By Albert Morgan in News — Sep 18, 2023

Creating Ethereum ERC20 Tokens for ICOs or Airdrops

With the rise of initial coin offerings (ICOs) and token airdrops in the space, many companies and projects are looking to create their own Ethereum-based ERC20 tokens to raise funds or distribute to the community. However, creating an ERC20 token is not as simple as just copying and pasting code. There are important technical considerations and best practices to follow when deploying a new ERC20 token on the Ethereum blockchain.

Understanding ERC20 Tokens

ERC20 is a technical standard for tokens issued on the Ethereum blockchain. ERC stands for Ethereum Request for Comment, and 20 is the proposal identifier. The ERC20 standard provides a common set of rules for Ethereum tokens to follow within the larger Ethereum system. This allows ERC20 tokens to easily integrate with exchanges, wallets, and other smart contracts. By conforming to the ERC20 standard, tokens behave in a predictable way, making them accessible to Etheruem users.

Some key rules of the ERC20 standard include:

Implementing functions for transferring tokens between addresses and checking account balances
Tracking the total token supply
Allowing token holders to approve the transfer of tokens from their account by another address
Notifying callers when a token transfer occurs

Following these rules allows ERC20 tokens to work seamlessly with decentralized applications and exchanges. Companies launching ICOs or airdrops will want to ensure their token adheres to the ERC20 standard.

Configuring the ERC20 Smart Contract

The core component of any ERC20 token is the smart contract. The smart contract contains the key rules and features of the token such as name, symbol, decimals, total supply, and transfer logic.

When creating an ERC20 token, developers will typically start by using an open-source smart contract template. This saves time compared to coding a contract from scratch. Some common ERC20 contract templates can be found on Github such as OpenZeppelin's implementation.

However, the template contract will still need to be configured and customized. This involves setting parameters like:

Name & Symbol - Used to identify the token
Decimals - Determines the divisible units of the token
Total supply - The maximum number of tokens to be minted
Minting - The process for generating new tokens
Transfer logic - The functions used to transfer tokens between addresses

Proper configuration of these parameters is crucial to launching a functional ERC20 token. The token name and symbol should be unique. And the total supply and decimals need to align with the project's goals such as targeted amount to be raised in an ICO.

Adding Advanced Logic and Features

While the base ERC20 standard is enough to create a functional token, most projects will want to incorporate advanced logic and features into their smart contracts. Some possibilities include:

Minting controls - Setting vesting schedules, limiting minting after launch
Burning tokens - Allowing token holders or admins to permanently remove tokens from circulation
Multi-sig wallets - Requiring multiple signatures to transfer large amounts of tokens
Freezing transfers - Temporarily stopping token trading if a vulnerability is discovered
Timed releases - Automatically unlocking portions of the total supply at fixed intervals
Governance mechanisms - Letting token holders vote on protocol changes

Adding custom logic like this gives projects more control and flexibility when conducting an ICO or airdrop. For example, temporarily freezing transfers can prevent trading during the presale phase before opening up to the public. Code auditing and testing will be important when including advanced features to ensure they work as intended.

Deploying the Token Smart Contract

Once the ERC20 token's smart contract is ready, it must be deployed to the Ethereum blockchain to become active. This is done by connecting a Web3 wallet to an Ethereum node and sending a deployment transaction. This publishes the smart contract code onchain allowing users to start interacting with the token.

Projects will need to decide which Ethereum network makes the most sense for deploying their token contract - options include:

Ethereum mainnet - For production token launches
Ropsten testnet - For testing purposes before mainnet launch
Private chains - For internal team testing and development

Gas fees will need to be paid to deploy the smart contract which can get expensive on the Ethereum mainnet. Ropsten testnet is a popular choice for initial testing since it more closely simulates the real mainnet environment.

Once deployed, the smart contract will have a fixed address on the blockchain that acts as the source of truth for the token's total supply and ownership. After deployment, tokens can be minted and distributed accordingly.

Managing Liquidity and Listings

Launching a usable ERC20 token is only the first step. For tokens to gain trading volume and market value, they need to be listed on exchanges and have sufficient liquidity.

There are a few approaches projects can take including:

Apply for listings on major centralized exchanges like Binance, Coinbase, etc. This gives the token access to large trading volume but comes with fees.
Utilize decentralized exchanges and automated market makers to bootstrap liquidity and make the token tradable right away. DEXs like Uniswap allow listing without permission.
Seed initial liquidity via 'IDO's or incentive programs. This helps kickstart a healthy order book.
Develop applications and uses for the token to drive organic demand. Increased utility will motivate users to trade the token.

Managing liquidity and exchange listings long-term is crucial for the token to gain market adoption and for ICO contributors to get a return on investment.

Proper token deployment is not a simple task. But by carefully following ERC20 standards, customizing smart contracts, and executing a liquidity strategy, projects can successfully launch Ethereum-based tokens through ICOs or airdrops. The token contract address will live indefinitely on the blockchain, so taking the necessary steps at launch is key.

How can I make my ERC20 token unique?

The ERC20 standard provides a template for creating new tokens, but that alone won't differentiate your project in a crowded market. Here are some tips for making an ERC20 token more unique and compelling:

Innovative tokenomics design - Structure your tokenomics and distribution model in an interesting way that aligns incentives and rewards early contributors. For example using a deflationary model where tokens are burned from fees over time.
Original utility features - Don't just copy core ERC20 functionality, add unique logic and features that support your specific use case. For example integrate staking rewards or governance voting.
hooks and events - Utilize hooks and events in your smart contract code to enable seamless integration with your product experience.
Distinct branding - Don't just label your token with the project name. Brainstorm creative and catchy names along with quality visual branding. This helps generate hype and mindshare.
Robust roadmap - Have a compelling long-term roadmap communicating how the token will accrue value over time as your product gains adoption. Keep iterating on features.
Manageable supply - Avoid an excessively large token supply to prevent inflationary pressure. Make any additional minting conditional and transparent.

Taking these steps from the start when designing your ERC20 token will ensure your project differentiates itself and attracts the right early adopters. Don't just copy paste - get creative in how you leverage the flexibility of ERC20.

What should I avoid when creating an ERC20 token?

Launching an ERC20 token can be full of pitfalls if not executed carefully. Here are some key mistakes to avoid:

Overpromising on unrealistic features - Only commit to what you can actually build and deliver to avoid letting down investors later. Underpromise, overdeliver.
Copying another token's name or branding - This will cause confusion and legal issues down the line. Always ensure your token has 100% unique and original branding.
Setting arbitrary caps and limits - Token caps and minting schedules should make sense for your specific project needs, not just nice round numbers.
Skipping audits and testing - Rigorously test and audit your token smart contracts. Leaving bugs and vulnerabilities can lead to disastrous consequences after launch.
Poor tokenomics and distribution - Structure your initial token distribution and ongoing model carefully. Consider long-term incentives and impacts.
No demand drivers or utility - You need a plan to organically drive demand for your token over time. Don't expect exchange listings alone to sustain value.
Losing or exposing private keys - Keep your deployer wallets and their keys safe. If lost or stolen, you lose control over the token contract.
Violating securities laws and regulations - Understand and follow all legal guidelines when structuring your ICO or airdrop to avoid penalties.

Avoiding these missteps comes down to being thoughtful and deliberate when bringing a new ERC20 token to market. Rushing through launch without considering long-term sustainability will undermine the viability of your project. Take it slow and steady.

In summary, creating an ERC20 token that provides true value involves more than just a few lines of copied code. Follow best practices, customize features for your needs, develop utility and demand drivers over time, and keep your community's interests in mind. Done right, an ERC20 token can become a core piece of a much larger ecosystem.