A Deep Dive Into ERC20 Approval Vulnerabilities for Developers

ERC20 Approval Vulnerabilities: What Every Developer Needs to Know

ERC20 is the de‑facto standard for fungible tokens on Ethereum, a topic explored in detail in Understanding the Risks of ERC20 Approval and transferFrom in DeFi. The approve/transferFrom pair gives an account the power to let another address move its tokens, but beware of the hidden threats highlighted in The Hidden Threats of ERC20 Approve and transferFrom Functions. This seemingly simple mechanism is the foundation of countless DeFi protocols, from liquidity pools to staking contracts, and is a key focus of Guarding Against transferFrom Attacks: A Guide for DeFi Projects. Unfortunately, it is also a frequent target of bugs, exploits, and mis‑designs. In this article we dig into the most common vulnerabilities, walk through real‑world incidents, and provide a practical, step‑by‑step guide to writing safe, audit‑ready ERC20 interactions.

Understanding the Core: approve and transferFrom

The ERC20 interface defines three essential functions:

function approve(address spender, uint256 amount) external returns (bool);
function transferFrom(address sender, address recipient, uint256 amount) external returns (bool);
function allowance(address owner, address spender) external view returns (uint256);

A token holder calls approve to give a spender a limited allowance. The spender then calls transferFrom to move tokens on behalf of the owner, as long as the amount does not exceed the current allowance. The allowance is stored in a mapping:

mapping(address => mapping(address => uint256)) private _allowances;

This simple design has two inherent pitfalls that developers often overlook:

1. Allowance changes are not atomic – a spender can observe the allowance before and after a transaction, leading to race conditions.
2. Non‑standard implementations – many tokens deviate from the spec, e.g., returning no boolean or failing to emit the Approval event.

Common Vulnerability Patterns

1. Race Condition in Approval Changes

The most frequent vulnerability is the double‑spend race condition. Consider a token holder who wants to reduce an existing allowance from 100 tokens to 50:

token.approve(spender, 50); // current allowance is 100

If the spender had already initiated a transferFrom of 100 tokens just before the approval, two scenarios can occur:

• Scenario A: The spender’s transaction executes first, consuming the 100‑token allowance. The subsequent approval sets the allowance to 50, but the owner now has no token left to approve again.
• Scenario B: The approval executes first, resetting the allowance to 50. The spender’s transaction then attempts to transfer 100 tokens, fails, but if the contract does not revert properly, it could still be executed partially or lead to an inconsistent state.

This race condition is exploited when malicious or buggy spenders use the allowance to drain funds between approval changes.

2. Unlimited Approvals (Maximal Allowance)

Some DeFi protocols rely on users approving an infinite allowance (uint256(-1) or type(uint256).max) to avoid repeated approvals. While convenient, this practice exposes a huge attack surface:

• If a malicious contract gains approval, it can drain the entire balance at any time, regardless of intended limits.
• Even if the spender is a legitimate protocol, a bug or reentrancy can lead to draining all user funds.

3. Non‑Standard ERC20 Implementations

Several popular tokens deviate from the standard:

• Missing Approval event: Some tokens omit the event emission, breaking many automated monitoring tools.
• Non‑boolean return value: Some return no value or a uint256, which can confuse callers that expect a bool.
• Inconsistent allowance behavior: Certain tokens treat approvals as additive instead of resetting, leading to unintended cumulative allowances.

When developers blindly interact with these tokens, they can inadvertently double‑spend or ignore failure conditions.

4. Reentrancy in transferFrom

If a spender’s contract calls transferFrom, which in turn triggers the token contract’s fallback or transfer hook, a reentrancy loop can occur. The spender can recursively call transferFrom before the state update completes, potentially transferring more than the allowance.

Real‑World Incidents

These incidents illustrate that even well‑audited tokens can harbor subtle flaws. The common theme: improper handling of approvals and allowances.

Mitigation Strategies

1. Use the SafeERC20 Library

OpenZeppelin’s SafeERC20 wraps ERC20 functions, ensuring that non‑boolean returns are handled correctly and that all state changes are atomic. Example:

using SafeERC20 for IERC20;

IERC20 token = IERC20(address(0xTokenAddress));
token.safeApprove(spender, amount);
token.safeTransferFrom(owner, recipient, amount);

SafeERC20 automatically checks for success and reverts on failure, closing the door to silent errors.

2. Adopt the safeApprove Pattern

Instead of directly calling approve, first set allowance to zero, then set the desired value. This guarantees that no two approvals can race:

token.safeApprove(spender, 0);
token.safeApprove(spender, amount);

Although it requires two transactions, it eliminates the double‑spend vulnerability. Many wallets and dapps already use this pattern. The practice is discussed in depth in Beyond the Basics: ERC20 Approval Pitfalls for Smart Contracts.

3. Avoid Unlimited Approvals

If you must use unlimited allowances for convenience, do so only for highly trusted contracts and keep them under audit. Otherwise, require the user to set specific allowances each time, or reset the allowance after each operation.

4. Reentrancy Guard on Spender Contracts

When implementing a spender (e.g., a staking contract that calls transferFrom), protect your contract with a ReentrancyGuard:

import "@openzeppelin/contracts/security/ReentrancyGuard.sol";

contract Staking is ReentrancyGuard {
    function stake(uint256 amount) external nonReentrant {
        IERC20(token).safeTransferFrom(msg.sender, address(this), amount);
        // rest of logic
    }
}

The guard ensures that recursive calls cannot interfere with state updates. For more on this, see Smart Contract Vulnerabilities That Target ERC20 Approvals.

5. Verify Token Compliance

Before integrating a new token, run compliance checks:

• Verify that approve, transferFrom, and transfer return a bool and revert on failure.
• Ensure that the token emits all required events.
• Test allowance behavior against the ERC20 spec.

You can automate this using static analysis tools like Slither or MythX.

6. Use EIP‑2612 Permits When Possible

EIP‑2612 introduces the permit function, allowing approvals via signed messages without an on‑chain transaction. This eliminates the need for the spender to request an allowance, reducing the risk surface:

token.permit(owner, spender, value, deadline, v, r, s);

Because the allowance is granted only when the signed permit is submitted, the double‑spend race is mitigated. However, be aware that permits may not be supported by all tokens. A practical guide to closing these loopholes can be found in A Hands‑On Guide to Closing ERC20 Approve Loopholes.

Developer Tooling

Example Hardhat test for safe approval:

it("should safely approve and transfer", async function () {
  const token = await Token.deploy();
  const user = await ethers.getSigner(0);
  const spender = await ethers.getSigner(1);

  await token.mint(user.address, 1000);
  await token.connect(user).safeApprove(spender.address, 500);

  const allowance = await token.allowance(user.address, spender.address);
  expect(allowance).to.equal(500);

  await token.connect(spender).safeTransferFrom(user.address, spender.address, 200);
  const balance = await token.balanceOf(spender.address);
  expect(balance).to.equal(200);
});

The test validates that the allowance is correctly set and that transferFrom respects the limit.

Code Patterns for Safety

Safe Approval with Reset

function resetAndApprove(IERC20 token, address spender, uint256 amount) external {
    token.safeApprove(spender, 0); // reset
    token.safeApprove(spender, amount); // set new allowance
}

Safe Transfer From with Check

function safeTransferFrom(
    IERC20 token,
    address from,
    address to,
    uint256 amount
) external {
    // Ensure allowance covers the amount
    uint256 allowance = token.allowance(from, address(this));
    require(allowance >= amount, "Allowance too low");

    token.safeTransferFrom(from, to, amount);
}

Reentrancy Guard Example

contract ExampleSpender is ReentrancyGuard {
    function spend(IERC20 token, address from, uint256 amount) external nonReentrant {
        token.safeTransferFrom(from, address(this), amount);
        // additional logic
    }
}

These patterns, coupled with unit tests, greatly reduce the attack surface.

Best Practices Checklist

• [ ] Use SafeERC20 for all token interactions.
• [ ] Reset allowance to zero before setting a new value.
• [ ] Avoid unlimited approvals unless absolutely necessary.
• [ ] Protect spender contracts with ReentrancyGuard.
• [ ] Verify token compliance with static analysis.
• [ ] Employ automated testing frameworks (Hardhat/Foundry).
• [ ] Consider using EIP‑2612 permits when available.
• [ ] Monitor contracts in production using Tenderly or similar services.
• [ ] Keep an audit trail: record approval changes and transfer events.

The Future: Moving Beyond ERC20

The DeFi ecosystem is evolving rapidly. New standards such as ERC777 (providing hooks) and ERC1155 (multi‑token) aim to address many of ERC20’s limitations. However, ERC20 remains ubiquitous, especially for liquidity provision and stablecoins. By mastering the pitfalls of approve and transferFrom, developers can build safer protocols and protect users from costly exploits. For a broader perspective on building resilient DeFi, see Building Resilient DeFi: Lessons on ERC20 Approval Hazards.

Closing Thoughts

ERC20 approvals are deceptively simple, yet they sit at the core of every token‑based application. Misusing approve or transferFrom can lead to double‑spend vulnerabilities, unlimited draining, and reentrancy attacks. The key to secure development lies in understanding the underlying mechanics, employing proven libraries like OpenZeppelin’s SafeERC20, and rigorously testing for edge cases.

By following the patterns and checks outlined above, developers can significantly reduce the risk of approval‑related exploits. Remember: security is not a feature but a foundational requirement. Treat approvals with the same caution as any critical contract interaction, and your DeFi projects will stand stronger against future attacks.