Key Takeaways
Token standards are sets of rules encoded in smart contracts that define how crypto tokens are created, transferred, and interact with other applications on a blockchain.
Ethereum's ERC standards (ERC-20, ERC-721, ERC-1155) are the most widely adopted and also used on EVM-compatible chains like Avalanche, Polygon, and Arbitrum.
Other major blockchains have their own standards: BNB Smart Chain uses BEP-20, Solana uses the SPL standard, and Bitcoin introduced BRC-20 and Runes in 2023-2024.
Because token standards differ between blockchains, moving assets across chains requires bridging solutions like wrapped tokens or omnichain protocols.
Understanding token standards helps explain why a token automatically works with existing wallets, exchanges, and decentralized applications without requiring custom code for each one.
Introduction
Most of the tens of thousands of cryptocurrencies that exist today were built using the same kind of blueprint. These blueprints are called token standards, and they define the core functionality and properties of blockchain tokens.
Token standards work similarly to universal specifications in everyday technology. Just as a USB standard ensures your mouse works with any compatible computer, a token standard ensures that a newly created token works with existing wallets, exchanges, and decentralized applications (DApps) without those platforms needing to write custom code for it.
This article explains what token standards are, why they matter, and how different blockchains handle them.
Why Do We Need Token Standards?
1. Interoperability
The main benefit of standards is compatibility. When a developer issues a token that follows a standard, it can automatically interact with existing infrastructure. For example, because the stablecoin USDT follows ERC-20, it works on DEXs, wallets, and exchanges without those platforms writing custom code for it.
2. Composability
In decentralized finance (DeFi), composability allows developers to build new products using existing components. This concept is sometimes called "money legos." Because developers know exactly how a standard token behaves, they can build lending, borrowing, and trading protocols that automatically support any token following that standard.
3. Efficiency
Standards prevent developers from repeating work that has already been done. Instead of writing a smart contract from scratch to handle basic functions like transfers or balance checks, developers can use existing, well-tested libraries based on established standards. This reduces the risk of bugs and speeds up development.
Common Ethereum Token Standards (EVM)
Because Ethereum was the first programmable blockchain, its "Ethereum Request for Comments" (ERC) standards set the foundation for the industry. These standards also apply to EVM-compatible chains like Avalanche, Polygon, and Arbitrum.
ERC-20 (fungible tokens)
Proposed in 2015, ERC-20 is the industry standard for fungible tokens. "Fungible" means interchangeable: one unit of a token has the same value and use as another unit, the same way one dollar bill is equivalent to any other dollar bill.
Use cases: Stablecoins like USDT and USDC, governance tokens, and utility tokens.
Key functions: Allows checking total supply, checking balances, and transferring tokens between addresses.
ERC-721 (non-fungible tokens)
ERC-721 is the standard that enabled the growth of non-fungible tokens (NFTs). Unlike ERC-20, each ERC-721 token is unique. Every token has a specific tokenId within the contract, making it distinguishable from every other token in the same collection.
Use cases: Digital collectibles, certificates, in-game assets, digital identity, and ownership records.
Key distinction: While 1 ETH is always worth 1 ETH, each ERC-721 token can have a different value based on its unique traits.
ERC-1155 (the multi-token standard)
ERC-1155 was designed to address the inefficiencies that come from using ERC-20 and ERC-721 separately. It allows a single contract to manage both fungible and non-fungible tokens at the same time.
Semi-fungibility: ERC-1155 suits gaming applications well. A game might have gold coins (fungible), iron swords (semi-fungible, with 1,000 identical copies), and a legendary shield (unique NFT). ERC-1155 contracts can handle all of these in one place.
Batch transfers: ERC-1155 can send multiple different token types in a single transaction, which lowers gas costs compared to earlier standards.
Standards Beyond Ethereum
While Ethereum set the precedent, other major blockchains have developed their own standards to suit their specific architectures.
BNB Smart Chain: BEP-20
BEP-20 is the primary token standard on BNB Smart Chain. It functions almost identically to ERC-20 but is optimized for BNB Smart Chain's speed and lower transaction fees. BEP-20 also supports pegged tokens, which are wrapped versions of assets from other chains (like Bitcoin or Ethereum) brought into the BNB Chain ecosystem.
Solana: SPL (Solana Program Library)
Solana handles tokens differently from EVM chains. On Ethereum, every token is a separate smart contract. On Solana, there is a single "Token Program" within the Solana Program Library (SPL), and new tokens are created as new accounts within that program.
This architecture allows Solana to process transactions in parallel, contributing to its high throughput. The SPL standard covers both fungible tokens and NFTs, without needing separate standards like ERC-20 and ERC-721.
Bitcoin: BRC-20 and Runes
For most of its history, Bitcoin was not considered a platform for tokens. This changed in 2023 with the introduction of Ordinals, which allowed data to be inscribed onto individual satoshis.
BRC-20: An experimental standard for creating fungible tokens directly on Bitcoin using text inscriptions. BRC-20 tokens use the Bitcoin blockchain as a ledger to track creation and transfers.
Runes: A more efficient protocol for issuing fungible tokens on Bitcoin, launched in April 2024. Runes was designed to reduce the on-chain data footprint that BRC-20 inscriptions produced.
Solving the Limitation: Cross-Chain Compatibility
A major limitation of token standards is that they are generally confined to their own blockchain. An ERC-20 token on Ethereum cannot natively exist on Solana or BNB Smart Chain.
Wrapped tokens
Traditionally, this was addressed through wrapped tokens. To move Bitcoin to Ethereum, BTC is locked in a vault and an equivalent amount of Wrapped BTC (WBTC) is minted as an ERC-20 token. While this approach works, the bridges that hold these locked assets have historically been targets for exploits.
Omnichain fungible tokens
Some cross-chain interoperability protocols, such as LayerZero and Chainlink CCIP, take a different approach. They allow tokens to move between chains natively through secure messaging systems, without relying on centralized vaults or bridges. This reduces the custody risk associated with traditional wrapping.
In 2023, ERC-6551 was also introduced on Ethereum, allowing NFTs to function as on-chain wallets. This standard enables NFTs to hold tokens, other NFTs, and interact with DApps directly, expanding what individual tokens can represent and do.
FAQ
What is a token standard?
A token standard is a set of rules that defines how a crypto token behaves on a blockchain. It specifies functions such as how tokens are transferred, how balances are checked, and how approvals work. When a token follows a standard, it becomes automatically compatible with wallets, exchanges, and applications that support that standard.
What is the difference between ERC-20 and ERC-721?
ERC-20 is a standard for fungible tokens, meaning all units of the token are identical and interchangeable. ERC-721 is a standard for non-fungible tokens (NFTs), where each token is unique and has a distinct identifier. ERC-20 is used for currencies and utility tokens, while ERC-721 is used for collectibles, certificates, and digital ownership records.
What is ERC-1155?
ERC-1155 is a token standard that can handle both fungible and non-fungible tokens within a single smart contract. It also supports batch transfers, allowing multiple token types to be sent in one transaction. ERC-1155 is particularly useful for games that need to manage many different in-game items with varying levels of scarcity.
How do tokens move between different blockchains?
Because token standards are specific to each blockchain, moving assets across chains requires bridging mechanisms. The traditional method uses wrapped tokens, where the original asset is locked and a representative token is minted on the destination chain. Newer omnichain protocols allow tokens to move across chains through secure messaging without holding assets in centralized vaults.
What is BEP-20?
BEP-20 is the primary token standard on BNB Smart Chain. It works similarly to Ethereum's ERC-20 standard but is optimized for BNB Smart Chain's faster transaction speeds and lower fees. Many tokens on BNB Smart Chain, including pegged versions of assets from other blockchains, follow the BEP-20 standard.
Closing Thoughts
Token standards are the shared rules that make the crypto ecosystem functional and interoperable. Whether it's the ERC-20, SPL, or BRC-20, these blueprints allow wallets, exchanges, and applications to work with different tokens without custom integrations.
Further Reading
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