The creation of Ethereum cemented blockchain technology’s significance, bringing to the table a decentralized virtual programmable machine. Developers are using Ethereum to create next-gen applications that are set to replace centralized systems for finance and beyond. This distributed virtual computer is the reason for the makings of programmable money — crypto tokens that can be harnessed to operate self-executing smart contracts, which bring several ingenuine use cases. Therefore, tokens have become a chief aspect of Ethereum and other decentralized ecosystems, as they enable dApp functionality.
Smart contracts, the execution layer behind dApps, combined with crypto tokens, trigger the execution of use cases across the Ethereum network. While each dApp project on the network consists of native tokens that allow users to access the project’s utility, certain dApps like DEXs and wallets are known to interact with a large variety of tokens created and deployed on the Ethereum network. Of course, the level of compatibility amongst all tokens and dApps present on a network of this scale needs conventions bringing uniformity to how they are created and deployed. These conventions are referred to as the Ethereum token standards, more broadly referred to as ERCs, and native token standards similar to ERCs exist on other programmable blockchains.
Ethereum Token Standards
Token standards on Ethereum are sets of guidelines agreed upon by the ecosystem’s developer community for the seamless interaction between tokens and smart contracts. The ERC-20 token standard was the first standard for tokens, and it proposed a uniform interface on smart contracts for tokens of the ERC-20 kind, enabling their interoperability with a whole host of dApps as presently witnessed on the network.
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For example, popular DEXs on Ethereum allow for all ERC-20 tokens to be traded, swapped, and more because the tokens and smart contracts are developed according to the ERC-20 framework directing standards for compatibility. This ensures that newly developed ERC-20 tokens are implemented with ease on any DEX on the network. Without these standards, token interoperability on DEXs and other dApps like wallets, yield farms, etc., would not be possible, and DeFi as a novel financial system would not exist.
Token standards are a subset of the larger smart contract standards present on the Ethereum network, and the acceptance of these frameworks as standards by the community reflect its democratic governance process. The process begins with a proposal of features and processes known as an EIP (Ethereum Improvement Proposal). EIPs can be brought by anybody, and the core developers of the network vote on their approval and implementation as standards referred to as ERCs (Ethereum Request for Comments). ERCs set the framework for various aspects at the protocol application level, like package formats, name registries, and, more importantly, token standards, which are concerned with token interaction on dApp smart contracts. To understand broadly how token standards facilitate the growth of the Ethereum ecosystem, we need to look into the ones that brought about the most popular use cases.
Popular Ethereum Token Standards
Some of the token standards implemented by the Ethereum community led to the creation of revolutionary decentralized systems and applications like DeFi and NFTs. Consequently, similar standards were also implemented on other blockchain networks to bring about such use cases for their ecosystems. However, before we look into other chains and their token standards, here are some of Ethereum’s game-changing token standards.
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ERC-20 Token Standard
The ERC-20 token standard facilitates the development and deployment of fungible tokens on the Ethereum network. Fungible tokens refer to the kind that holds the same value and can be interchanged with each other, like two dollar bills. The tokens following this standard led to the development of several prominent applications in the decentralized world, like DEXs, stablecoins, and many more that are collectively referred to as DeFi. Of course, a lot of use cases beyond DeFi also exist because of this standard, like protocol governance, thanks to the ability to deploy governance tokens.
The ERC-20 standard was proposed in 2015 and implemented in 2017, which led to the rise of ICOs through which several projects started offering tokens to investors. These tokens harnessed through compatible smart contracts across the Ethereum network have allowed users to explore various use cases whose benefits have driven up blockchain adoption ever since.
ERC-721 Token Standard
While the ERC-20 token standard deals with fungible tokens, non-fungible ones, known as NFTs, were introduced to Ethereum’s ecosystem with the implementation of the ERC-721 token standard. These tokens are inherently different from one another and, unlike their counterparts, cannot be interchanged. This introduces a whole set of use cases to the blockchain, such as representing real-world aspects as tokenized assets on-chain.
NFTs drove up blockchain interaction with the utility they found in the world of art and collectables but are being used for other purposes like the representation of real estate ownership on the blockchain and more.
ERC-1155 Token Standard
The ERC-1155 token standard implements the best of the preceding token standards — ERC-20 and ERC-721. This standard allows smart contracts to leverage the use cases brought about by both ERC-20 and ERC-721 token standards, allowing fungible, non-fungible, and semi-fungible applications to be transacted on a single interface.
The ERC-1155 standard’s implementation is leading to the development of smart contracts that allow the network to scale. Faster and cheaper transactions are possible as the standard allows for various assortments of ERC-20 tokens and multiple ERC-721 NFTs in batches to be transacted in a single transaction by the execution of a single contract. While the previous standards brought great utility, the ERC-1155 token standard pushes dApp functionality beyond the limitations of its predecessors.
Ethereum Token Standards Analogues On Other Blockchains
While Ethereum is the most popular programmable blockchain, other leading blockchains also offer great use cases thanks to smart contract utilization. They, too, govern the development of tokens and their interaction with smart contracts by implementing token standards.
Binance Smart Chain
The Binance ecosystem is quite popular for all the applications and services it is known to provide. Users can indulge in various tools, from centralized exchanges to decentralized protocols operating on the underlying Binance Smart Chain. An extensive range of tokens and projects exist thanks to the ecosystem’s developer community, and token standards are implemented through proposals known as BEP (Binance Chain Evolution Proposal) to maintain composability between tokens and projects.
Binance’s popular token standards are the BEP-20 and BEP-721, which are analogous to Ethereum’s fungible and non-fungible token standards, respectively. The Binance Smart Chain, therefore, allows users to indulge in DeFi and NFT applications like Ethereum.
Tezos
Tezos, another popular blockchain known for its unique self-amending governance system, allows its community members to submit framework proposals called TZIPs (Tezos Interoperability Proposal). These proposals, when implemented as token standards through consensus, are referred to as FAs (Financial Applications).
Tezos’ token standard FA 1.2 refers to its fungible token standard corresponding to Ethereum’s ERC-20, and the FA2 token standard is more like the ERC-1155 that allows multi-token support, including non-fungible and semi-fungible tokens. Like on Ethereum, Tezos’ FA2 token interfaces are witnessing wider usage due to their ability to allow multiple token types to be transacted on smart contracts.
TRON
TRON is a highly scalable blockchain network that, at one point, was the third largest smart contract ecosystem in terms of TVL (Total Value Locked). Of course, like other programmable blockchains, TRON also implements token standards called TRC (TRON Request for Comment) to maintain token-smart contract compatibility across the network.
Token standard TRC-20 allows for fungible tokens to interact with smart contract interfaces across the TRON network, and the TRC-721 token standard is implemented for non-fungible token composability with smart contracts. Obviously, from their nomenclature, the TRC-20 token standard emulates the ERC-20 token standard, and TRC-721 emulates the ERC-721 token standard.
Token Standards Foster a Highly Diverse Yet Cohesive Ecosystem
Token standards are an essential aspect of development on blockchain ecosystems as they define the parameters along which applications like tokens and smart contracts should be built. This offers the interoperability needed for a decentralized ecosystem where liquidity can be moved through various protocols. Not only does this bring a larger scale of use cases to network users but it also incentivizes developers to build projects that are on the bleeding edge of innovation. With the development of more innovative projects, blockchain technology looks to replace legacy systems.
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