What Is ERC-20? Token Standards Explained for Developers

Frequently Asked Questions

01.What is the primary purpose of the ERC-20 standard?

ERC-20 provides a standardized interface for fungible tokens on Ethereum, defining six mandatory functions and two events. This common interface ensures any wallet, DEX, or protocol can interact with any ERC-20 token without prior coordination, making tokens instantly liquid across the ecosystem.

02.What is the difference between ERC-20 and ERC-721?

ERC-20 is for fungible tokens where every unit is identical (like USDC or UNI). ERC-721 is for non-fungible tokens where every unit is unique (NFTs). ERC-20 dominates by liquidity and transaction volume, powering stablecoins, governance tokens, and DeFi protocol assets.

03.What is the Infinite Approval risk in ERC-20?

An infinite approval grants a smart contract permission to spend the maximum possible uint256 value of your tokens on behalf of a spender. If a dApp holding your infinite approval is ever compromised, attackers can drain your full balance in a single transaction. Use exact-amount approvals or ERC-2612 Permit to mitigate this risk.

04.How does EIP-7702 change ERC-20 token interactions?

EIP-7702, activated in Ethereum's Pectra upgrade on May 7, 2025, allows EOA wallets to temporarily adopt smart contract code. For ERC-20 interactions this means users can batch approvals and transfers in a single transaction, eliminating the two-step approve-then-execute pattern and enabling gasless sessions sponsored by dApps.

05.Do I always need 18 decimals in an ERC-20 token?

18 decimals is the convention matching Ethereum's Wei unit, and the majority of tokens follow it. However, USDC uses 6 decimals and WBTC uses 8 to match their underlying asset precision. Non-standard decimals require explicit handling in DeFi integrations to prevent precision loss or rounding vulnerabilities.