Interoperability: Token standards play a critical role in ensuring that different products built using the same standard can interact and work together. By issuing tokens according to a standard, new tokens can remain compatible with existing platforms and applications, including wallets. This enables easier trading of multiple cryptocurrencies and the use of a single wallet to hold numerous cryptocurrencies.
Composability
Token standards allow developers to reuse existing components to create new products, saving time on basic functionality and giving developers more time to experiment and innovate.
Efficiency
Token standards facilitate the interaction between smart contracts, allowing for more efficient monitoring of created tokens. Essential functions like address retrieval and token balances come with token standards, such as ERC-20 and BEP-20, enabling the use of interfaces like the Contract Application Binary Interface (ABI) to track token transfers and other data.
Common Token Standards in Crypto and DeFi
BEP-20: BEP-20 is a token standard on the BNB Smart Chain (BSC) that enables the launch of various tokens, including peggy coins, utility tokens, stablecoins, and more. The BEP-20 standard introduces features like blacklisting, minting, and pausing token burns and includes essential functions like TotalSupply, BalanceOf, Transfer, TransferFrom, Approve, and Allowance.
ERC-20: ERC-20 is a token standard proposed by Fabian Vogelsteller in 2015 that outlines common rules for developing fungible assets that are interchangeable with each other. It has been used to design virtual tokens, staking tokens, and virtual currencies. Similar to BEP-20, ERC-20 includes essential functions like TotalSupply, BalanceOf, Transfer, TransferFrom, Approve, and Allowance but is used on the Ethereum blockchain.
ERC-721: ERC-721 is a token standard for non-fungible tokens (NFTs) on the Ethereum blockchain that ensures global uniqueness of a tokenId. Functions include token transfer, current balance, total supply, and being globally unique.
ERC-1155: ERC-1155 is a multi-token standard that allows for the creation of different types of digital assets, including utility tokens and NFTs. Features include token batch functionalities like batch transfer, batch balance, batch approval, and NFT support for tokens with a supply of only one.
Limitations of Token Standards
Tokens created with different standards are unlikely to interact well with each other due to the different rules governing the token standards in the industry. Tokens developed using different standards may not exist on the same platform or communicate or be traded with each other. To address this limitation, the industry has introduced wrapped tokens.
