Lab Summaries - Wallet Wars

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If you’re a crypto user, you must have created and interacted with a wallet.

Wallets are the main way you can easily access all decentralised applications (also known as dapps) on blockchains.

This developed was first enabled by Metamask, which also explains its monopoly in today’s digital wallet industry. Before Metamask, other wallets before did not allow connections to dapps, but only as a storage function.

Today, wallets are commonplace across blockchains.

But is that all there is to wallets? Or are there exciting developments to come for these essentials?

Here’s the take from a latest Empire podcast:

Fat wallet thesis

There has been ongoing predictions of wallet wars fighting to acquire and retain crypto users. To win these wallet wars, the thesis is that ‘Fat wallets’ will need to be developed.

But what exactly are Fat wallets?

Fat wallets arrive from a vision that the end state of crypto wallets would be like a Super-App, akin to Wechat in China.

Within these fat wallets, there will be many frequently used functions. For example, someone using a fat wallet can do staking, swapping, lending, NFTs etc. without even leaving the wallet interface.

This was first observed when Metamask implemented a swap function within its wallet.

As wallets own end user relationships, wallets with huge user bases can simply build additional functions onto it to increase user retention and stickiness.

With a huge, loyal user base, wallets can then monetise further via ads or trading fees.

Case in point: The swap function within Metamask charges a significant fee for the swap; Wallets in future could also potentially show relevant ads to users based on on-chain activity.

In sum, fat wallets can make it easier for wallets to acquire and retain users, and subsequently earn revenue through monetisation strategies.

User acquisition and competition amongst wallets

For the new wallets today, there are two unique ways to compete successfully: Verticalisation and geography.

For verticalisation, we can first view the relationships between different platforms in this manner: Browsers > Wallets > Dapps > L1s.

In this case, there is a lot of potential for wallets, dapps or even browsers to move through the supply chain vertically and build complementary products to grow their user base.

Blue chip Dapps like Uniswap and Opensea are also building and launching their own wallets. In fact, this might be the best way to acquire new users compared to other brand new wallets with little brand name.

On the other hand, geography could be a counter argument for the Superapp/Fat wallet thesis.

As different countries/regions have different cultures, the UI/UX and functions they prefer may be vastly different from one another.

In this case, region-specific wallets may be built to focus each region’s nuances, as opposed to a wallet that has a monopoly worldwide.

Future wallet developments

Besides verticalisation, there are other areas that wallets can develop upon.

For one, account abstraction might be a new technology that disrupts metamask. This allows pre-approvals that bundle signatures into 1 transaction.

With this, the wallet could evolve to become a set of smart contracts that signs transactions on behalf of users.

Other areas that need to be improved upon are key generation and management. New retail users would not want the hassle to generate and store keys.

On the same note, intuitive UI/UX is also important, to make it easier for non crypto natives to jump onboard and start engaging.

Main takeaways

• Fat wallets are a likely next development in the imminent wallet wars.

• User acquisition will be more successful via verticalisation rather than trying to acquire new users from scratch.

• Private keys and UI/UX are also essentials that have yet to be solved.

Enjoyed this summary?

You can also listen to the full podcast episode here.

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