Proxy contracts are a powerful tool in the world of blockchain. They help you interact with complex smart contracts without needing to deal with the complexities yourself. Think of a proxy contract as an assistant that handles tasks for you, like sending tokens, swapping tokens, or managing your crypto in a liquidity pool. It does all the work but still needs your permission.
In this guide, I’ll explain how proxy contracts work when you're dealing with tokens, whether for transferring, swapping, or managing them in some way. We’ll also talk about when the proxy holds your tokens and when it just gets your approval to use them.
What is a Proxy Contract?
A proxy contract is like a middleman. Instead of directly interacting with a smart contract that holds your tokens, you interact with the proxy. The proxy then forwards your requests to the real contract (called the “logic” contract), but it keeps track of important things like your balances and permissions.
Why use a proxy?
Easier Upgrades: The logic of the contract can be upgraded later without changing the proxy.
Efficiency: Proxies can handle multiple actions at once, sometimes saving on gas fees.
User-Friendly: It simplifies how you interact with the system since you only deal with one contract—the proxy.
How Does a Proxy Handle Your Tokens?
When using tokens, there are two main ways a proxy can handle your assets:
The Proxy Holds Your Tokens: You send your tokens to the proxy, and it keeps them safe until it's time to use them.
The Proxy Can Spend Your Tokens: You keep your tokens in your wallet but give the proxy permission to spend them on your behalf.
Let’s break this down further:
1. The Proxy Holds Your Tokens
In this setup, you send your tokens to the proxy contract, and the proxy holds onto them until it's time to do something—like swap them for another token or add them to a liquidity pool.
When Does This Happen?
Liquidity Pools: If you're adding liquidity to something like Uniswap, the proxy may need to hold your tokens, combine them with others, and add them to the pool.
Staking: When you stake tokens, the proxy may hold them and interact with the staking contract on your behalf.
Example: Let’s say you want to provide liquidity on Uniswap using a proxy. First, you send the tokens to the proxy, and then the proxy interacts with the Uniswap contract to add those tokens to the liquidity pool.
2. The Proxy Spends Your Tokens with Your Approval
In this setup, the proxy never actually holds your tokens. Instead, you give the proxy permission to spend a certain amount of tokens from your wallet. The tokens stay in your wallet, but the proxy can use them when needed.
When Does This Happen?
Swapping Tokens: You want to swap Token A for Token B. Instead of sending the tokens to the proxy, you approve the proxy to spend your tokens. The proxy then performs the swap.
Payments: You give the proxy permission to manage periodic payments on your behalf without sending the tokens directly.
Example: If you want to swap tokens using Uniswap, you approve the proxy to spend a certain amount of your Token A. The proxy then interacts with the Uniswap contract to perform the swap, but your tokens stay in your wallet until the swap happens.
Approval vs. Transfer
It’s important to understand the difference between these two actions:
Approval: You keep control of your tokens, but the proxy has permission to use them. This is like giving someone a key to your car—they don’t own it, but they can drive it.
Transfer: You send your tokens to the proxy, and the proxy takes full control. This is like giving someone your car and the ownership papers.
Who Is the msg.sender?
In every blockchain transaction, there's a msg.sender, which is the address that initiated the call. When using a proxy contract:
The proxy is the
msg.sender. It’s the one interacting with other smart contracts.The user gives their approval (either by signing or authorizing the transaction), but the proxy is the one actually making the transaction happen.
When to Approve vs. Transfer?
Here’s a simple way to know which one to use:
Approve: If you want to keep your tokens in your wallet but let the proxy manage them for specific actions like swaps, use approval.
Transfer: If you’re putting your tokens into a system where the proxy needs to handle them completely (like staking or liquidity provision), transfer the tokens.
Conclusion
Proxy contracts make interacting with blockchain systems more efficient and flexible. They allow you to manage your tokens in a safe, user-friendly way, whether the proxy holds your tokens or simply has permission to spend them. The proxy always acts on your behalf, and you decide how much control it has over your tokens.
Remember, use “approve” when you want to keep control and use “transfer” when the proxy needs to handle the tokens directly. In either case, proxies provide a convenient way to manage complex transactions while keeping things simple for users.