Mastering ERC-20 A Beginner's Guide to Token Standards

ERC‑20 is the foundation of most fungible tokens on Ethereum, and our guide on ERC‑20 fundamentals explains its mechanics in detail. Even if you are new to smart contracts, grasping the mechanics of this standard gives you a powerful toolset to create, audit, or interact with tokens across DeFi protocols, a topic we explore in our article on DeFi foundations.

Why ERC‑20 is a Core Protocol

ERC‑20 is the standard interface that tokens must implement in order to be recognized by wallets, exchanges, and most DeFi platforms. Because of this, tokens that implement the ERC‑20 standard can be freely swapped, lent, or staked in the Ethereum ecosystem. The result is a high degree of interoperability and composability across the entire DeFi stack.

Understanding the ERC‑20 Interface

Below is a quick reference to the most critical ERC‑20 components. Understanding each component is essential for writing, testing, and deploying a reliable token, a process detailed in the Token Contract Essentials guide.

Token Metadata

• name – A human‑readable label for the token (e.g., “Dai”).
• symbol – A short, all‑caps ticker used to identify the token on user interfaces (e.g., “DAI”).
• decimals – The number of decimal places that the token uses; a value of 18 is the most common and ensures compatibility with the vast majority of wallets and DeFi protocols. For proper handling of decimal precision, see the ERC‑20 fundamentals article.

ERC‑20 State Variables

• totalSupply – The total number of tokens in existence.
• balanceOf(address) – Returns the balance of a given address.
• allowance(owner, spender) – Returns the remaining amount that a spender is allowed to transfer on behalf of the owner. The allowance system is essential for interacting with DeFi protocols such as decentralized exchanges, lending platforms, or staking contracts, and we discuss this in the DeFi foundations article.

ERC‑20 Functions

ERC‑20 State Management

Below is a quick reference to how ERC‑20 handles token balances and allowances. A key point of emphasis—particularly regarding event emission—is covered in the Token Contract Essentials guide.

balances[account] = balances[account] + amount
allowances[owner][spender] = allowances[owner][spender] + amount

When a token is transferred, the contract must emit the Transfer event, and when an allowance is approved or updated, the Approval event must be emitted. These events are the glue that allows user interfaces and DeFi protocols to track token flows accurately. We highlight this requirement in the common pitfalls section of the Token Contract Essentials guide.

Common Pitfalls and How to Avoid Them

Not Setting Decimals Correctly

If you set decimals to a value other than 18, wallet balances and exchange listings can become inaccurate—see our ERC‑20 fundamentals guide for proper handling.

Forgetting to Emit Events

Failing to emit the Transfer or Approval events breaks front‑end analytics and can prevent a token from being recognized by many DeFi protocols. We highlight this in the Token Contract Essentials guide.

Using Deprecated Approve Patterns

The original approve/transferFrom pattern has a well‑known race‑condition. Modern implementations, such as those described in the Token Contract Essentials guide, use the increaseAllowance/decreaseAllowance helpers to mitigate this risk.

Not Accounting for Reentrancy

When a token interacts with other contracts—especially during transferFrom or approve callbacks—it can be vulnerable to reentrancy attacks. We cover how to guard against this in the DeFi foundations article.

Token Minting and Burning

Minting and burning are essential features for many token models, such as supply‑controlled or algorithmic stablecoins. The detailed mechanics, including safe math checks and access control, are explored in the Token Contract Essentials guide.

function mint(address account, uint256 amount) public onlyOwner {
    _mint(account, amount);
}

function burn(address account, uint256 amount) public onlyOwner {
    _burn(account, amount);
}

EIP‑2612 (Permit)

The EIP‑2612 permit extension allows gas‑less approvals via off‑chain signatures. Its implementation details, security considerations, and integration with the ERC‑20 standard are explained in the Token Contract Essentials guide.

Security Best Practices

When building or interacting with ERC‑20 tokens, follow the security guidelines outlined in the ERC‑20 fundamentals and DeFi foundations resources to mitigate common pitfalls such as integer overflows, underflows, and reentrancy vulnerabilities.