Beginner’s Guide: What is ERC20? – Blockchain Council

If we look closer, we find that the Ethereum Blockchain has seen the introduction of a sizable number of ERC20 tokens. The following are the best:

Tether (USDT)

Tether, which was launched in 2014, is a stablecoin that operates on the Ethereum Blockchain as an ERC-20 token. It was designed to provide users with the benefits of a cryptocurrency, such as fast transactions and low fees, while also offering a stable value that is not subject to the volatility of other cryptocurrencies.

Tether’s value is pegged to the US dollar at a 1:1 ratio, meaning that one Tether token is equal to one US dollar. The company behind Tether claims that it achieves this peg by holding an equivalent amount of US dollars in reserve accounts. In other words, for every Tether token that is in circulation, there is a corresponding US dollar held in reserve. This reserve account system ensures that the value of Tether remains stable, even during periods of market volatility.

Tether is primarily used as a trading pair on cryptocurrency exchanges, and it is commonly used to move funds between exchanges quickly and easily. For example, if a trader wants to move funds from one exchange to another, they can convert their cryptocurrency holdings to Tether, transfer the Tether to the other exchange, and then convert the Tether back into the desired cryptocurrency.

Despite its popularity, Tether has been the subject of controversy and skepticism. One of the main concerns is whether the company behind Tether, Tether Limited, actually holds the amount of US dollars in reserve that it claims to. The company has been accused of lacking transparency, and some critics have suggested that Tether could be used to manipulate the cryptocurrency markets.

In response to these concerns, Tether has attempted to provide more transparency and has engaged in efforts to have its reserves audited by a third-party accounting firm. However, as of yet, no audit has been completed.

Despite the controversy surrounding Tether, it remains an important part of the cryptocurrency ecosystem. It is widely used as a stablecoin, and many traders and investors rely on it as a way to move funds between exchanges quickly and easily. As the cryptocurrency market continues to grow, Tether is likely to remain a popular choice for those who value stability and ease of use.

Binance (BNB)

Binance Coin (BNB) is another ERC-20 token. Launched in 2017 by the world-renowned cryptocurrency exchange Binance, BNB has quickly become one of the most popular cryptocurrencies on the market.

BNB has a wide range of uses within the Binance ecosystem, including reduced trading fees and payment for services such as listing fees and token sales. Binance has also launched a decentralized exchange (DEX) that operates on the Binance Chain, which is powered by BNB.

One of the key features of Binance Coin is its deflationary mechanism. Binance uses 20% of its quarterly profits to buy back and “burn” (or destroy) BNB tokens. This helps to reduce the overall supply of BNB, increasing its value over time. In fact, Binance plans to continue burning BNB tokens until 50% of the total supply is destroyed.

Since its launch, Binance Coin has undergone several upgrades and improvements. In 2019, Binance launched Binance Chain, a Blockchain network designed specifically for high-speed trading. Binance Coin was then migrated to the Binance Chain, becoming the native cryptocurrency of the new network.

Binance also launched Binance Smart Chain in 2020, a parallel chain to the Binance Chain that enables developers to build decentralized applications (dapps) and smart contracts. Binance Coin is also used as the main fuel for transactions on the Binance Smart Chain.

The popularity of Binance Coin has led to its inclusion in several major cryptocurrency exchanges and wallets. Additionally, Binance Coin has been accepted as payment by several merchants and service providers, including travel booking sites and VPN services.

Uniswap (UNI)

Uniswap is a decentralized cryptocurrency exchange protocol that operates on the Ethereum Blockchain. UNI is the native token of the Uniswap platform and is an ERC-20 token.

The Uniswap protocol operates on an automated market maker (AMM) model. This means that there is no order book or centralized party setting the price for trades. Instead, liquidity providers deposit funds into smart contracts, which are then used to create trading pairs. These smart contracts automatically calculate the price of each token based on its supply and demand.

One of the key benefits of Uniswap is its accessibility. Anyone can list a new token on Uniswap simply by creating a liquidity pool. This means that users can trade a wide variety of tokens that may not be available on other centralized exchanges.

Uniswap has gained significant popularity in the decentralized finance (DeFi) space due to its ease of use and low fees. Users can trade directly from their Ethereum wallets without having to go through a centralized exchange. This eliminates the need for trust in a third party and reduces the risk of hacking or fraud.

Another advantage of Uniswap is that it provides users with governance rights. Holders of UNI tokens can vote on proposals to change the protocol or allocate funds from the community treasury. This means that the Uniswap community has a say in how the platform operates and evolves over time.

Aave (AAVE)

AAVE is the native ERC-20 token of the Aave protocol. Token holders can use AAVE to participate in the platform’s governance process, which allows them to propose and vote on changes to the protocol, as well as earn rewards for contributing to the platform’s growth and success.

The Aave governance process is designed to be as decentralized as possible, with decisions made by a community of token holders rather than a centralized authority. This helps to ensure that the platform remains truly decentralized and that decisions are made in the best interest of the entire community.

One important aspect of Aave governance is the Safety Module, which is a smart contract that holds a portion of all AAVE tokens in circulation as collateral. The Safety Module is designed to protect against the risk of protocol failures or hacks, and it can be used to compensate users in the event of any losses.

What makes Aave unique is its use of a smart contract-based system that allows users to borrow and lend assets without the need for a centralized intermediary. Instead, users interact directly with the smart contract, which automatically matches borrowers and lenders based on predetermined terms and conditions.

One of the key features of the Aave protocol is its use of over-collateralization, which means that borrowers are required to deposit more collateral than the amount they are borrowing. This ensures that lenders are protected from potential losses due to borrower default.

In addition to its lending and borrowing features, Aave also offers a variety of other tools and services to its users, including flash loans, which allow users to borrow funds without the need for collateral as long as the loan is repaid within the same transaction.

Another unique aspect of Aave is its use of a variable interest rate system, which adjusts in real time based on market conditions and supply and demand dynamics. This allows Aave to offer competitive interest rates to both borrowers and lenders, while also ensuring that the platform remains financially sustainable over the long term.

Users can stake AAVE tokens to earn a portion of the platform’s revenue, which is generated through fees on lending and borrowing transactions. Staking rewards are distributed proportionally based on the amount of AAVE staked by each user, with higher rewards for longer staking periods.

Chainlink (LINK)

LINK is an ERC-20 token that operates on the Ethereum Blockchain, but what sets it apart from other tokens is its purpose. LINK is a decentralized oracle network that connects smart contracts to real-world data. It’s designed to provide a secure and reliable way for smart contracts to interact with external data sources, APIs, and payment systems.

The Chainlink protocol has gained significant traction in recent years due to its ability to provide secure, reliable, and tamper-proof data feeds to smart contracts. The decentralized nature of the network means that there is no single point of failure, making it more resilient than centralized alternatives.

One of the key benefits of the Chainlink protocol is its ability to connect to multiple external data sources. This means that smart contracts can access data from a wide range of sources, increasing the accuracy and reliability of the data used in the contract. For example, a smart contract that requires real-time weather data to execute could access data from multiple weather APIs to ensure that the data is accurate and reliable.

The use cases for LINK are virtually limitless. Some of the most promising use cases include decentralized finance (DeFi), supply chain management, insurance, and gaming. In the DeFi space, LINK is used to provide accurate price data for assets, as well as to trigger the execution of smart contracts based on external events, such as price changes or liquidations. In supply chain management, LINK can be used to provide real-time tracking of goods and ensure that they are not tampered with during transport. 

In insurance, LINK can be used to trigger payouts based on real-world events, such as natural disasters. In gaming, LINK can be used to provide verifiable randomness for games and lotteries. The LINK token is also used as a form of payment to incentivize node operators to provide the external data required by smart contracts.

Conclusion

Many in the Blockchain development industry believe that ERC20 is constrained in some way, despite the fact that new coins created to its specifications have received considerable adoption. As a result, various alternate token standards have been proposed since the introduction of ERC20. ERC223, for example, tries to address an issue with ERC20’s approval and transfer components.

A third option is ERC621, which has the same fundamental functions as ERC20 but adds the ability to increase or reduce the total quantity of tokens. It is possible for a token holder to authorize a third party’s expenditures using ERC 827. ERC20 serves as the foundation for many of these new protocol proposals.