ERC-20

ERC-20 is a specification that Ethereum tokens follow so that wallets, exchanges, and other contracts can interact with them in a uniform way. It defines a small set of functions, including transfer, balanceOf, approve, and transferFrom, along with the events a contract must emit. The standard was proposed in 2015 and finalized in 2017, and it is the most widely used token standard in crypto.

Because every ERC-20 token exposes the same interface, a wallet that can hold one can hold all of them, and a DEX that can trade one can trade any. Stablecoins like USDC and USDT, governance tokens like UNI and AAVE, and wrapped assets like WBTC are all ERC-20 tokens. Other chains have equivalent standards, such as BEP-20 on BNB Chain and SPL on Solana.

The approve function is worth understanding for safety. Before a contract such as a DEX can move your tokens, you must approve it for a certain amount. Many interfaces request unlimited approval for convenience, which means a later exploit of that contract could drain your whole balance. Periodically revoking unused approvals reduces that exposure.