ERC-20 Token: What It Is, How It Works, and Why It Powers Most Crypto

When you hold a crypto token like UNI, LINK, or AAVE, you're likely holding an ERC-20 token, a standardized digital asset built on the Ethereum blockchain that follows a set of rules for transfers, balances, and approvals. Also known as Ethereum token, it’s the reason you can trade thousands of coins on decentralized exchanges without each one needing its own custom code. Think of it like a universal plug—any device that uses the same outlet can work together. ERC-20 makes sure every token behaves the same way, so wallets, exchanges, and DeFi apps know exactly how to handle them.

This standard isn’t just a technical detail—it’s what made DeFi possible. Without ERC-20, you couldn’t lend ETH on Aave, swap tokens on Uniswap, or stake your tokens in a liquidity pool. Every major DeFi protocol relies on ERC-20 because it lets developers build on top of a shared foundation. The same goes for NFT marketplaces that accept ERC-20 tokens as payment. Even when projects launch on other chains like BSC or Polygon, they often copy the ERC-20 rules because everyone already understands them. It’s the lingua franca of crypto tokens.

But not all tokens are created equal. Some ERC-20 tokens are backed by real assets, like USDC or DAI. Others are pure speculation, like meme coins with no utility. And then there are the ones that vanish overnight—no audits, no team, no code transparency. That’s why knowing the difference between a real ERC-20 project and a scam is critical. The standard doesn’t guarantee safety—it just guarantees compatibility. You still need to check who’s behind it, whether the contract is verified, and if the liquidity is locked.

Behind every ERC-20 token is a smart contract, a self-executing program on the Ethereum blockchain that automatically enforces the token’s rules, like how many can be minted or who can transfer them. This contract is what makes the token work without a central authority. But if the contract has a bug or a backdoor, your tokens could be stolen or frozen. That’s why audits matter. And why you should never send tokens to a contract you don’t understand.

ERC-20 isn’t perfect. It’s slow and expensive during peak times, which is why many projects now move to Layer 2s or other chains. But even on Solana or Arbitrum, most tokens still follow the ERC-20 logic because it’s familiar, tested, and trusted. It’s the default choice—not because it’s the best, but because it’s the one everyone knows.

What you’ll find below are real-world examples of how ERC-20 tokens are used—and misused. From DeFi platforms that rely on them to scams that pretend to be them. From tokens that changed markets to ones that disappeared without a trace. You’ll see how the same standard powers billion-dollar projects and dead meme coins alike. And you’ll learn how to tell the difference before you invest.