Token Allowance
A token allowance is the amount of a specific token you have authorized a smart contract to move from your wallet on your behalf, set by signing an approval transaction.
Why approvals exist
On Ethereum and similar chains, ERC-20 tokens cannot simply be pulled by an app. If you want a decentralized exchange to swap your USDC, you first send an approve transaction that says: this contract may spend up to a certain amount of my USDC. Only then can the exchange contract call transferFrom to move the tokens when you trade.
The approval is stored on-chain in the token's own contract, not in your wallet app. It stays there until it is used up or changed, even if you close the website or uninstall the wallet.
Limited versus unlimited
Many apps request an unlimited allowance by default, a huge number that means the contract can move any amount of that token, now or in the future. It saves you a fee on every later trade, but it also means that if the contract is malicious, buggy or later exploited, your entire balance of that token is exposed.
Say you approve a lending app for unlimited USDC while depositing 100 USDC. Months later you hold 10,000 USDC in the same wallet. If that app's contract is compromised, the attacker can take all 10,000, not just the 100 you meant.
Signatures that also grant allowances
Some tokens and tools, such as EIP-2612 permit and Uniswap's Permit2, let you grant an allowance with an off-chain signature instead of a transaction. No gas is paid and it looks like a harmless message, which is why phishing sites love them. Read every signature request, not just transactions.
Good habits
Approve only the amount you actually need when the wallet allows editing it. Use well-established apps and check the contract address. Review your open allowances from time to time and revoke ones you no longer use. Keeping long-term savings in a separate wallet that never connects to apps limits the damage of any single bad approval.
Ask Coach about it
Coach is the AI on AtenaCrypto. It explains crypto with live market data, in plain words.
How can I check which token allowances my wallet has granted and which are risky?Ask Coach →
Frequently asked questions
Does an allowance mean the app already has my tokens?
No. The tokens stay in your wallet, but the approved contract can move them up to the allowance at any time without asking again.
Do allowances expire?
Standard ERC-20 approvals do not expire. Some newer systems like Permit2 add expiry dates, but you should not assume one exists.
How do I remove an allowance?
You revoke it by sending a new approval that sets the amount to zero, which many wallets and revoke tools can do for a small gas fee.
Related terms
Learn it step by step
AC Learning explains these ideas in interactive lessons — the first eight sections are free.
Open AC Learning → Create a free accountAll glossary terms · Educational reference only — not investment, legal, tax or financial advice.