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ERC-20 and how to protect wallets from its allowance risks

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As virtual asset holders continue to engage in their routine crypto trading, it has become imperative for them all to become abreast of the prevalent measures necessary to guarantee the safety of their wallets, particularly from ERC-20 allowance risks. As designed, the ERC-20 allowance feature materialized on DeFi to offer permissions to certain transactions to relay tokens from the user’s wallet. This process, however, poses huge risks if not appropriately managed. With this article, wallet holders and other crypto enthusiasts will be orientated as regards the risks incurred and the possible ways to avert them.


The ERC-20 grossly came into the limelight as an Ethereum-backed token. Its programming makes it usable for any kind of smart contract for the execution of tokens on the Ethereum blockchain. In common parlance, the asset emerges just like other cryptocurrencies which possess the capacity to become sent, received, and swapped.

How ERC-20 allowances function

As designed, the ERC-20 works and gets issued on the Ethereum blockchain. In addition, the crypto token paves way for smart contracts to spend their respective crypto assets for the holders. This thus becomes obtainable through the activation of the “transfer from” function respectively. Subscribers usually grant permission to this contract to carry out the aforementioned directive on their behalf. With this development, wallet holders store the asset on the smart contract without any hitch. Having successfully done this, the mechanism updates the deposit of the tokens. To aid the understanding of the processes, an illustration is given below.


If Dennis as a token holder intends to store DAI into Aave in a bid to galvanize proceeds. As programmed, the investors must first incorporate DAI from the wallet into the Aave contract. After the successful completion of this, the holders then notify the smart contract feature on the Aave contract. With this, the holder indicates the details of the DAI intended for deposit. Accordingly, Aave successfully transfers the token.

Kindly note that the ERC-20 allowance as programmed usually works for subsequent transactions, averting the need for future approvals. Nevertheless, since wallet holders usually specify the aggregate amount usable for the overall operations, the project tends to work in such respect. Over time, these unlimited ERC-20 allowances endanger and prone the wallets to varieties of avoidable risks. First, the unlimited allowance technique makes it easy for scammers to exploit and cart away funds from the wallets of holders.

Obtainable exploitations occasioned by unlimited allowances, others in the distant past

According to a recent statistics by Certik Alert, the DeFi space experienced series of hacks, exploitations, and security breaches, amounting to a total of $1.6 billion stolen from crypto users this year. This record, however, surpassed the total amount of losses recorded to such menace in 2020 and 2021 combined. Just in April 2022, a team of exploiters gained unauthorized access to the Ronin Bridge network, stealing over $600 million worth of crypto from users. Also, a popular crypto exchange, Ascendex similarly experienced similar exploitation in December 2021 where its users lost $77 million in ERC-20. In June 2020, Bancor endured a smart contract bug that led to the theft of millions of funds from users’ wallets. These are just a few of the many incidences of exploitation, which sometimes become occasioned by unlimited allowances.

How Crypto wallet holders can avert the dangers attributed to unlimited ERC-20 allowances

Avoiding the possible security risks associated with ERC-20 allowances appears feasible only by adhering to recommended measures. First, crypto wallet holders must consistently reexamine existing ERC-20 permissions obtainable in their wallets. They need to harness the presence of protocols, like revoke.cash, approved. zone and others to identify unrevoked allowances. These protocols ultimately avail them with the platform to either reduce the instances of the allowances or their outright cancellation.

More so, crypto investors with metamask wallets possess the capacity to design customized limitations for spending. This, however, becomes feasible at the first stage where approving spend limits for new tokens usually manifest. Such restraint serves as an effective alternative to issuing unlimited allowances to ERC-20 transactions on the wallet.

Over time, metamask wallet users usually think that they become immune to security breaches after they disconnect from previous websites. No! Making efforts to disconnect from the accessed website lacks the capacity to protect wallet holders from exploitations. Nevertheless, users tend to avoid the risks associated with ERC-20 unlimited allowance by adhering to the aforementioned measures.

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