token standard.

This is why you can trade ERC-20 tokens for other tokens. Without a token standard, trading multiple cryptocurrencies would become extremely complicated, requiring the creation of dedicated wallets for each token instead of using a single wallet that can store various cryptocurrencies.

Composability

In the development process, having a composable system allows developers to reuse existing components to create new products. This principle also applies to token creation; following token standards can reduce development time on foundational functionalities, giving developers more time to experiment and innovate.

Efficiency

Moreover, token standards facilitate interaction between smart contracts. Once tokens are deployed according to standards, smart contracts can not only monitor the created tokens but also enhance overall efficiency.

For instance, token standards like ERC-20 and BEP-20 include essential functions such as address retrieval and token balance, allowing smart contracts to more efficiently track token usage. Developers can utilize the binary interface of contract applications (ABI) to monitor token transfers and other related data, effectively overseeing the liquidity of ERC-20 tokens.

Common Cryptocurrency and DeFi Token Standards

BEP-20

BEP-20 is the token standard on the Binance Smart Chain (BSC). This standard provides technical specifications for BSC, enabling developers to create various types of tokens, including pegged tokens, utility tokens, and stablecoins. The BEP-20 standard also introduces functionalities like blacklisting, token minting, and pausing token destruction.

Here are the main features of the BEP-20 token standard:

TotalSupply: Specifies the total supply of a particular BEP-20 token.

BalanceOf: Indicates the balance of tokens held.

Transfer: Allows users to transfer token ownership to others.

TransferFrom: Enables smart contracts to transfer tokens on behalf of users.

Approve: Restricts the number of tokens that a smart contract can withdraw.

Allowance: Determines the external addresses authorized to spend tokens.

ERC-20

In 2015, Fabian Vogelsteller introduced the ERC-20 token standard, which has become a crucial framework for developers to create virtual tokens, staking tokens, and various other token types.

The ERC-20 token standard follows universal rules that ensure fungible assets (i.e., interchangeable assets). Therefore, if you create 1,000 ERC-20 tokens, each token will have the same functionality and value.

The BEP-20 standard is similar to ERC-20 but applies to different blockchain networks. The ERC-20 token standard is designed for the Ethereum blockchain, while BEP-20 is intended for the Binance Smart Chain (BSC).

ERC-721

You may not know that most non-fungible tokens (NFTs) on Ethereum adhere to the ERC-721 token standard. Whether it’s limited edition NFTs or Proof of Attendance Protocol (POAP) tokens, your NFT is likely created based on this standard. To qualify as an ERC-721 token, an asset must possess a globally unique tokenId.

The functionalities of ERC-721 include token transfers, current balance, total supply, and the aforementioned uniqueness.

ERC-1155

As token standards continue to evolve, a new standard has emerged to meet the needs of various token types—ERC-1155. This multi-token standard allows users to create different types of digital assets, including utility tokens (like BNB) and NFTs.

Additionally, ERC-1155 offers batch processing capabilities, including:

Batch Transfer: Transfer multiple assets in a single transaction.

Batch Balance Query: Retrieve the balances of multiple assets at once.

Batch Approval: Grant approval for all tokens to a single address simultaneously.

NFT Support: When the supply is one, the created token is considered an NFT.

Limitations of Token Standards

While tokens created under the same standard share similar basic functionalities and good interoperability, there often exist issues of functional inconsistency and poor interoperability between tokens of different standards. Due to the varying rules governing token standards, these tokens are frequently incompatible. In other words, tokens developed under different standards may not coexist on the same platform or may be unable to trade with each other. For example, you may have encountered difficulties using BTC on Ethereum. To address this limitation, the industry has introduced a new type of asset known as wrapped tokens.

Wrapped Tokens

Wrapped tokens are cryptocurrencies that are pegged to other cryptocurrencies. Typically, the original asset is stored in a digital vault (i.e., wrapped), and a wrapped version is created on another blockchain.

Conclusion

Token standards serve as the blueprint for the design and issuance of blockchain tokens. Currently, multiple token standards exist within the industry, alongside innovative solutions like blockchain bridges and wrapping mechanisms, aimed at resolving compatibility issues between tokens.

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