How token standards and fungibility shape the crypto ecosystem

Although there are an infinite number of cryptocurrencies, most are based on the same fundamental principles. These principles, known as token standards, define how crypto assets behave, transfer, and operate across different networks. At the core of each standard is the concept of fungibility—the idea that one token is completely interchangeable with another, just as one dollar is always equal to another dollar.

Token standards are not created randomly—they are deliberately designed to allow new digital assets to seamlessly integrate into existing wallets, exchanges, and decentralized applications (DApps). Without these standards, each token would require custom code and special adjustments for every platform where it is used.

Understanding Fungibility: The Foundation of Every Standard

To understand token standards, we first need to clarify what “fungibility” actually means. Fungibility indicates that each unit of something is interchangeable with another unit—completely identical in value and function.

Think of your wallet. A $10 bill has the same value as any other $10 bill. You can exchange it for another without any difference. The same principle applies to cryptocurrencies. Every Bitcoin (BTC) you hold has the same value as any other Bitcoin; one USDT in your transaction is worth the same as any other USDT.

These properties of fungibility—tokens being interchangeable and fungible—are the foundation of the industry. Conversely, non-fungible tokens (NFTs) are unique; each NFT has its own value and characteristics, like an original Picasso versus a copy.

Why Do We Need Standards: Three Key Advantages

1. Interoperability Enabled by Standards

The biggest advantage of token standards is that they enable compatibility. When a developer issues a token adhering to a recognized standard, that token can immediately work with existing infrastructure.

Take USDT as an example. Since USDT follows the ERC-20 standard, it works instantly on platforms like Uniswap, MetaMask, and many centralized exchanges. These platforms didn’t have to write custom code—everything was already compatible because the standard was followed.

2. Composability as the Backbone of DeFi

In decentralized finance (DeFi), composability transforms how new products are developed. Developers can combine existing components—often called “money legos”—to build new, more complex protocols.

Because developers know exactly how a standard token behaves, they can build sophisticated lending, borrowing, and trading protocols that will automatically work with any tokens adhering to that standard. This accelerates innovation and makes the DeFi ecosystem more flexible.

3. Efficiency Through Reusing Proven Solutions

Thanks to standards, developers don’t have to reinvent the wheel. Instead of writing a complete smart contract from scratch to handle basic functions—transfers, balance checks, authorization—they can use proven code based on established standards.

This reduces security risks and significantly speeds up deployment. Standardization means that tested solutions can be reused instead of starting from zero every time.

Ethereum Standards That Set the Industry

Ethereum was the first programmable blockchain, and its legacy remains strong. Ethereum Request for Comments (ERC) standards have become industry gold standards. These standards are also used on EVM-compatible chains like Avalanche, Polygon, and Arbitrum.

ERC-20, ERC-721, and ERC-1155: Three Key Standards Shaping Crypto

ERC-20: The Fungibility Standard That Sparked a Revolution

Proposed in 2015, ERC-20 is a prime example of how a simple standard can transform the entire industry. The fungibility established by ERC-20 means that every token in a contract is automatically equal to another. There are no unique properties—just uniform value.

Use Cases:

• Stablecoins (USDT, USDC) that need to maintain consistent value
• Governance tokens (UNI, AAVE) that grant voting rights
• Utility tokens that provide access to services

Key Functions:

• transfer (sending tokens between accounts)
• transferFrom (allowing delegated users to move tokens)
• approve (letting other addresses spend your tokens)

ERC-721: When Fungibility Is Not Suitable

ERC-721 launched the NFT revolution in early 2021 because it addressed the question: what if you don’t want fungibility?

Unlike ERC-20, where all tokens are identical, each ERC-721 token is unique. Every NFT has its own ID, history, and special features.

Use Cases:

• Digital art and collectibles
• Ownership certificates and proof of authenticity
• In-game assets (weapons, characters, real estate)
• Digital identities and passports

Key Difference: While 1 ETH is always worth 1 ETH (fungible), a single NFT with ID 1 could be worth millions, while NFT with ID 2 might be insignificant. Each is unique, with its own value and attributes.

ERC-1155: A Hybrid Approach for Modern Applications

ERC-1155 was designed to address inefficiencies of older standards. Instead of requiring two separate contracts (one for ERC-20, one for ERC-721), ERC-1155 manages both types of tokens within a single contract.

Semi-fungibility for Gaming: Imagine a video game. You need “gold coins” (fungible tokens—1000 coins are the same as any other 1000 coins), “iron swords” (semi-fungible—there are exactly 1000 identical swords, but they differ from gold coins), and “legendary shield” (a unique NFT that exists only once).

ERC-1155 allows one contract to manage all these categories simultaneously.

Major Advantage: Batch Transfers ERC-1155 can send multiple types of tokens—fungible and non-fungible—in a single transaction. This drastically reduces gas fees and makes transactions more efficient.

How Other Major Blockchains Adapt Standards

BNB Smart Chain: BEP-20 Standard for Speed

While Ethereum set the example, other chains didn’t just copy. BNB Smart Chain (BSC) has its own standard—BEP-20—which is functionally similar to ERC-20 but optimized for BSC’s speed and low fees.

BSC also supports “wrapped” tokens—representations of assets from other chains (Bitcoin, Ethereum) transferred into the BSC ecosystem for faster and cheaper use.

Solana: SPL (Solana Program Library) Works Differently

Solana took a radically different approach. On Ethereum, each token is a separate smart contract. On Solana, there is a central “token program”—a standard SPL—and new tokens are simply new accounts created within that program.

This architecture allows Solana to process transactions at incredible speeds. The SPL standard covers both fungible tokens (like USDC on Solana) and NFTs without needing separate standards like ERC-20 and ERC-721.

Bitcoin: BRC-20 and Runes—New Possibilities on the Old Blockchain

For over a decade, Bitcoin was considered purely a currency, not a platform for tokens. That changed in 2023 with the introduction of the Ordinals protocol.

BRC-20: An Experimental Step for Tokens on Bitcoin BRC-20 is an experimental standard that enables creating fungible tokens directly on Bitcoin via text inscriptions. Unlike smart contract tokens on other chains, BRC-20 tokens use Bitcoin’s blockchain as a data layer to track transfers.

Runes: A More Efficient Alternative Runes is a newer, more efficient protocol for issuing fungible tokens on Bitcoin with a smaller footprint on the blockchain than BRC-20.

Cross-Chain Compatibility: Enabling Interoperability Between Standards

A major limitation of token standards is that they are mostly isolated within their own blockchains. An ERC-20 token on Ethereum can’t natively exist on Solana without an additional layer.

Wrapped Tokens: The Traditional Approach

The classic solution is “wrapping.” To transfer Bitcoin to Ethereum, BTC is locked in a vault, and an equivalent “wrapped BTC” (WBTC) ERC-20 token is issued on Ethereum.

While effective, this approach has an outdated security model: bridges that hold these locked assets are common targets for hacks.

Omnichain Tokens: The Future of Interoperability

New interoperability protocols like LayerZero and Chainlink CCIP go beyond simple wrapping. They enable Omnichain fungible tokens (OFTs) that can move natively between chains within secure messaging systems, avoiding reliance on centralized bridges.

What’s Next: The Evolution of Standards

The industry is evolving beyond basic standards. Experimental standards like ERC-404 combine properties of fungibility and non-fungibility in new ways. Hybrid solutions and interoperability protocols are gradually creating a more connected Web3 ecosystem where standards develop as the industry advances.

Conclusion: The Invisible Backbone of the Crypto Industry

Token standards are the backbone of the crypto economy. The fungibility they enable—the idea that tokens are interchangeable—is the driving force behind innovation, efficiency, and ecosystem compatibility.

Whether it’s ERC-20 tokens in your Ethereum wallet, unique NFTs on Solana, or experimental BRC-20 tokens on Bitcoin, each standard serves a purpose. Token standards and the principles of fungibility they are built on allow the crypto industry to remain interoperable, efficient, and dynamic.