ERC Token Standards on Ethereum

A brief exploration of Ethereum token standards

By Keval Sayar

Updated April 18, 2023 • 15 min read

Summary

An ERC token standard is a framework for programming how a token launched on Ethereum will function. ERC-20 is surely the most widely used token standard, but here we explore various ERC tokenization standards that cater to improving the overall functionality of the Ethereum ecosystem via innovative approaches to tokenization.

Contents

• Introduction to ERC Token Standards
• What is ERC-20?
• What is ERC-865?
• What is ERC-721?
• What is ERC-165?
• What is ERC-725?
• What Is ERC-223?
• What Is ERC-777?
• What Is ERC-1155?
• What is ERC-1400 & ERC-1404?
• What Is ERC-1337?
• What is ERC-4626?
• Future of ERC Token Standards

Introduction to ERC Token Standards

The crypto ecosystem comprises two main types of blockchain-based digital assets: cryptocurrencies and tokens. Cryptocurrencies are the native assets of blockchains, while tokens represent units of value developed on top of pre-existing blockchain networks. For example, the Ethereum network’s native cryptocurrency is ether (ETH), and some of the thousands of other tokens the network supports are USDT, BUSD, etc.

Tokenization standards define rules and specifications that have evolved over time, facilitating speed and efficiency for developers to create new tokens.

Based on the experience and innovation of the decentralized Ethereum community, anyone can write and submit an Ethereum Improvement Proposal (EIPs) to create a new tokenization model. These EIPs are offered as Ethereum Request for Comments (ERCs) and potentially seek feedback from community members before moving on to a full-fledged tokenization standard.

 

Here, we will discuss some of those ERC standards and how they’re aimed at furthering the growth and development of the Ethereum network.

What is ERC-20?

The ERC-20 introduces a standard for Fungible Tokens, in other words, they have a property that makes each Token be the same (in type and value) as another Token.

Some of the functionalities that ERC-20 provides are:

• Transfer of tokens from one wallet address to another.
• Get the current token balance of a particular wallet address.
• Get the total supply of the token present on the blockchain network.
• Approve a third-party address to spend tokens on your behalf.

What is ERC-865?

As a crypto user, you might not be surprised to find out that miner fees in Ether are required when you try to transfer tokens.

ERC 865 intends to make it easier for people new in crypto to get used to it and hence proposes that mining fees be paid using the token they want to transact through the blockchain network.

What is ERC-721?

The ERC-721 introduces a standard for NFT, and it so happens that this type of Token is unique and can have different values than other Tokens from the same Smart Contract, maybe due to its age, rarity, or even its visual.

What is ERC-165?

ERC-165 is The Pillar of Support for ERC 721.

To interact with tokens based on other standards, smart contracts need to implement specific interfaces. As a result, they need to be able to identify how they can interact with the contract.

As well as standardizing interface identification, ERC 165 defines a method for this.

What is ERC-725?

ERC-725 is a Blockchain-based identity standard developed by Fabian Vogelsteller, the developer of the well-known ERC-20 standard.

Smart contracts defined by ERC-725, which defines proxy contracts, can have multiple keys and be associated with different smart contracts. Individuals, machines, and objects can all be defined with identity smart contracts. Users should own their digital identity instead of letting centralized organizations control it. Data breaches and the illegal sale of user data have been among the disadvantages of centralized identity in recent years.

What Is ERC-223?

ERC-223 was conceived to help prevent tokens from accidentally becoming permanently lost due to mistakes made when transferring tokens between wallets or smart contracts since the ERC-20 token standard noticeably lacks any sort of recovery mechanism for tokens sent to incompatible addresses or smart contracts.

For example, if an ERC-20 token is transferred to an ERC-721 smart contract or a smart contract that does not support ERC-20 tokens, the token will not be revoked and returned, it will be lost forever. These events happen more often than many realize, and tokens worth millions of dollars are lost forever.

The ERC-223 standard proposes added token recovery functionality that would enable ERC-223 smart contracts to recognize incoming transactions and return tokens to their original sender in case they are accidentally sent to incompatible smart contracts.

By design, ERC-223 is backwards compatible with ERC-20, and therefore would support all existing and functional ERC-20 contracts and services.

What Is ERC-777?

Like ERC-223, ERC-777 is characterized by efforts to improve upon the widespread ERC-20 tokenization standard platform, featuring the addition of several advanced features for token interaction.

First, ERC-777 entails the creation of a new classification of addresses known as operators (smart contracts), which can send tokens on behalf of another address, which accelerates the token transactions from a token holder’s wallet. This framework is also designed to allow token holders to easily authorize and revoke permission from operators who might send and receive tokens on their behalf.

Another advanced feature of ERC-777 tokens is the ability to send and receive hooks, which enable smart contracts, addresses, and operators to be made aware of incoming transactions and control and reject which tokens they send and receive. By deploying hooks to accept or reject certain types of tokens, transaction recipients may limit the occurrence of incompatible token type transfers which might otherwise result in tokens becoming lost.

The ERC-777 tokenization standard is backwards compatible with ERC-20 and builds upon its functionality rather than rendering the standard obsolete.

What Is ERC-1155?

The ERC-1155 multi-token standard presents an effective smart contract interface that enables them to manage any amount of fungible and non-fungible tokens. Usually, ERC-20 & ERC-721 tokens, and other token types are managed by their own respective smart contracts, however, ERC-1155 is designed to allow for any number of token types to be supported and managed by a single smart contract, which grants it the potential to greatly reduce computational overhead for dApps comprising of different types of tokens.

For example, the rise of blockchain-based gaming has introduced the possibility for game developers to create potentially thousands of different token types, both fungible and non-fungible, to fulfil various in-game functionalities.

ERC-1155 smart contracts can support all major Ethereum standards in one convenient location.

What is ERC-1400 & ERC-1404?

Security Tokens, which represent real-world assets on the blockchain, were specifically created according to the ERC-1400 specification. This standard enables all these features, as well as transfer material management, document library management, and forced transfers.

If Security Tokens are issued according to the ERC-1404 standard, they may include transfer restrictions to comply with regulatory requirements. A whitelist can be developed, for instance, based on this standard.

What Is ERC-1337?

ERC-1337 is a proposed ERC token standard designed to accommodate blockchain-based recurring subscription models to access content. Monthly subscription models are widely used by providers of popular web-based services such as streaming platforms, cloud-based storage etc. ERC-1337 has been presented to help bring the traditional recurring payment structure to the world of blockchain.

ERC-1337 is structured to enable users to sign transaction input data that allows merchants to store the customer’s signature to retrieve recurring payments in the form of pre-signed transactions according to a set schedule. So, for example, a yearly subscription that’s divided into monthly payments would hence require 12 pre-signed transactions.

ERC-1337 hence focuses on enabling Ethereum wallets to sign recurring payment smart contracts, as well as providing an accessible user interface for managing subscriptions on the blockchain.

What is ERC-4626?

ERC-4626 is a standard to optimize and unify the technical parameters of yield-bearing vaults. It provides a standard API for tokenized yield-bearing vaults that represent shares of a single underlying ERC-20 token. ERC-4626 also outlines an optional extension for tokenized vaults utilizing ERC-20, offering basic functionality for depositing, withdrawing tokens, and reading balances.

Lending markets, aggregators, and intrinsically interest-bearing tokens help users find the best yield on their crypto tokens by executing strategies and selecting the optimal DeFi protocol for them. Yield-bearing tokens provide an efficient way to earn passive income on idle crypto assets and are essential components of the DeFi ecosystem.

Future of ERC Token Standards

ERC token standards have played a crucial role in the growth and development of the Ethereum ecosystem. They have enabled the creation of various types of tokens, each catering to different use cases and requirements.

As the Ethereum network continues to evolve, it is likely that new token standards will be proposed and implemented to address emerging needs and challenges in the blockchain space. These new standards may introduce additional functionalities, improve interoperability, enhance security, or enable new types of tokenization.

Moreover, as the adoption of blockchain technology expands beyond cryptocurrencies and into various industries such as finance, supply chain, gaming, and more, there will be a demand for specialized token standards that align with the specific requirements and regulations of these industries.

Overall, the future of ERC token standards looks promising, and they will continue to play a vital role in shaping the decentralized economy and facilitating innovation on the Ethereum network.