ERC-20 is the most widely used token standard on Ethereum. It defines a common set of rules that all Ethereum-based fungible tokens must follow, ensuring interoperability between tokens, wallets, exchanges, and DApps.
What ERC-20 Defines
The standard specifies six mandatory functions that every compliant token contract must implement:
totalSupply(): Returns the total token supply.
balanceOf(): Returns an account's token balance.
transfer(): Transfers tokens from the caller to another address.
approve(): Allows a spender to withdraw tokens up to a specified amount.
transferFrom(): Allows approved transfers on behalf of another address.
allowance(): Returns the remaining approved amount for a spender.
Significance
Before ERC-20, every token had its own unique implementation, making it difficult for exchanges and wallets to support new tokens. ERC-20 standardized this process, enabling the token economy that powers most of DeFi today. Thousands of tokens — including USDT, USDC, UNI, LINK, and SHIB — are ERC-20 tokens.