Definition
ERC-20 (Ethereum Request for Comment 20) is the technical specification that defines the standard interface for fungible tokens on the Ethereum blockchain. Proposed by Ethereum developer Fabian Vogelsteller in November 2015 and formalized as an official Ethereum standard in 2017, ERC-20 specifies six mandatory functions and two optional functions that any compliant token contract must implement, ensuring that tokens issued by different projects can be automatically recognized and handled by any Ethereum wallet, exchange, or application that understands the standard. The result is a universal “token language” for Ethereum: any ERC-20 token can be held in MetaMask, traded on Uniswap, used as collateral on Aave, or bridged to other blockchains without any issuer-specific integration work. This composability — the ability of ERC-20 tokens to interact with any compatible application — is the fundamental source of the standard’s dominance.
The six mandatory ERC-20 functions are: totalSupply() (returns the total supply of tokens), balanceOf(address) (returns the token balance of a given address), transfer(address, amount) (transfers tokens from the caller to a recipient), transferFrom(address, address, amount) (transfers tokens on behalf of another address), approve(address, amount) (grants another address permission to spend a specified amount), and allowance(address, address) (returns the remaining allowance granted by one address to another). The optional functions are name() and symbol() (human-readable token identification). This minimal, well-defined interface creates the interoperability that has made ERC-20 the most widely implemented blockchain standard in history, with more than 500,000 ERC-20 tokens deployed on Ethereum as of 2026.
Key Facts
- USDC (USD Coin), issued by Circle, is an ERC-20 token with a market cap exceeding $40 billion, representing the largest ERC-20 token by market capitalization that is regularly used in tokenized securities settlement.
- USDT (Tether) on Ethereum is also an ERC-20 token, with approximately $80 billion in market cap at its peak on the Ethereum network — demonstrating the scale of ERC-20 stablecoin infrastructure that could support tokenized securities settlement.
- DAI, the algorithmic stablecoin issued by MakerDAO (now Sky), is an ERC-20 token used as a settlement currency for multiple RWA tokenization platforms including Centrifuge and Maple Finance.
- BlackRock’s BUIDL fund uses an ERC-20-compatible interface with additional compliance layers (ONCHAINID, whitelist, forced transfer) layered on top — meaning that BUIDL tokens can in principle be recognized by standard Ethereum tools while enforcing institutional compliance at the transfer level.
- The ERC-20 standard does not support native multi-token contracts (one contract, multiple token types) — that capability was introduced by ERC-1155, the multi-token standard used in gaming and NFT applications.
- Gas costs for ERC-20 token transfers on Ethereum mainnet range from approximately $0.50 to $5.00 depending on network congestion, making high-frequency micro-transactions economically infeasible — a limitation that Layer 2 solutions (Optimism, Arbitrum, Base) address with dramatically lower fees.
- Wrapped Bitcoin (WBTC) is an ERC-20 token representing Bitcoin on Ethereum, enabling Bitcoin holders to use their holdings in Ethereum DeFi protocols — one of the most successful examples of cross-chain tokenization using the ERC-20 standard.
Relevance to Tokenization
ERC-20 is the foundational layer upon which all Ethereum-based tokenization is built. Even security token standards like ERC-3643 and ERC-1400 are built as extensions of ERC-20, adding compliance features on top of the base ERC-20 interface rather than replacing it entirely. This means that any tokenized asset issued on Ethereum will, at its most fundamental level, be an ERC-20 token — inheriting all of ERC-20’s composability advantages while adding the compliance features required for securities regulation. The ubiquity of ERC-20 support across wallets, exchanges, and DeFi protocols is therefore a direct commercial benefit to tokenized asset issuers who choose Ethereum as their issuance chain.
The critical limitation of bare ERC-20 for securities tokenization is the complete absence of transfer restrictions. A standard ERC-20 token can be transferred from any Ethereum address to any other address without restriction — which means that if a security token is issued as a bare ERC-20, it can be transferred to non-accredited investors, sanctioned entities, or residents of jurisdictions where the security is not registered, creating immediate securities law violations. This is why security token standards add compliance layers: ERC-3643’s ONCHAINID and compliance module, ERC-1400’s partitioned balances and controller, and various proprietary whitelist implementations all solve the same ERC-20 limitation by inserting compliance checks into the transfer function.
The relationship between ERC-20 DeFi infrastructure and tokenized securities is one of the most commercially significant questions in the tokenization space. Tokenized securities issued as ERC-3643 tokens can, in principle, be used in DeFi lending protocols (as collateral for loans), automated market makers (as trading pairs), and yield aggregators (as yield-bearing assets) — exactly like any other ERC-20 token. This “DeFi composability” for regulated securities is the promised land of tokenization: institutional-quality, SEC-regulated assets that can participate in DeFi markets with programmatic compliance enforcement. The technical barriers to achieving this are being actively addressed by Ondo Finance (which has deployed OUSG tokenized Treasuries as DeFi-composable tokens), but significant regulatory questions about whether security token DeFi participation constitutes unregistered securities exchange activity remain unresolved.
Related entries: ERC-3643, ERC-1400, Smart Contract