Fungible Token

Every unit of a fungible token is identical and can be exchanged one-for-one with any other unit of the same token. This is the core property that makes them suitable as a medium of exchange and a unit of account. For example, one ETH on Ethereum is always equal in value and function to any other ETH, just as one US dollar bill is interchangeable with another.

Fungible tokens are divisible into smaller units, allowing for micro-transactions and precise value transfer. The smallest unit is defined by the token's decimals property. Key examples include:

• Bitcoin (BTC): Divisible to 8 decimal places (1 satoshi = 0.00000001 BTC).
• Ethereum (ETH): Divisible to 18 decimal places (1 wei = 10⁻¹⁸ ETH).
• ERC-20 Tokens: Standardized decimals field, commonly set to 18.

All tokens within a contract adhere to the same technical and economic rules, enforced by a smart contract (e.g., ERC-20, BEP-20) or a protocol's native ledger. This ensures:

• Identical properties: Name, symbol, and total supply are fixed.
• Predictable behavior: The balanceOf and transfer functions work uniformly for all holders.
• No unique metadata: Unlike NFTs, individual tokens do not carry distinct data or attributes.

Fungible tokens serve as the fundamental building blocks for digital economies. Their main applications are:

• Cryptocurrencies: Native assets like BTC and ETH used for payments, store of value, and gas fees.
• Stablecoins: Tokens like USDC and DAI pegged to flat currencies for price stability.
• Governance Tokens: Assets like UNI or AAVE that confer voting rights in decentralized protocols.
• Utility Tokens: Used to access services, pay fees, or provide liquidity within a specific platform.

Interoperability across wallets and exchanges is enabled by common smart contract interfaces. The most prevalent standard is ERC-20 on Ethereum, which defines a mandatory set of functions (totalSupply, balanceOf, transfer, approve, transferFrom) and events. Other chains have equivalents, such as:

• SPL on Solana.
• BEP-20 on BNB Smart Chain.
• ARC-1 on Algorand. These standards ensure predictable interaction for developers and users.

The key distinction lies in uniqueness and interchangeability.

• Fungible Tokens: Interchangeable, divisible, uniform (e.g., ETH, USDC).
• Non-Fungible Tokens (NFTs): Unique, non-divisible, with distinct metadata (e.g., CryptoPunks, Bored Ape Yacht Club). While an NFT is a deed to a unique asset, a fungible token is a uniform financial instrument. This difference is encoded in their respective standards: ERC-20/ERC-777 for fungible vs. ERC-721/ERC-1155 for non-fungible.

The most common type, designed as a medium of exchange and store of value. These are native assets of their respective blockchains.

• Bitcoin (BTC): The first and largest cryptocurrency, functioning as digital gold.
• Ethereum (ETH): The native token for the Ethereum network, used to pay for transaction fees (gas) and as a base currency.
• Solana (SOL): Powers the high-throughput Solana blockchain for fees and staking.

Tokens pegged to a stable external asset, like fiat currency, to minimize price volatility. They are crucial for trading, lending, and as a settlement layer.

• Fiat-Collateralized: Backed 1:1 by reserves (e.g., USDC, USDT).
• Crypto-Collateralized: Over-collateralized by other crypto assets (e.g., DAI).
• Algorithmic: Use smart contract mechanisms to maintain peg, though historically less stable.

Tokens that confer voting rights in a decentralized autonomous organization (DAO) or protocol. Holders can propose and vote on changes to the system's parameters, treasury, or code.

• Uniswap (UNI): Governs the Uniswap decentralized exchange.
• Compound (COMP): Used for voting on changes to the Compound lending protocol.
• Aave (AAVE): Controls the Aave lending/borrowing platform.

Tokens that provide access to a service, product, or reward within a specific ecosystem. Their value is often tied to the demand for the underlying service.

• Chainlink (LINK): Used to pay node operators for providing oracle data to smart contracts.
• Basic Attention Token (BAT): Rewards users and funds advertisers in the Brave browser ecosystem.
• Filecoin (FIL): Used to pay for decentralized file storage and retrieval services.

Representations of an asset on a blockchain where it is not native, enabling cross-chain functionality. They are 1:1 backed by the original asset held in custody.

• Wrapped Bitcoin (WBTC): Bitcoin represented as an ERC-20 token on Ethereum.
• Wrapped Ether (WETH): Ether wrapped into an ERC-20 standard for compatibility with DeFi applications.
• Wrapped SOL (wSOL): Solana's SOL token wrapped for use on other chains like Ethereum.

Fungible tokens issued to users who deposit assets into a liquidity pool on a decentralized exchange (DEX) like Uniswap or Curve. They represent a proportional share of the pooled assets and any accrued trading fees.

• Uniswap V2 LP Tokens: Represent a stake in a specific trading pair pool (e.g., ETH/USDC).
• Curve LP Tokens (e.g., 3Crv): Represent deposits in pools of similar assets, like stablecoins.

The ERC-20 standard defines a common set of rules for fungible tokens on the Ethereum blockchain, enabling seamless interaction between tokens and applications. Key functions include transfer() and approve(). This standardization is critical for interoperability, allowing any wallet or decentralized exchange (DEX) to list and trade ERC-20 tokens without custom integration. Examples include USDC, DAI, and UNI.

On the Solana blockchain, fungible tokens are created using the SPL Token program. SPL tokens are optimized for Solana's high-throughput architecture, featuring low transaction costs and sub-second finality. The standard is managed by the Token Program and includes extensions for advanced features like confidential transfers and non-transferable tokens. Major examples are USDC and RAY.

BEP-20 is the token standard on the BNB Smart Chain, intentionally mirroring ERC-20's interface for developer familiarity and cross-chain compatibility. Many assets exist as wrapped tokens (e.g., BTCB, ETH) on BSC, representing a bridged version of an asset from another chain. This highlights the role of standards in facilitating cross-chain liquidity and multi-chain DeFi ecosystems.

Fungible token standards are the bedrock for stablecoins, which are cryptocurrencies pegged to a stable asset like the US dollar. They are essential for:

• Trading pairs on DEXs (e.g., ETH/USDC)
• Collateral in lending protocols like Aave
• Store of value within volatile crypto markets Major standards hosting stablecoins include ERC-20 (USDC, USDT), SPL (USDC), and BEP-20 (BUSD).

Many fungible tokens confer governance rights or utility within a specific protocol. Governance tokens (e.g., UNI, AAVE) allow holders to vote on protocol upgrades and treasury management. Utility tokens provide access to services, such as paying for transaction fees (BNB) or incentivizing liquidity provision. These functions are encoded into the token's smart contract logic, enabled by the underlying standard.

While standards ensure compatibility within a chain, cross-chain bridges and messaging protocols (like LayerZero, Wormhole) enable fungible tokens to move between different blockchain networks. This often involves locking tokens on the source chain and minting a representative wrapped token on the destination chain, a process reliant on the token standards of both ecosystems.

A Non-Fungible Token (NFT) is a unique, indivisible cryptographic asset that represents ownership of a specific item or piece of content, directly contrasting with fungible tokens. Key differences include:

• Uniqueness: Each NFT has a distinct identifier and metadata.
• Indivisibility: Cannot be divided into smaller units like 0.5 of an NFT.
• Use Case: Used for digital art, collectibles, and real-world asset tokenization where provenance matters.

A stablecoin is a type of fungible token engineered to maintain a stable value, typically pegged to a fiat currency like the US Dollar. They are a foundational primitive in DeFi, enabling low-volatility trading, lending, and as a unit of account. Major categories include:

• Fiat-Collateralized: Backed by reserves (e.g., USDC, USDT).
• Crypto-Collateralized: Over-collateralized with crypto assets (e.g., DAI).
• Algorithmic: Uses supply-controlling algorithms to maintain peg.

A governance token is a fungible token that confers voting rights within a decentralized protocol or DAO. Holders can propose and vote on changes to parameters like fee structures, treasury allocation, or protocol upgrades. This creates a token-based governance model where ownership translates into influence. Examples include UNI (Uniswap) and MKR (MakerDAO).

A Liquidity Pool Token is a fungible token minted when a user deposits assets into an Automated Market Maker (AMM) pool. It represents a proportional share of the pooled assets and accrued trading fees. LP tokens are themselves fungible and tradeable, and are burned to redeem the underlying assets. They are core to DeFi liquidity provision and yield farming strategies.

A wrapped token is a fungible token on one blockchain that represents a native asset from another chain, enabling cross-chain interoperability. The most prominent example is Wrapped Bitcoin (WBTC), an ERC-20 token on Ethereum that is 1:1 backed by Bitcoin held in custody. This allows Bitcoin to be used within the Ethereum DeFi ecosystem. The wrapping process involves locking the original asset and minting the representative token.