ERC20 Token Development – Process, Benefits and Use Cases

ERC20 tokens are an integral part of the DeFi movement, which is rapidly growing and aims to replicate traditional financial services on a blockchain. These tokens are used for various purposes, including lending, borrowing, and trading on platforms like Aave and Uniswap.

But what exactly are ERC20 tokens, and how do they function? They are built on the Ethereum blockchain, a secure and transparent digital ledger, and use smart contracts – self-executing programs – to define their functionalities and rules. This opens a world of possibilities, from loyalty programs that reward your most engaged customers to fractional ownership that democratizes access to valuable assets.

For instance, the Basic Attention Token (BAT) is an ERC20 token utilized in the Brave browser. BAT incentivizes users for their attention while browsing, creating a more sustainable advertising model.

In this blog post, we’ll discuss everything about ERC20 token development. We’ll examine the development process, highlight the benefits for businesses of all sizes, and display real-world use cases that are transforming industries. So, get ready to unlock the potential of this powerful technology for your business.

What is ERC20 Token Development?

ERC20 token development is a process that enables businesses to create their own tokens on the Ethereum blockchain. These tokens operate under a set of standardized rules called the ERC20 standard, which ensures smooth interaction with other ERC20 tokens and wallets. 

By utilizing ERC20 tokens, companies can achieve a wide range of objectives. For instance, they can use ERC20 tokens to create more engaging loyalty programs. Instead of points, users earn tokens that can be redeemed for discounts, exclusive products, or even voting rights. In addition, tokens can serve as a means to gain entry to certain features or services within a given platform or ecosystem. For instance, a gaming enterprise might create ERC20 tokens that allow players to buy in-game items or get access to exclusive content.

Key Market Takeaways for ERC20 Token

ERC-20 tokens have recently gained significant business adoption, amounting to a current market capitalization of USD 245.46 million, according to Binance. 

Source: Binance

This rise can be attributed to several contributing factors. Firstly, the Ethereum network provides a strong foundation for businesses. Its well-established developer community and range of tools make ERC-20 token development and integration a smooth process. Secondly, the Ethereum blockchain offers a secure and transparent platform for businesses to create tokenized applications and loyalty programs. Transactions are immutable and verifiable, which increases customer trust.

While major tokens like BAT and DAI have established use cases in advertising and decentralized finance, respectively, smaller businesses are also jumping on board. For example, Starbucks recently launched NFTs, built on the ERC-20 standard, which demonstrates the potential of this technology. These NFTs can represent exclusive memberships, rewards programs, or even limited-edition merchandise, promoting stronger customer engagement and loyalty.

Advantages of Developing ERC20 Token

Let us discuss some the key benefits of ERC20 Token,

1. Frictionless Transactions

ERC20 tokens leverage the Ethereum blockchain’s robust infrastructure, enabling swift and secure transactions across the globe. This eliminates geographical limitations and streamlines financial processes for businesses, fostering faster settlements and a more efficient user experience.

2. Effortless Token Creation

Unlike traditional methods of creating new financial instruments, ERC20 token development boasts a remarkably simplified process. The standardized ERC20 protocol lowers the entry barrier for businesses, allowing them to create and deploy their own tokens with greater ease and efficiency. This reduces development time and costs, making the technology readily accessible to companies of all sizes.

3. Seamless Token Interaction

ERC20 tokens adhere to a well-defined set of rules, ensuring smooth interaction with other ERC20 tokens and wallets. This interoperability eliminates compatibility issues and simplifies the user experience. Imagine a world where various loyalty programs seamlessly function within a single ecosystem – that’s the power of ERC20. Businesses can leverage this to create user-friendly token-based programs that foster deeper customer engagement.

4. Enhanced Security and Reliability

ERC20 tokens are built upon the secure foundation of the Ethereum blockchain. This distributed ledger technology minimizes the risk of contract breaches, fostering a secure and reliable environment for businesses and users alike. Smart contracts, self-executing programs that govern token functionalities, further enhance security by automating processes and reducing the possibility of human error.

5. Increased Token Liquidity

The widespread adoption of ERC20 tokens translates to a bigger pool of buyers and sellers, ultimately boosting token liquidity. This ensures that businesses can create tokens that are easily tradable on cryptocurrency exchanges, attracting a wider investor base and facilitating smooth fundraising efforts. By increasing liquidity, ERC20 tokens unlock new avenues for companies to raise capital and expand their reach.

What Makes ERC20 Tokens Special?

ERC20 tokens provide a set of unique capabilities that fundamentally transform the way companies operate, engage with customers, and access capital. Let’s take a closer look at what makes ERC20 tokens so special and explore the vast opportunities they unlock across different industries.

1. Profitability on the Rise

By leveraging ERC20 tokens, businesses unlock new revenue streams and profit opportunities. These tokens can represent access to exclusive services and digital goods or even function as a form of in-game currency. This empowers companies to create unique value propositions for their customers, ultimately translating to increased profitability.

2. Engagement Engine

ERC20 tokens act as a magnet for user engagement. Businesses can design loyalty programs or reward systems centered around these tokens, incentivizing users to interact more frequently and fostering a stronger brand community. For instance, a fitness app can reward users with tokens for completing workouts – this gamified approach not only boosts engagement but also increases customer retention.

3. Frictionless Transactions

The inherent efficiency of the Ethereum blockchain empowers businesses to facilitate seamless token exchange within their ecosystem. Fast transaction speeds and minimal fees contribute to a streamlined user experience, encouraging wider adoption and participation.

4. Enhanced Security

Security remains paramount in today’s digital landscape. ERC20 tokens leverage the robust security features of the Ethereum blockchain, including private keys for individual wallets and smart contracts that govern token functionalities. This multi-layered approach minimizes the risk of fraud or breaches, fostering a secure environment for businesses and users alike.

5. ICO Integration

ERC20 tokens seamlessly integrate with Initial Coin Offering platforms. This streamlines the fundraising process for companies seeking capital to fuel innovation and expansion. By issuing ERC20 tokens, businesses can attract a wider pool of investors and raise funds efficiently.

6. Beyond Profitability

While financial gain plays a crucial role, ERC20 tokens offer more than just revenue potential. They can be utilized to represent fractional ownership of real-world assets, which can include real estate or artworks, democratizing access to investment opportunities previously limited to a select few. This fosters a more inclusive financial ecosystem and unlocks new avenues for wealth creation.

7. Security and Trust

The secure nature of ERC20 transactions instills confidence in users and businesses alike. Blockchain technology ensures transparency and immutability of transaction records, minimizing the risk of errors or manipulation. This fosters trust and strengthens business relationships with customers and partners.

8. Interoperability for Versatility

ERC20 tokens seamlessly interact with various cryptocurrencies and wallets. This interoperability enhances the versatility and adaptability of these tokens within the broader digital asset ecosystem. Businesses can leverage this to create more dynamic and integrated financial solutions.

9. Asset Flexibility

ERC20 tokens empower businesses to establish a more flexible operational landscape. By enabling the interchangeability of assets represented by tokens, companies can streamline processes and create new value propositions for their customers. This adaptability positions companies to thrive in an ever-evolving economic climate.

ERC20 Token Use Cases Accross Different Industries

Let’s have a look at some interesting use cases of ERC20 Token across various Industries

1. Facilitating Peer-to-Peer Finance

Decentralized Finance is a prime example of ERC-20 tokens revolutionizing the financial landscape. Businesses like Compound and Aave utilize ERC-20 tokens to facilitate peer-to-peer lending and borrowing, eliminating the need for traditional financial institutions. For instance, Compound allows users to lend and borrow various ERC-20 tokens, earning interest on their holdings. This disrupts traditional banking models by offering potentially higher returns and easier access to financial services.

2. Enhancing Supply Chain Transparency

ERC-20 tokens are streamlining supply chain management by enhancing transparency and traceability. Companies like Walmart and Unilever are partnering with blockchain startups to track the movement of goods throughout the supply chain. Each stage can be represented by an ERC-20 token, providing real-time data on a product’s origin, location, and condition. This fosters trust and accountability within complex supply chains, ultimately benefiting both businesses and consumers.

3. Creating Innovative Ticketing and Loyalty Programs

The entertainment and travel industries are embracing ERC-20 tokens to create innovative ticketing and loyalty programs. For example, Live Nation, a major concert promoter, is exploring ERC-20 tokens to represent concert tickets. These tokens can offer benefits like easier resale or access to exclusive content. Similarly, airlines like Lufthansa are considering ERC-20 tokens for loyalty programs, allowing users to seamlessly track and manage their reward miles across different airlines.

4. Enabling Play-to-Earn Gaming and Fan Engagement

The gaming industry is witnessing a surge in ERC-20 token adoption. Games like Axie Infinity utilize ERC-20 tokens to represent in-game items and characters. These tokens hold real value and can be traded on secondary markets, creating new revenue streams for gamers and fostering a play-to-earn model. Esports organizations are also exploring ERC-20 tokens for fan engagement, allowing fans to purchase tokens to participate in voting polls or access exclusive content related to their favorite teams.

5. Streamlining the Sharing Economy

The sharing economy, encompassing businesses like Airbnb and Uber, is leveraging ERC-20 tokens to enhance efficiency and trust. For example, decentralized ride-sharing platforms like Arcade utilize ERC-20 tokens for payments and governance. These tokens incentivize both drivers and riders while fostering a community-driven approach to managing the platform. Similarly, decentralized home-sharing platforms are exploring ERC-20 tokens for booking stays and securing deposits, potentially offering a more transparent alternative to traditional booking services.

Important Extensions Used For ERC20 Token Development

Before diving into the development process, here are some important extensions you might need for developing ERC20 Tokens,

1. Mintable Tokens

This extension allows authorized accounts, usually administrators or a central authority, to create new tokens and increase the total supply. This functionality is useful for businesses that intend to distribute tokens gradually or, carry out phased token launches, or reward users for their ongoing participation. For example, a company may issue new tokens to encourage user engagement on their platform or distribute them as part of a loyalty program.

2. Burnable Tokens

The Burnable extension is a feature that enables token holders to permanently remove their tokens from circulation. It provides various advantages, such as allowing businesses to regulate the overall token supply. This, in turn, can potentially increase the value of remaining tokens due to scarcity. Moreover, burning mechanisms can also be employed to destroy tokens received as fees or for platform maintenance, ensuring a sustainable token economy.

3. Pausable Tokens

The Pausable extension allows authorized accounts to temporarily stop specific token functions. This feature is crucial in the event of a security breach, smart contract exploit, or technical issue. It provides businesses with the ability to safeguard user funds and prevent unauthorized token transfers. By pausing the token functions, prompt corrective measures can be taken to resolve the issue before resuming normal operations.

4. Permit Extension

Designed to enhance user experience and address gas fee limitations, the Permit extension streamlines token approvals. It empowers token holders to grant third-party entities, such as decentralized exchanges, permission to transfer tokens on their behalf without incurring gas fees for each transaction. This feature proves particularly beneficial for businesses looking to improve user adoption and facilitate seamless token interactions within their ecosystems.

5. Votes Extension

Tailored specifically for DeFi applications, the Votes extension is designed to simplify on-chain governance processes. It keeps track of users’ historical token balances, ensuring they are entitled to voting rights proportionate to their contribution to the ecosystem. Additionally, it enables users to delegate their voting power to trusted entities, allowing for wider participation in governance decisions. Businesses can utilize this extension to create a permissioned or permissionless voting system, depending on the desired level of control within their DeFi protocol.

6. Flash Minting

The Flash Minting extension is a tool designed for DeFi lending platforms. It allows for the integration of flash loans directly into the token. This feature enables users to borrow tokens without the need for collateral on the condition that they are returned within the same transaction. Flash loans unlock innovative DeFi applications, such as arbitrage opportunities and collateralized loan positions. Businesses can use this extension to create more efficient and automated DeFi lending protocols.

7. Snapshots Extension

The Snapshots extension is also a useful tool for DeFi applications and governance processes, as it allows authorized accounts to capture and store token balances at specific points in time. These snapshots can be utilized to distribute airdrops, reward users based on their past contributions, or determine voting rights during governance proposals. Companies can leverage snapshots to establish a more transparent and equitable governance system within their DeFi protocols.

How to Develop an ERC20 Token?

Developing a successful ERC20 token requires a well-defined process. Here’s a breakdown of the key stages you should consider to ensure a smooth launch of your token:

1. Token Supply Configuration

This initial step involves meticulously defining the total supply of tokens a company plans to create. This sets a limit on the number of tokens that will ever exist and directly impacts the token’s potential value in the market. The company’s Ethereum smart contract will be programmed to reject transactions exceeding this predetermined limit, safeguarding against unauthorized token creation.

2. Crafting a Compelling Identity

Two crucial elements establish a token’s identity: a distinct name and a recognizable symbol. The name should clearly communicate the token’s purpose and resonate with the target audience. The symbol, typically a short and memorable abbreviation, acts as a visual identifier for the token on exchanges and marketplaces. Businesses should carefully consider these aspects as they form the foundation of the token’s brand recognition.

3. Smart Contract Development

The heart of any ERC20 token lies in its smart contract. This code, written in the Solidity programming language, dictates the token’s functionalities and ensures adherence to the ERC20 standard for compatibility with Ethereum wallets and exchanges. Businesses should prioritize robust smart contract development to guarantee the token’s security and functionality. Rigorous testing on a testnet environment is essential before deployment to identify and rectify any potential vulnerabilities.

4. Mainnet Deployment and Token Listing

After the successful testing, the smart contract is deployed on the Ethereum mainnet, which makes the token live and tradable. Businesses can then utilize platforms like Token Sale or CoinMarketCap to list their token, thus increasing their visibility and accessibility for potential buyers and investors.

5. Value Projection

A crucial aspect of ERC20 token development involves forecasting the token’s value. It is important for companies to conduct thorough market research and analysis in order to establish a realistic valuation strategy that aligns with their overall business objectives. This strategy can involve setting a fixed price for the token during an initial coin offering (ICO) or allowing market forces to determine its value through trading activity.

6. Security Audits

It is highly recommended that a reputable security firm conduct a comprehensive audit of the smart contract before deploying the token on the mainnet. This audit helps to identify and address potential vulnerabilities that could be exploited by hackers, safeguarding user funds and integrity of the token.

7. Marketing and Community Building

A successful ERC20 token thrives on a strong community of users and supporters. Businesses should develop a well-defined marketing strategy to raise awareness about their token and its value proposition. This can involve engaging with potential users on social media forums, participating in relevant industry events, and collaborating with influencers within the blockchain space. Building a strong community fosters trust and encourages user adoption, ultimately contributing to the token’s growth.

Cost of Developing a ERC20 Token from Scratch

Stage	Description	Cost Range	Details
Research & Planning	Market Analysis & Token Design	$1,000 – $5,000	– Competitor analysis, target audience research <br> – Token utility definition & whitepaper development
Smart Contract Development	Core ERC20 Functionality	$5,000 – $10,000	– Basic transfer & balance tracking functionalities
Smart Contract Development	Advanced Features	Highly Variable	– Burning mechanisms, voting rights, DeFi integrations (cost increases with complexity)
Security Audits	Basic Smart Contract Audit	$5,000 – $10,000	– Scrutiny for vulnerabilities by a security firm
Security Audits	Complex Contract Audits	$10,000 – $15,000+	– In-depth audits for intricate functionalities or integrations
Front-End Development	Basic User Interface	$3,000 – $5,000	– Wallet creation, balance display, token transfers
Front-End Development	Feature-Rich Interface	$5,000 – $10,000+	– Wallets, dashboards, exchange integrations (cost increases with features)
Back-End Development	Basic Back-End	$5,000 – $8,000	– Data storage, user authentication, basic transaction processing
Back-End Development	Complex Back-End Systems	$8,000 – $15,000+	– User management systems, advanced security measures (cost increases with complexity)
App Features (Examples)	Referral Program Integration	$3,000 – $5,000	– Incentive programs for user acquisition
App Features (Examples)	Decentralized Exchange Integration	$20,000 – $50,000+	– Building a DEX within the app for direct token trading
Testing & Deployment	Thorough Testing	$1,000 – $3,000	– Bug identification & rectification on a testnet
Testing & Deployment	Deployment Fees	$1,000 – $2,000	– Gas fees for deploying the smart contract to the mainnet (fluctuates based on network congestion)
UI/UX Design	Basic UI/UX Design	$2,000 – $5,000	– Intuitive and visually appealing interface for core functionalities
UI/UX Design	Advanced UI/UX Design	$5,000 – $10,000+	– Polished user experience with interactive elements and device optimization
Additional Considerations	Project Management	Highly Variable	– Cost depends on the development partner and project complexity
Additional Considerations	Ongoing Maintenance	Highly Variable	– Monitoring performance, addressing vulnerabilities, adding new features (cost depends on maintenance needs)
Total Cost Range		$20,000 – $100,000+	(Varies depending on features, development partners, and customization)

The cost of developing a token also depends on several variable factors that cater to the company’s specific needs. Here’s a closer look at these key factors:

1. Business Model and Token Utility

The core function of the token within a business model significantly impacts development costs. A simple token used for utility within a company’s existing ecosystem will have a different cost structure compared to a complex token designed to power a decentralized application or facilitate complex financial transactions.

2. Feature Set and Functionality

The features embedded within the ERC20 token directly affect development costs. Basic functionalities like transfers and balance tracking come at a lower price point. However, adding advanced features like burning mechanisms, voting rights, or integrations with DeFi protocols necessitates more intricate smart contract development, pushing the cost upwards.

3. Token Design Complexity

The design of the token itself can influence development costs. A straightforward token with a standard supply and distribution model is less expensive to create compared to a token with a multi-tiered structure, vesting periods, or dynamic supply mechanisms.

4. Project Complexity

The overall complexity of the project plays a major role in determining the development cost. Businesses planning to build an entire ecosystem around their token, including a user interface, back-end infrastructure, and integrations with external platforms, should expect a higher price tag compared to a project solely focused on developing the core ERC20 token functionality.

5. Development Team Location

The geographical location of the development team you choose can influence the cost. Rates for development teams vary depending on region and experience level. Companies can find cost-effective options in certain locations, but it’s crucial to prioritize quality and expertise to ensure the security and functionality of the token.

6. Distribution Strategy

The chosen method for distributing the token can impact development needs. A simple token distribution through a website might not require extensive development work. However, a complex distribution involving multiple stages, know-your-customer (KYC) procedures, or airdrops might necessitate additional development resources.

7. Ongoing Support and Maintenance

The development journey doesn’t end with the launch. Businesses should factor in ongoing support and maintenance costs. This includes monitoring the token’s performance, addressing security vulnerabilities, and potentially adding new features as the project evolves.

Top 5 ERC20 Tokens  in 2024

Here’s a look at five prominent ERC-20 tokens that you should keep an eye on this year,

1. Tether (USDT)

Tether is a stablecoin that provides a bridge between the traditional financial world and the cryptocurrency market. It is made to maintain a 1:1 peg with the US dollar. Businesses can leverage USDT’s price stability to facilitate transactions within their ecosystems, enabling users to pay for goods and services using crypto while mitigating price volatility concerns.

Tether reigning supreme as one of the largest stablecoin by market capitalization (over $80 billion). Daily transaction volumes exceeding billions of dollars further solidify its active use in facilitating real-world transactions while mitigating price volatility concerns. Companies like PayPal and Expedia integrating Tether for payments underscore its expanding utility beyond the realm of cryptocurrency exchanges.

2. USD Coin (USDC)

Another prominent stablecoin, USD Coin, is pegged to the US dollar and functions similarly to Tether. USDC is backed by a consortium of regulated financial institutions, potentially offering an additional layer of trust for businesses and users. Both Tether and USDC allow businesses to explore cryptocurrency integration without the inherent price fluctuations associated with other tokens.

USDC comfortably holds a market capitalization surpassing $50 billion. The backing of reputable financial institutions like Coinbase and Circle fosters trust among businesses and users, making USDC a viable alternative to traditional currencies. Furthermore, platforms like Shopify and Crypto.com accepting USDC for payments demonstrate its broader merchant adoption and potential to streamline financial transactions.

3. Chainlink (LINK)

Chainlink stands out as an oracle token, facilitating the secure connection of decentralized applications to external data sources. Businesses can leverage Chainlink to integrate real-world data feeds into their dApps, unlocking a wider range of functionalities and enhancing their usability.

The world of DeFi heavily relies on Chainlink oracles to securely connect dApps to external data sources. Chainlink’s integration with leading DeFi protocols like Aave and Synthetix highlights its critical role in enabling real-world data access for DeFi applications. Moreover, collaborations with companies like Google Cloud and Oracle showcase Chainlink’s extending influence beyond the blockchain sphere. An active developer community further fuels continuous innovation and adoption of Chainlink oracles within the ever-growing DeFi ecosystem.

4. Uniswap (UNI)

Uniswap is a DEX protocol built on the Ethereum blockchain. UNI tokens act as the governance token for the Uniswap protocol, allowing holders to participate in voting on key decisions regarding the platform’s future development. Businesses can benefit from the Uniswap ecosystem by enabling users to easily trade their tokens or integrate Uniswap’s functionalities within their own applications.

With billions of dollars exchanged daily on its platform, Uniswap stands out as a leader in peer-to-peer crypto trading. Its innovative automated liquidity provision or AMM model attracts users and businesses seeking efficient token swaps. 

5. Maker (MKR)

The Maker token serves as the governance token for the MakerDAO platform, a decentralized lending protocol. MKR holders have voting rights on key decisions within the MakerDAO ecosystem, such as interest rates and risk parameters. Businesses exploring DeFi applications can interact with MakerDAO to borrow or lend digital assets, potentially creating new financial opportunities.

The MakerDAO platform, powered by the MKR token, boasts a significant total value locked exceeding $10 billion. This TVL metric indicates the immense value deposited within its DeFi lending protocol. MakerDAO allows users to borrow against real-world assets like Ether, showcasing its potential to bridge the gap between traditional finance and DeFi lending. Furthermore, MKR token holders actively participate in MakerDAO’s governance, demonstrating a thriving community that shapes the platform’s future and fosters a decentralized decision-making process.

Conclusion

 ERC20 token development offers businesses a unique opportunity to explore new growth and engagement avenues. By using blockchain technology, companies can create tokens that serve various purposes within their ecosystems, such as enabling in-app purchases or incentivizing user participation. However, developing ERC20 tokens requires careful consideration of several factors, including the impact of business models, token features, project complexity, and the location of the development team. 

To make informed decisions, businesses need to understand these variable factors. Additionally, they should plan meticulously for the ongoing support and maintenance requirements of their ERC20 tokens to ensure their long-term success. By doing so, companies can cement their position within the growing blockchain landscape.

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FAQs

Q1: What are the benefits of ERC-20 tokens?

A1: ERC-20 tokens offer a multitude of benefits for businesses. Their standardized nature simplifies development and integration with existing Ethereum-based platforms. This fosters interoperability, allowing tokens to be easily traded and used across various decentralized applications (dApps). Additionally, ERC-20 tokens provide flexibility, enabling businesses to create tokens that serve diverse purposes within their ecosystems, from loyalty programs to fundraising mechanisms.

Q2: What are the use cases for ERC-20 tokens?

A2: ERC-20 tokens boast a wide range of use cases that empower businesses to enhance their operations and connect with customers in novel ways. They can function as utility tokens within a company’s ecosystem, granting access to exclusive features or discounts. Alternatively, they can serve as security tokens, representing ownership in a company or asset. ERC-20 tokens also excel in fundraising, enabling businesses to raise capital through ICOs. Additionally, they can incentivize user participation in dApps by rewarding users for their contributions.

Q3: What is ERC20 token development?

A3: ERC20 token development refers to the process of creating a fungible token on the Ethereum blockchain that adheres to the ERC-20 technical standard. This standard ensures compatibility with existing Ethereum infrastructure and other ERC-20 tokens. Development involves writing smart contracts, which are self-executing programs on the blockchain that govern the token’s behavior, such as transfers, ownership, and supply. The development process can be tailored to specific needs, incorporating features like burning mechanisms or integration with DeFi protocols.

Q4: What is the token development process?

A4: The token development process starts with defining your token’s purpose and functionalities. Then, skilled developers craft smart contracts, the blockchain-based programs that govern your token’s core logic like supply, transfers, and ownership. Security audits are crucial to ensure these contracts are safe from vulnerabilities. Finally, user interfaces and back-end systems are built to facilitate interaction with your token, culminating in deployment on the Ethereum blockchain and launch to the world.