ERC20 – Comparing Approve/TransferFrom vs Listening to Transfer Events

erc-20eventstransfer

I've been learning about the ERC20 standard and I've seen in several places statements like

If a smart contract want to detect when it receives a transfer of ERC20 tokens the standard approach is for the user to approve the transfer and for the smart contract to complete it doing a transferFrom from the user.

It is said that this pattern is particularly useful for exchanges that receive and manage multiple ERC20 tokens for their users. But can't the same thing be accomplished by listening to the contracts' Transfer events?

For example, if Uniswap wants to detect when a user sends them DAI. They can do 1 of the 2 things:

The approve/transferFrom pattern where the user approves their contract address for the x DAI and then the Uniswap contract transfers the funds from the user's balance to their balance
Setup an event listener on the DAI contract's Transfer event and acknowledge all the events with their address in the "to" field

Maybe there are other consideration I'm neglecting but doesn't the second approach accomplish the same effect in less transactions?

Best Answer

Think of the problem from a control an reliability perspective. Indeed you could listen to transfer events, but there are also some tradeoffs with this approach.

One of the reasons is that the receiving contract, f.e. the exchange, is able to control when the transfer happens, which allows contracts / dApps to perform additional logic before accepting the transfer - rather than relying on the sender to initiate the transaction.

Also listening to Transfer events may result in false positives or missed events, what if the receiving contract doesn't have enough gas, or multiple transfers happening at the same time, then the event listener may receive events out of order, leading to incorrect state, etc.

Conclusion

The receiving contract has control over when the transfer happens
The receiving contract can perform additional logic
The transfer is guaranteed as long as the user approves
Disadvantages may be that it requires an additional approval tx and two transactions in sum to complete the transfer, and the user needs to trust the receiving contract

Related Solutions

solidity – Contract with Function Payable to Receive ERC20 Token

By executing approve(someAccount, someAmount) in a contract function, you are approving someAccount to transfer up to someAmount from that contract.

Hence, by executing approve(address(this), someAmount) in a contract function, you are approving that contract to transfer tokens from itself!

Obviously, it doesn't allow you to then execute transferFrom(someOtherAccount, ..., ...), because the contract is not approved to transfer tokens from someOtherAccount.

And you wouldn't want it to allow that anyway, because if it did, then the entire ERC20 model would be worthless as a financial system, as you could approve and transfer from any account you'd want to.

In short, you need to call approve outside of this contract, using the account which you want this contract to transfer tokens from.

Solidity ERC-20 – How is Approved Called from MetaMask When Transferring ERC20 Tokens

You can start with checking the allowance for your spender by the owner.

function allowance(address owner, address spender) public returns uint256;

If the allowance is below your requirement, you'll need to first perform a approve transaction. And then do the transferFrom. If you do this as two separate transactions, it'll open up the MetaMask twice and the users will have to authorise 2 transactions separately.

We could have used multi-call contract to combine these calls inside a single transaction but most approve function implementations works based on msg.sender.

ERC-777 tries to fix this by requiring a single transaction to effectively perform the equivalent of approve and transferFrom. You can check out more about ERC-777 here.

Best Answer

Conclusion

Related Solutions

solidity – Contract with Function Payable to Receive ERC20 Token

Solidity ERC-20 – How is Approved Called from MetaMask When Transferring ERC20 Tokens

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