ERC-20, short for Ethereum Request for Comment 20 (also known as EIP-20), is a technical standard for creating fungible tokens on the Ethereum blockchain. “Fungible” means each unit is interchangeable with another unit of the same token, like one dollar is equivalent to any other dollar. ERC-20 defines a shared set of rules that token smart contracts follow, so wallets, exchanges, and decentralized applications (dApps) can support many tokens without custom integrations for each one.
How the ERC-20 standard works
An ERC-20 token is implemented as a smart contract that tracks balances and total supply, and exposes a consistent interface for moving tokens between addresses. Common functions include transferring tokens, approving a third party to spend tokens on your behalf, and checking balances. In practice, your wallet does not “hold” ERC-20 tokens the way it holds a physical object, it reads your balance from the token’s smart contract and uses your private key to authorize transactions.
This standardization is crucial for interoperability. If a token follows ERC-20 rules, a compatible wallet can display it, and an exchange can integrate deposits and withdrawals with predictable behavior. It also enables composability in DeFi, where lending protocols, decentralized exchanges, and payment apps can interact with many tokens through the same basic methods.
Common uses and real-world context
Many stablecoins, governance tokens, and utility tokens are ERC-20, meaning they live on Ethereum and rely on Ethereum’s security and transaction processing. For example, a decentralized exchange can swap two ERC-20 tokens by calling standardized transfer mechanisms, and a lending protocol can pull repayments using an approved spending allowance.
ERC-20 matters because it made Ethereum token issuance and integration broadly accessible, helping fuel the growth of token economies and the wider ecosystem of wallets, exchanges, and DeFi applications.