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Analyzing Market
Glossary

ERC-20

ERC-20 is the technical standard that most fungible (interchangeable) tokens on Ethereum follow. It defines a common set of functions every compliant token implements.

How it works

The standard specifies a shared interface — how to check a balance, transfer tokens, and approve another contract to spend on your behalf. Because every ERC-20 token exposes the same functions, any wallet, exchange or DApp can support a new token automatically without custom code. The token itself is just a smart contract that tracks balances. The “approve” function is worth understanding: granting a contract an allowance lets it move your tokens, so revoking unused approvals is a common security habit.

Why it matters

This shared standard is a big part of why Ethereum became the hub for tokens: interoperability is built in. Most stablecoins, governance tokens and utility tokens on Ethereum and compatible chains are ERC-20 tokens.

Example

When a new project launches a token on Ethereum, it is almost always issued as an ERC-20 contract.

ERC-20: Frequently Asked Questions

Why does the ERC-20 standard matter?
Because every compliant token exposes the same functions, any wallet, exchange, or DApp can support a new ERC-20 token automatically without custom code. This built-in interoperability is a big reason Ethereum became the hub for tokens. Most stablecoins, governance tokens, and utility tokens on Ethereum and compatible chains follow the ERC-20 standard.
What does the ERC-20 "approve" function do?
The approve function lets you grant another contract an allowance to move a set amount of your tokens on your behalf, which many DeFi apps require to function. Because that permission persists, an unused or overly large allowance is a risk if the contract is compromised. Revoking approvals you no longer need is a common security habit.
Is an ERC-20 token an actual coin?
An ERC-20 token is not a separate blockchain or coin. It is a smart contract deployed on Ethereum that tracks balances and implements the standard's shared functions, such as checking a balance, transferring tokens, and approving spending. When a new project launches a token on Ethereum, it is almost always issued as an ERC-20 contract.
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