What a Wallet Signature Authorizes in an Inventory Trade

A wallet signature can authorize an inventory-backed token trade by letting a contract verify an off-chain instruction when someone submits it on-chain. The signature does not itself transfer tokens or prove that the promised inventory is present. Settlement depends on the contract’s checks, the signer’s authority, and the balances and allowances available when the transaction executes.

That distinction matters because “sign” can describe different permissions. A typed order may specify what a maker is willing to trade; a token permit changes an allowance; a transaction calls the contract directly. Each has a different effect and failure point. For a fuller walkthrough of the wallet flow, see fermi swap.

What does a wallet signature authorize?

An EIP-712 signature authorizes a specific structured message, as defined by the fields and domain the signing application presents. The wallet hashes the message together with a domain separator, then signs that digest. A verifying contract can rebuild the digest and check that the signature came from the claimed signer.

In an order-based trade, the message can bind the maker, input and output token addresses, amounts, recipient, expiry, and nonce. Those are examples of useful fields, not a universal order format: the contract’s actual type definition determines what is signed. If a material term is omitted, the contract cannot recover it from the signature. It must get that term from elsewhere and apply its own rules.

The domain separator can include a protocol name, version, chain ID, and verifying contract address. These values distinguish signing contexts, but they do not make every signature one-use. Replay protection still needs application logic, typically a nonce, an order cancellation state, or both. An expiry limits how long an order remains valid; it does not revoke an order already filled or prevent another fill before expiry unless the contract tracks that state.

How does the contract turn a signature into a trade?

The settlement contract checks the signed instruction and then attempts the token movements. A common sequence is to reconstruct the typed-data digest, verify the signer, check order status and trade bounds, transfer the maker’s input tokens, and deliver the output tokens to the recipient. Atomic transaction execution means the transfers and state changes either complete together or revert, subject to the token contracts’ behavior.

For an externally owned account, verification commonly recovers the signing address from the signature. A contract wallet cannot be checked with that recovery alone: ERC-1271 defines a contract-wallet signature check that asks the wallet contract whether the signature is valid under its own rules. A settlement system that claims to support contract wallets must use a compatible verification path; otherwise, valid smart-account signatures may fail.

Inventory-backed settlement changes where the assets come from, not what a signature proves. The operator may hold inventory in a contract or designated account, and the settlement logic may draw from that balance to fulfil a trade. The contract can check token balances and transfer results, but an off-chain signature by itself does not attest to reserves, ownership, or future availability. A trade can therefore fail if inventory has been withdrawn, another order has consumed it, or a token transfer reverts.

Execution conditions should be explicit. A minimum output or maximum input protects the taker against a worse fill than the signed terms allow. A deadline bounds execution time. A recipient field prevents an intermediary from redirecting proceeds if the contract enforces it. These checks must be part of the signed message or fixed by trusted contract logic; displaying them in a wallet prompt is not enforcement.

How is a signed order different from a token permit?

An order signature and a permit can both avoid a separate approval transaction, but they authorize different things. ERC-2612 defines a permit function that uses an EIP-712 signature to set an ERC-20 allowance. The permit authorizes a spender to use up to that allowance; it does not, by itself, specify or guarantee the terms of a swap.

A trade may need both permissions: an order authorizing its terms and an allowance permitting the contract to transfer the maker’s tokens. A token that supports permit can supply that allowance through a signed message. Without permit support, the owner generally needs to establish an allowance through the token’s approval mechanism before the settlement contract can transfer funds. A permit can also be submitted by someone other than the signer, so its nonce and deadline must be checked by the token contract.

Before signing or submitting, inspect the details that determine authority and execution:

• Confirm the chain, verifying contract, token addresses, amounts, and recipient.
• Check whether the signature is an order, an allowance permit, or a direct transaction.
• Look for the expiry, nonce, fill limit, and cancellation mechanism enforced by the contract.
• Verify which contract can transfer tokens and whether the required inventory or allowance exists.

The practical rule is to treat a signature as narrowly as its encoded fields and verifying contract allow. It can make order submission cheaper and let a counterparty relay the transaction, but settlement remains conditional on live contract state. Read the signed fields, then assess the contract’s transfer and replay checks; neither the wallet prompt nor the signature alone establishes that a trade will complete.