tl;dr
- Token approval is essential for interacting with dApps, including DEXs, lending platforms, web3 games, staking protocols, and blockchain bridges.
- At ChainPort, token approval is a required step to securely bridge tokens across different chains, ensuring smooth cross-chain token transfers.
- Token approval occurs between a user’s Web3 wallet and a dApp’s smart contract.
- There are two primary types of token approval: unlimited approval and approval for a set amount, each with its own benefits and risks.
What is Token Approval?
Token approval is a process on EVM-based blockchains like Ethereum, where a token owner grants permission for a smart contract to manage a specific token in their wallet. This process is key for interacting with dApps, including DEXs, lending platforms, web3 games, staking protocols, and blockchain bridges.
At ChainPort, token approval is a required step to securely bridge tokens across different chains, ensuring smooth cross-chain token transfers.
How Does Token Approval Work?
Token approval is a process that occurs between a user’s Web3 wallet (e.g., MetaMask or Trust Wallet) and a dApp’s smart contract.
Token Owner Approves
The token owner initiates the approval process by calling a specific function (usually named approve()) on the token contract. They specify the address of the smart contract they want to grant permission to and the amount of tokens they want to approve.
Smart Contract Spends Tokens
When the smart contract needs to use the approved tokens, it calls a function on the token contract to transfer the tokens to a designated address. The token contract verifies that the smart contract has sufficient approved tokens before transferring them.
Types of Token Approval
There are two primary types of token approval, unlimited approval and approval for a set amount. Both can be beneficial for different scenarios.
Unlimited Token Approval
As per its name, the user grants the smart contract unlimited permission to spend a specific token. Unlimited token approval can be very convenient, especially in dApps requiring a high frequency of transactions, like Web3 gaming dApps. Unlimited approvals can bear some risks, however. Be sure to verify the contract and make sure the dApp has been properly audited to avoid losing funds in a hack.
Specific Amount Approval
Users can also limit the amount of tokens that a smart contract can interact with, via specific amount approval. In some wallets, specific amount approval may be called a “Spending Cap”. Limiting the number of tokens for approval may be slightly more secure at times, especially when dealing with a less trusted dApp, but can be less convenient. However, this may be the right course of action if a user wants to do a single interaction.
Token Approval and Security
Token approval, while essential for many decentralized applications, also introduces potential security risks. One major concern is the possibility of malicious smart contracts exploiting approval permissions to steal tokens. This can occur through vulnerabilities in the contract's code or through social engineering attacks.
Security risks can be mitigated by interacting only with reputable smart contracts, using a secure wallet, and being cautious of phishing attempts.
Why Revoking Token Approval Matters
After you’re done interacting with any smart contract or dApp, it is important to revoke token approval. By revoking token approval, the smart contract can no longer access specific tokens in your wallet until the next time needed. This action could safeguard your funds if a DEX or DeFi protocol is exploited.
Join ChainPort’s community for updates:
ChainPort | Twitter | Telegram | ChainPort News | Documentation | Medium | Reddit
