ERC standards, commonly known as Ethereum Request for Comment standards, are essential documents used by developers to create Smart Contracts on the Ethereum blockchain. These standards establish the guidelines that Ethereum-based tokens must follow, ensuring consistency, efficiency, and security across applications, user interfaces, and services.
One well-known ERC standard is ERC-20, which was introduced in 2015 and played a significant role in the ICO boom of 2017. ERC-20 tokens are fungible, meaning that each token derived from the same Smart Contract is identical to any other. This standard has gained immense popularity and is utilized by numerous tokens such as Basic Attention Token (BAT), ApeCoin (APE), and Brickken’s BKN. It enables fungibility, divisibility, and compatibility with a wide range of decentralized applications and infrastructure.
ERC-20 tokens must implement specific functions, including providing the total token supply, tracking account balances for owners, and ensuring fungibility, among others. Adhering to these standards simplifies development and ensures interoperability within the Ethereum ecosystem.
Another important ERC standard is ERC-721, designed specifically for Non-Fungible Tokens (NFTs). NFTs represent unique digital assets, such as collectibles, access keys, event tickets, and other items with distinct properties. Unlike ERC-20 tokens, NFTs are non-fungible, meaning they possess unique identifiers and are not interchangeable.
To address the challenge of deploying separate contracts for different token types or collections, the ERC-1155 standard was introduced. It provides a standardized interface for contracts, enhancing efficiency and unlocking additional functionalities.
The blockchain space is constantly evolving, with new Ethereum Improvement Proposals (EIPs) being proposed to improve usability and reduce friction. These proposals aim to optimize various aspects of the Ethereum ecosystem, allowing developers to tailor their tokens and smart contracts based on specific characteristics and features.
Security tokens play a vital role in the blockchain ecosystem, offering functionalities that align with traditional financial instruments. When developers choose a token standard for security tokens, they have multiple options to consider. In addition to the popular ERC-20 standard, several ERC standards have been introduced specifically for the growing security token space. These standards have unique features that cater to the requirements of security tokens.
ERC-1400 – Enhancing Security Compliance
ERC-1400 is a standard designed to provide a unified framework for all security tokens. Its primary objective is to improve the security compliance of tokens on the Ethereum network. Since security tokens follow traditional securities laws, certain functionalities are necessary to ensure regulatory compliance. ERC-1400 introduces key features such as token recovery, enabling issuers to reverse token transfers and recover funds. This feature offers control while still leveraging the benefits of blockchain technology. Additionally, metadata can be attached to token holder balances, allowing for seamless provision of verifiable information and ensuring the rights and conditions of token holders are properly enforced. ERC-1400 also enables limitations on investors, such as holding periods, transaction thresholds, and maximum token limits per wallet, which can be vital for achieving specific distribution goals and preventing market disruptions.
ERC-1594 – Expanding ERC-1400
ERC-1594 is an extension of ERC-1400, which is a standard specifically designed for security tokens. ERC-1594 introduces essential functionality required for any security token, including the ability to inject off-chain data into the blockchain. This capability is crucial for incorporating on-chain rules and data derived from real-world events, such as KYC verification and token states based on events related to the issuing entity.
By allowing the integration of off-chain data, ERC-1594 enhances the overall functionality and utility of security tokens. It enables the token contract to interact with external systems and obtain information that can influence the token’s behavior or state.
It’s important to note that ERC-1400 serves as the foundation for ERC-1594 and other related standards in the security token space. These standards work together to provide a comprehensive framework for developing and managing security tokens, ensuring compliance, transparency, and flexibility in the tokenization of real-world assets.
ERC-3643
The ERC-3643 Protocol, is a standard introduced in 2018 that provides issuers with increased control over security tokens. Notably, it enables asset recovery even in cases where the private key of a wallet is lost. This is achieved through the guarantee of asset ownership by digital identity. The T-Rex Protocol is fully compatible with the ERC-20 standard, allowing seamless interoperability with wallets and decentralized applications (dApps) within the Ethereum ecosystem.
Conclusion
The Security Token industry is rapidly evolving, and its success hinges on key factors such as regulatory compliance, anti-money laundering (AML) and know-your-customer (KYC) protocols, and investor safeguards. These crucial elements must be integrated into the ecosystem to ensure widespread acceptance. Although the blockchain landscape traditionally values anonymity and autonomy, these standards offer distinct solutions to reconcile these requirements. They demonstrate the potential for Traditional Finance (TradFi) and Decentralized Finance (DeFi) to converge in a pragmatic manner, fostering inclusivity in investments and unlocking innovative business models for the web3 era.