Why Token Standards Like ERC-20 Are Ill-Suited for Machine Micropayments

ERC-20 is a user-centric standard designed for human-scale transfers and DeFi interactions, not machine-native microtransactions. Its core mechanics, like requiring a separate approval transaction for every new spender, introduce latency and cost that scale linearly with operational complexity.

The approval model is a systemic bottleneck for autonomous agents. A system managing thousands of micro-payments, like a decentralized CDN or a prediction market oracle, must pre-approve countless addresses, creating a gas-cost death spiral and security surface area that defeats the purpose of automation.

Contrast this with intent-based architectures used by protocols like UniswapX and Across. These systems abstract away direct token transfers, allowing a solver network to fulfill a user's desired outcome without requiring per-DApp, per-token approvals. The machine payment layer needs similar abstraction.

Evidence: A simple ERC-20 transfer on Ethereum L1 costs ~$2-$10. A system executing 10,000 such micro-payments daily incurs a $20k-$100k overhead, making the business model untenable before the first unit of value is delivered.

ERC-20 is a ledger standard, designed for human-centric asset tracking, not machine-native value transfer. Its stateful accounting model requires a global consensus update for every transfer, creating a per-transaction consensus bottleneck that makes sub-cent payments economically impossible.

The gas model is adversarial, pricing worst-case execution to prevent DoS attacks. This is the opposite of a predictable cost function needed for machines to autonomously budget for billions of tiny, scheduled transactions, as seen in IoT or AI agent networks.

Compare Solana's native token program which, while faster, inherits the same atomic-update flaw. The mismatch is in the abstraction layer: we need a standard for value packets, not just balance sheets, enabling protocols like Solana's ZK Compression or Fuel's UTXO model to thrive.

Evidence: A $0.01 payment on Ethereum L1 costs ~$1.50 in gas, a 15,000% overhead. Even an L2 like Arbitrum at $0.01 gas cannot support the 10,000 TPS needed for global machine economies without a new primitive.

ERC-20 is a state machine. Every transfer modifies two balances in the global state, a permanent cost that scales linearly with users. For billions of daily microtransactions between IoT devices or AI agents, this creates an untenable state growth tax.

Gas fees are a distraction. The real cost is the perpetual storage burden on every node. Projects like Solana and Sui prioritize state efficiency, but Ethereum's Layer 2s like Arbitrum still inherit this core inefficiency for token transfers.

The solution is stateless accounting. Systems like Bitcoin's UTXO model or ZK-proof based balance trees (see Aztec) separate proof of ownership from global state. Payment channels and rollup-specific standards are stopgaps, not a fundamental fix.

Evidence: A single ERC-20 transfer consumes ~25k gas for logic but commits ~100 bytes to state forever. At 1 billion daily micro-payments, that's 100 GB of new state daily, rendering any chain unusable.

ERC-20 is a user-centric standard designed for human interaction, not machine-to-machine micropayments. Its core functions like approve and transferFrom require sequential on-chain transactions, creating prohibitive gas overhead for automated systems that need to execute thousands of tiny payments per second.

The atomic composability problem is fatal. A smart contract cannot atomically pay for its own execution with the ERC-20 token it is transferring. This forces a cumbersome two-step process of pre-funding wallets, which locks capital and destroys capital efficiency at scale.

Resource tokens solve this natively. Frameworks like ERC-7621 or Solana's Compute Units treat gas as a first-class, transferable asset. This allows a contract to spend its own output for fees, enabling true atomic settlement where a payment and its computational cost are a single state transition.

Intent-based architectures like UniswapX and Across demonstrate the demand for abstracted settlement. These systems let users declare a desired outcome, while a solver network competes to fulfill it optimally. Resource tokens are the missing piece, allowing solvers to programmatically pay for cross-chain execution without pre-deposits on every chain.