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How Do Token Allowances Enable the Creation of Collateralized Debt Positions (CDPs) in DeFi Lending?

Allowances let lending protocols pull and lock user-provided collateral to mint stablecoins or issue loans.
Greeks.Live29.10.25

How Do Token Allowances Enable the Creation of Collateralized Debt Positions (CDPs) in DeFi Lending?

In a CDP protocol like MakerDAO, a user must deposit collateral (e.g. ETH) to mint a stablecoin (e.g.

DAI). The user grants a token allowance to the protocol's smart contract for the collateral they wish to deposit.

This allows the contract to pull the collateral from the user's wallet and lock it in the CDP vault. The allowance mechanism is critical for enabling the user to deposit and add collateral to their position in a non-custodial manner.

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