By Simon Lapscher, Co-Founder of Liquality
Long gone are the days where users saw crypto assets only as something to hold statically in cold storage wallets, or in the worst of cases, centralized exchanges. As crypto adoption scaled rapidly in 2021, self-custody and interactivity became the norm for newcomers whose first experiences with the technology have been through Decentralized Finance (DeFi), Non Fungible Tokens (NFTs), and Decentralized Autonomous Organizations (DAOs).
The number of active users on major DeFi protocols has grown exponentially since DeFi Summer, going from 80,000 to over 4 million unique addresses. Similar trends are observable in NFT markets and DAOs. Correspondingly, this led the current top-of-mind wallet to report a 1,800% growth in MAUs from July 2020 to August 2021.
Overall, we’re seeing an important evolution in digital wallets, and by consequence, in the way the average Web3 user interacts with the space. The first generation of wallets contained basic functionalities such as sending and receiving transactions. Once these solutions adopted a browser extension format they became interactive with web applications. This opened the doors for DeFi-ready wallets and their subsequent integrations with swapping services.
It is clear that this is new terrain when it comes to the ongoing development of Web3. A great example of how this has played out in the past is MetaMask’s inclusion of in-wallet ETH-based swaps. The feature has generated close to a quarter of a billion dollars in revenue since October 2020 and became the standard for what features a wallet has to provide. An inflow of new users is starting to expect more from wallet browser extensions as they become the defining medium for how they interact with the space.
The addition of even more integrated features like lending, staking, and DAO voting could lead wallets to become the one-stop shop for DeFi and the rest of Web3. In this case, users’ relationship with these interfaces will make or break how they use and think about the technology. Much like browsers defined the frame for Web 2.0, wallets have the opportunity to define the frame for what’s possible in Web3.
A recent development that dovetails into these possibilities is the death of a one chain mentality. Despite Ethereum’s continued role as the ecosystem of choice for Web3 applications, other networks have started to garner attention by becoming more usable overall. Faster networks like Polygon, Solana, Terra, and Binance Smart Chain have jumped in to fill the gaps left by Ethereum’s scaling issues. Others such as RSK have focused on the largely untapped market for bitcoin-based dapps.
In the end, adoption will happen where users have the best experience, and a wallet’s role is to facilitate this process. To optimize wallets for a single ecosystem would be similar to the walled-garden approach that failed MSN and AOL in the browser era. As these trends continue, it is questions of interoperability and in-wallet integrations that will define the playing field for what wallets best suit users’ needs. Users will soon start to expect better integrated, single-stop solutions for holding assets from multiple chains and interacting with cross-blockchain ecosystems.
We are now at a crossroads where multi-chain wallets are becoming a necessity. In the near future, wallets that can streamline the user experience with features such as easy swaps between networks will provide a stepping stone into this multi-chain future. One where they’re not overwhelmed by a myriad of dedicated bridges as they navigate the DeFi, NFT, and DAO landscapes of different chains. More so, this experience can be further improved by integrations that play into the best that every ecosystem has to offer. A wallet might save a user many steps and headaches by including common operations into its own features.
Multi-chain wallets will lead to a future that is not limited to any specific blockchain. It might well be the case that they won’t have to worry about what chain they’re on or what the best investment strategy of the day is, as long as their wallet is responsive to their needs. Users will reap Web3 benefits such as high yields and digital ownership without the trade-offs of having to purchase gas for every chain, decipher complex terminology and go through disjointed experiences. All of which act as barriers of entry today.
This will lead to a fourth generation of wallets where they play the role of capital automation. One could imagine a digital wallet where users set a risk profile, add funds, and the underlying software automatically deploys capital according to their preferences. More tech-savvy users could even design their own strategies and delegate them to their wallets in an if-this-then-that style. The useability of features like this would depend on these tools’ abilities to take care of swaps, bridges, and other kinds of chain-agnostic transactions under the hood.
As the interfaces that introduce users to this future, wallets should not only be fully featured but also interoperable, and in the near future, automatable. This is the potential wallets have to define the space.
Simon is the Co-Founder of Liquality, a multi-chain wallet and swap network that allows everyone to interact with the decentralized economy in the most secure, easy, and accessible way. Simon was born and raised in Venezuela; growing under a dictatorship with hyperinflation helped him understand the need for an alternative censorship-resistant financial system. He entered the crypto world in 2013 while working in the payments space at Deloitte, which led him to co-create Deloitte’s Blockchain practice. He later moved to ConsenSys to help them build out their enterprise consulting business, where he met his Co-Founders and started Liquality.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.