What are BEP-20 tokens?
The BEP-20 token standard extends ERC-20, the most common Ethereum token standard. It is used to represent a wide range of crypto assets on the Binance Smart Chain (BSC). In fact, the acronym BEP stands for Binance Smart Chain Evolution Proposal.
BSC was created by the crypto trading platform Binance in May of 2020 to run in parallel but independently from the Binance blockchain. BSC was developed to incorporate smart contract functionality not possible with BEP-2 (Binance’s token standard) without overburdening the Binance blockchain, which is favoured among traders for its fast processing times.
The BEP-20 token standard provides a framework for developers to introduce tokens that are compatible with the BSC framework while also allowing for DeFi and dApp operability. The BEP-20 token standard defines the requirements for how a token can be created and used.
According to Binance documentation: The BEP-20 standard “defines the implementation of APIs for token smart contracts. It is proposed by deriving the ERC-20 protocol of Ethereum and provides the basic functionality to transfer tokens, allow tokens to be approved so they can be spent by another on-chain third party, and transfer between Binance Chain and Binance Smart Chain.”
How do BEP-20 tokens work?
BEP-20 tokens are relatively easy to deploy. They were developed to be an extension of the BEP-2 Binance token and ERC-20 tokens and so are compatible with both through what are referred to as peg-in and peg-out conversions using the Binance Bridge or other compatible wallet.
According to Binance's BEP-20 tokens guide, besides natively created BEP-20 token examples like binance coin (BNB) and PancakeSwap (CAKE), there are also “peggy” coins, which are essentially BEP-20 versions of other crypto assets, including ether (ETH), cardano (ADA), and tether (USDT). Peggy coins represent a class of BEP-20 tokens on the BSC platform that are pegged and backed 1:1 crypto assets.
BEP-20 tokens explanation
The BEP-20 standard does share many characteristics with ERC-20 protocols, such as defining the total supply and balance, the divisibility standard and transferability requirements. Transfers between BEP-20 tokens are facilitated by BNB, the native Binance coin and the validation processors of BSC are rewarded in BNB, the same way gas fees are paid on Ethereum.
The BEP-20 token standard is flexible and programmer-friendly, allowing for all kinds of fungible tokens to be created. Like those created using the ERC-20 standard, BEP-20 tokens can be pegged to another crypto or fiat, represent tokenised securities or be used to issue stablecoins. The standard used by BEP-20 tokens means that any BEP-20 token is fully compatible with all ERC-20 and BEP-2 tokens across the Ethereum and Binance blockchains.