Tokens are an essential part of the crypto and blockchain world, and token standards facilitate the creation of tokens under a standardized framework that facilitates their use and compatibility in blockchain ecosystems.
Let’s explore token standards, how they work, their importance, uses, and the main ones you should know about.
What are token standards?
A token is a unit of value that represents something else, such as a physical object or a digital file. Tokens can be created through smart contracts running on a blockchain and are often used to facilitate transactions and interactions within a particular community or platform.
Token standards are a basic set of mechanisms and rules designed to facilitate the issuance and operation of tokens created on a blockchain, such as Ethereum, BNB Chain, or Solana. These tokens can be fungible, utility, governance, and stablecoins, as well as semi-fungible, non-fungible, or NFTs.
Token standards are the rules under which a token must be created. Designers must design it using specific parameters and information that will help in its creation and implementation with smart contracts through application programming interfaces (APIs) by the developers of an application or project.
This “template” of standards generally defines how tokens are created, transferred, stored, and used on a blockchain network, as each blockchain has its own token standards.
How Token Standards Work
There are different types of standards, and their operation will be particular to each blockchain and token design. Still, developers generally use these specifications to program smart contracts that automate the issuance and management of tokens according to the rules established by the standards.
These rules include technical aspects, such as data format, supply, format and transfer limits, availability in wallets, token burning mechanism, among other established specifications.
In this way, designing tokens with the same set of rules and parameters guarantees full compatibility in interactions within a blockchain ecosystem and its participants.
Token standards can be designed by the developers of a blockchain infrastructure, the community, and developers independently or tied to a protocol.
Utility and importance of token standards
Token standards are a common language for smart contracts within a protocol, thus offering a series of standardized key benefits for the operation between wallets, protocols and users regarding the issuance, transfer and security of tokens.
By facilitating the token creation process, standards enable benefits such as interoperability between different tokens, wallets, decentralized applications (Dapps), crypto providers, and cryptocurrency exchanges, so their relevance is also understood from the point of view of compatibility.
The importance of token standards lies not only in the formation of these agreed-upon mechanisms for implementing tokens but also in the promotion of new interactions, use cases, and applications, something precious due to the constant dynamics and evolution of the blockchain sector.
In this way, token standards constitute a fundamental layer that enhances the functionalities of the crypto ecosystem. Thanks to them, digital assets can be created, exchanged, and managed in an automated and reliable way.
Examples of token standards
There are several popular token standards, each with its own characteristics and use cases within a blockchain. Some of the most notable ones are:
ERC-20
As the crown jewel of the Ethereum network’s token standards, the ERC-20 standard facilitates the creation of fungible or interchangeable tokens within the blockchain, be it utility tokens, stablecoins, and governance tokens.
- Examples of ERC-20 tokens: Uniswap (UNI), Chainlink (LINK), Lido DAO (LDO), Tether (USDT), Dai (DAI) and Optimism (OP)
ERC-721
Without a doubt, ERC-721 has become the standard for non-fungible tokens or NFTs on Ethereum.
ERC-721 allows for creating unique and indivisible tokens, so its existence unlocked the unique features behind digital asset ownership and benefits such as programmability and digital scarcity of NFTs.
Examples of ERC-721 standard implementations include projects such as NFT digital collectibles like Bored Ape Yacht Club (BAYC) or Cryptopunks, blockchain games like Axie Infinity, decentralized domain names like Ethereum Name Service (ENS), decentralized metaverses like Decentraland, and Proof-of-Attendance Protocols (POAP).
ERC-1155
The ERC-1155 standard changes the perspective between the fungibility and non-fungibility of tokens by allowing with its implementation the creation of tokens from a multi-token vision, since it allows the creation of both fungible and non-fungible tokens, as well as semi-fungible tokens.
Although less popular and widely used than the previous two, ERC-1155 is a standard that combines and optimizes the design to address the limitations of ERC-20 and ERC-721 tokens.
So far, the most representative use cases for the ERC-1155 standard include NFTs, games, and virtual worlds, with projects like Enjin and The Sandbox taking advantage of their benefits.
BEP-20
BEP-20 is the preferred standard for tokens on the BNB Chain. It is similar to Ethereum’s ERC-20 standard but adapted for this blockchain ecosystem thanks to its compatibility with the Ethereum Virtual Machine (EVM).
In this way, BEP-20 facilitates the creation of interchangeable tokens, such as PancakeSwap (CAKE), Cream (CREAM), and Trust Wallet Token (TWT).
Solana Programmable Token (SPL)
The SLP standard is used to create fungible and non-fungible tokens on the Solana blockchain. It is designed with a flexible approach to the features available in the Solana Program Library. Raydium (RAY) and Saber (SBR) are two examples of Solana SLP tokens.
TRC-20
Following the ERC-20 and BEP-20 standards, the TRC-20 standard is used to create fungible tokens on the TRON blockchain. It is fully compatible with ERC-20. TRON (TRX), USDD, and JUST (JST) are some examples of TRC-20 tokens.
