ERC20 Tokens and the Starbits Experiment

While NFTs have faded in popularity in recent years, ERC20 tokens are more popular than ever. You can see this easily by looking at launchpads like Pump.Fun, which sees increasing revenue and thousands of tokens launched per day. Many people participate in these token launches simply as a form of gambling or lottery where with the right mix of luck and timing you might be able to turn $100 into $1 million.

As with my NFT experiments, I have spent a lot of time working with the ERC20 token standard as well as related standards like ERC4626 for vaults. One of the great things about the blockchain community is its tendency toward open source standards and the availability of libraries like OpenZeppelin. And of course, as with my NFT work, I was always pushing the boundaries of what could be done.

Tax Tokens and Starbits

One common way that people experiment with ERC20 tokens is by implementing a tax on transfer. This can be an interesting way to generate funds for a project team, especially back before decentralized exchanges had things like liquidity harvesting or revenue sharing. The problem with these tokens is almost always that their value tends to bleed towards zero as trading volume dries up, because the tax is constantly pulling liquidity out of the trading pool.

In October 2024 I created an experiment called Starbits, a token with a 10% tax that was used to buy BTC.b (bridged Bitcoin on the Avalanche network). Every transfer of this token not only bought Bitcoin, but also gave the person transferring the tokens an entry into a raffle. Once a total of 0.1 BTC.b was accumulated by the contract, one lucky person would win the prize. At the time Bitcoin was around $30k, so the prize would have been roughly $3,000.

The contract also had a token dilution mechanism designed to prevent the price from accelerating too quickly in early trading. The idea was to discourage quick pump and dumps by keeping price growth more gradual.

Starbits was also tied into a socialfi protocol called StarsArena (now just The Arena). Users who participated in the socialfi app could get free entries to the raffle without having to buy or transfer tokens. This was meant to bootstrap engagement from an existing community.

Shortly after deployment, StarsArena was hacked and had to redeploy their contracts. This broke the integration with Starbits entirely, and was probably a bigger driver of the project's failure than the tax mechanism itself. The accumulations never reached the target amount, and to this day there is 0.0027 BTC.b (around $240 at current prices) sitting in that contract with the raffle never triggered.

This turned out to be a useful lesson about one of the risks of immutable smart contracts. When you build on top of other protocols, you inherit their risks. If they get hacked, upgrade, or redeploy, your contract can be left pointing at nothing. There are ways to mitigate this with upgradeable patterns or admin functions, but those come with their own tradeoffs around trust and decentralization.

Other Token Experiments

Beyond Starbits, I have worked with various other ERC20 patterns including locked tokens, voting-escrow mechanisms, and staking systems. Most of these were part of NFT projects rather than standalone token launches, but they gave me experience with the full range of token utility patterns that projects use to provide value back to holders.

I have also spent time working with ERC4626 vaults and various DeFi protocols, which I cover in more detail in my DeFi post.

Stablecoins Are the Real Winner

While all of these experimental use cases are prominent in the space, I think the obvious winners in terms of real-world adoption for ERC20 tokens are stablecoins. With the government making a push for legal clarity through legislation like the CLARITY Act, and banks actively looking to adopt stablecoins as a means of quick and frictionless value transfer, this is clearly an important space to watch going forward.

While I have not experimented much with building stablecoins themselves, I have actively used them within DeFi and continue to monitor emerging trends in this area.

If you're thinking about launching a token or designing tokenomics for your project, let's talk.