Use ERC-20 as Native Token

In a custom Avalanche L1 blockchain, you can opt to use an ERC-20 token as the native token. Typically, ERC-20 tokens serve as fungible assets within decentralized applications (dApps), but in this setup, the ERC-20 token is transferred to the new L1 via the Interchain Token Transfer (ICTT) mechanism. Once transferred, the ERC-20 token no longer behaves as a standard ERC-20 token but is instead converted into the native token of the new L1 blockchain.

Features Unlocked by Using ERC-20 as Native Token

By using an ERC-20 token as the native token on a new Avalanche L1 blockchain, several unique features and benefits become available:

• Leverage Existing Ecosystem Liquidity

Bringing an ERC-20 token into the new L1 as a native token allows you to tap into the existing liquidity and user base of that ERC-20 token. For example, a stablecoin like USDC, transferred as an ERC-20 token, can be used as the native token to provide price stability while facilitating cross-chain transactions.

• Interoperability with Existing dApps

An ERC-20 token as a native token allows the new L1 to interoperate with existing decentralized applications (dApps) and DeFi protocols that are built around that token. This can increase user adoption by maintaining familiar token functionality across different chains.

• Cross-Chain Compatibility

Transferring an ERC-20 token via ICTT unlocks cross-chain compatibility, meaning that assets and value from one blockchain ecosystem can seamlessly move and function on another blockchain. This helps promote greater liquidity across blockchains and removes barriers to token usage.

• Gas Fee Flexibility

Using an ERC-20 token as a native token offers flexibility in how gas fees are handled. Rather than relying on a brand-new native token, you can use the transferred ERC-20 token to pay for gas fees, making it easier for users already familiar with that token to interact with the new chain.

• Governance and Staking

Once an ERC-20 token becomes the native token on the new L1, it can be used for staking and governance functions, such as voting on proposals or participating in consensus mechanisms. This expands the token's utility beyond simple transactions, enabling it to play a critical role in securing and managing the new L1.

Next Steps

In the next section, Multi-chain Ecosystems, we’ll explore how the transfer of assets between different chains works and how using tokens like ERC-20 as native tokens enhances cross-chain liquidity and interoperability. We’ll also look into the technical challenges and solutions involved in building robust, multi-chain ecosystems that support the seamless movement of assets like these.