What is approve function doing in this code?

Question

This code is snippet from a smart contract, In the code below:

1. who is approving whom and whose funds are cDai allowed to transfer within the given _amount?

2. what is dai.approve doing?

3. If contract is depositing funds to compound, why I should use approve cDai?

    function _depositToCompound(uint256 _amount) internal returns (uint256) {
    require(dai.approve(address(cDai), _amount));
   
    uint256 result = cDai.mint(_amount);
    return result;
   }
   

Answer 1

The approve function approves usage of the token to be transferred given the _amount.

1. The wallet that calls the function is approving the DAI contract to use _amount from the wallet.

2. dai.approve uses the approve function which takes in two parameters, spender and amount.

3. Your contract is using cDai to run a mint function, which I assume you're depositing cDai.

You can read more on approval here.