ERC-20 Compatibility

The standard mandates six essential functions for basic token operations:

• totalSupply(): Returns the total token supply.
• balanceOf(address): Returns the token balance of a given address.
• transfer(address, uint256): Moves tokens from the caller to another address.
• transferFrom(address, address, uint256): Allows a delegated spender to transfer tokens on behalf of an owner.
• approve(address, uint256): Authorizes a spender to withdraw a specific amount of tokens.
• allowance(address, address): Returns the remaining number of tokens a spender is approved to withdraw.

ERC-20 defines two key events that contracts must emit to log state changes for external listeners like indexers and user interfaces.

• Transfer(address indexed from, address indexed to, uint256 value): Emitted when tokens are moved (via transfer or transferFrom).
• Approval(address indexed owner, address indexed spender, uint256 value): Emitted when an approval is set (via approve). These events are critical for off-chain tracking and maintaining a transparent, auditable ledger of all token movements and approvals.

The standard includes optional, but highly recommended, metadata functions for human-readable interfaces.

• name(): Returns the token's name (e.g., "Chainscore Token").
• symbol(): Returns the token's ticker symbol (e.g., "CSCORE").
• decimals(): Returns the number of decimals the token uses (e.g., 18). This defines the smallest divisible unit, where 1 token = 10^decimals of the base unit (often called "wei" for tokens). Wallets use this to display balances correctly.

While the interface is simple, secure implementation requires careful attention. Common issues include:

• Lack of Event Emission: Failing to emit Transfer events can break block explorers and wallets.
• Approval Race Condition: The standard approve function is vulnerable to a front-running attack if the spender's allowance is not first set to zero. Best practice is to use increaseAllowance/decreaseAllowance.
• Incorrect Return Values: Early implementations returned bool for transfer and approve, but the standard only specifies the function signature; the return type was later clarified, leading to compatibility issues with some contracts.

ERC-20 is not exclusive to Ethereum Mainnet. Its specification is defined for the Ethereum Virtual Machine (EVM), making it the de facto token standard on all EVM-compatible blockchains (often called sidechains or Layer 2s).

• Examples: Tokens deployed on Polygon, Arbitrum, Avalanche C-Chain, and BNB Smart Chain overwhelmingly use the ERC-20 interface.
• Bridged Assets: When assets like USDC are bridged from Ethereum to another chain, they are typically represented as an ERC-20 token on the destination chain, maintaining interface consistency for dApps and users.

ERC-20 defines a universal interface that allows any compliant token to be automatically recognized and supported by wallets (like MetaMask) and centralized exchanges (like Coinbase). This includes core functions for balance queries, transfers, and allowance management, ensuring users can store and trade tokens without custom integration work for each new asset.

The standard is the bedrock of DeFi composability, allowing tokens to be used as interchangeable building blocks. An ERC-20 token can be:

• Deposited as collateral in lending protocols like Aave.
• Swapped on decentralized exchanges like Uniswap.
• Used to mint synthetic assets or yield-bearing tokens. This interoperability is why thousands of tokens can flow freely between different DeFi applications.

Most decentralized autonomous organizations (DAOs) issue governance power via ERC-20 tokens. The standard provides the necessary infrastructure for:

• Vote delegation and snapshot voting.
• Treasury management of native tokens.
• Distributing protocol rewards and airdrops. Examples include UNI (Uniswap), AAVE, and MKR (MakerDAO), where token ownership directly translates to governance rights.

Major stablecoins and cross-chain assets rely on ERC-20 for their Ethereum representations.

• Stablecoins: USDC, USDT, and DAI are all ERC-20 tokens, providing a stable medium of exchange and unit of account.
• Wrapped Assets: Tokens like WETH (Wrapped ETH) and WBTC (Wrapped Bitcoin) use the standard to make native assets compatible with ERC-20-based applications, unlocking them for use across DeFi.

The ubiquity of ERC-20 has led to a mature ecosystem of developer tools and security practices. Developers benefit from:

• Battle-tested implementations like OpenZeppelin's contracts.
• Standardized testing frameworks and block explorers.
• Security auditors who are deeply familiar with the standard's common pitfalls, such as approval race conditions and decimal handling, making token creation safer and more efficient.

As the first widely adopted token standard, ERC-20 created a powerful network effect. Its simplicity and early adoption mean it remains the default choice for fungible tokens, even as more feature-rich standards (like ERC-777 or ERC-1155) emerge. This legacy ensures backward compatibility and minimizes fragmentation, making it the most supported and liquid token type on Ethereum and EVM-compatible chains.

The standard approve function is vulnerable to a front-running attack. If a user changes an existing approval from 100 tokens to 50 tokens, a malicious spender can see the pending transaction and quickly submit their own transaction to spend the original 100 tokens before the reduction is processed. This results in the spender getting 100 tokens and the new 50-token allowance being set. Mitigation: Use the increaseAllowance/decreaseAllowance functions from OpenZeppelin's safer implementations or the safeApprove pattern.

The original ERC-20 specification did not mandate a return value for the transfer and transferFrom functions, leading to two different interfaces. Some tokens return a bool, others do not. A contract that only expects one interface will fail when interacting with the other, potentially locking funds. Key Example: The USDT contract on Ethereum does not return a bool. Best Practice: Use SafeERC20 library wrappers like OpenZeppelin's, which handle both cases safely.

The standard defines functions for transferring and approving tokens but does not enforce any supply logic. Critical risks include:

• Unrestricted mint: If present, a public or poorly secured mint function can lead to unlimited inflation.
• Centralized pause: A single-address pauser can freeze all transfers, creating centralization risk.
• Upgradeable Proxies: If the token logic is upgradeable, the admin key can change all rules, including balances. Audits must verify these privileged functions are properly restricted.

Malicious actors can create tokens that appear ERC-20 compliant but contain hidden traps.

• Fake Deposits: A token's balanceOf might return a fake balance without actual transfer functionality.
• Tax Hooks: Transfer functions can take fees or revert under specific conditions not evident from the interface.
• Reentrancy in Transfers: A custom transfer function could make an external call to the sender before updating balances, enabling reentrancy attacks. Always verify contract code on a block explorer before interacting.

Smart contracts that accept or manage ERC-20 tokens must account for several edge cases:

• Gas and Reverts: Interacting with unknown tokens can consume unpredictable gas or revert, causing batch operations to fail.
• Dust Attacks: An attacker can send a minuscule amount of a non-standard token to a contract, potentially causing it to revert in loops that iterate over token balances.
• Balance Snapshots: Relying on a single balanceOf call for critical logic is unsafe, as balances can change within a transaction. Use the Checks-Effects-Interactions pattern.

A significant risk arises from the similar function signatures between ERC-20 (transfer(address,uint256)) and ERC-721 (transferFrom(address,address,uint256)). Accidentally sending an ERC-20 token to an ERC-721-only contract (or vice-versa) will likely result in permanent loss, as the recipient contract lacks the functions to recover it. Wallets and interfaces must clearly distinguish token types, and contracts should implement a sweep function for accidental deposits.

Blockchains like BNB Smart Chain, Polygon, and Avalanche implement their own ERC-20 equivalent standards to ensure compatibility with the Ethereum developer toolkit. These are often direct technical forks of the ERC-20 interface, allowing projects to deploy with minimal code changes. Examples include:

• BEP-20: The token standard on BNB Smart Chain.
• PRC-20: The equivalent on Polygon (PoS).
• ARC-20: Avalanche's C-Chain implementation. This cross-chain compatibility is a cornerstone of the multi-chain ecosystem.

A self-executing program stored on a blockchain that enforces the rules of a token standard like ERC-20. The ERC-20 specification defines the required functions (transfer, balanceOf, approve) and events that a smart contract must implement to be considered compliant. It is the immutable code that governs:

• Token Supply: Total and individual balances.
• Transfer Logic: Rules for moving tokens between addresses.
• Access Control: Permissions for spending allowances.

The process by which software wallets (e.g., MetaMask, Coinbase Wallet) and hardware wallets recognize and interact with ERC-20 tokens. Wallets read the contract ABI (Application Binary Interface) to understand the token's functions and display balances. Key integration points include:

• Automatic Detection: Adding a token by its contract address.
• Balance Queries: Calling the balanceOf function.
• Transaction Building: Formatting calls to transfer or approve. This seamless integration is why ERC-20 tokens are universally supported.