What is a Token Allowance?
A token allowance is the maximum amount of ERC-20 tokens that a specific spender address (typically a smart contract) is authorized to transfer from a wallet, as set by the approve() function.
WHY IT MATTERS
The ERC-20 allowance model is fundamental to DeFi. When you call approve(spender, amount), you set an allowance — the spender can call transferFrom() to move up to that amount of tokens from your wallet. The allowance decreases as tokens are transferred.
Allowances are per-token and per-spender. You might have a 1,000 USDC allowance for Uniswap and a 500 DAI allowance for Aave — each is independent. The total exposure is the sum of all your active allowances across all spenders.
For agent wallets, allowance management is a security-critical operation. Every outstanding allowance is a potential attack vector. PolicyLayer's approach: set minimal allowances, track all outstanding allowances, and revoke them proactively.
HOW POLICYLAYER USES THIS
PolicyLayer manages token allowances for agent wallets — enforcing maximum allowance amounts per spender, maintaining an inventory of all outstanding allowances, and supporting automatic revocation after transactions complete.