For crypto to go mainstream, one of the things that most needs to improve is the wallet / self-custody experience. Hot wallets are notoriously unsafe and it’s unrealistic to expect everyday people to manage/store their own keys. Hardware wallets are an improvement but using them for on-chain interactions is a massive pain. This paradigm pushes people towards centralised solutions and 2022 showed us the catastrophic consequences this can have.
Smart contract wallets are one of our favourite solutions here, and in our view represent an improvement similar to that of Bitcoin → Ethereum in terms of wallet programmability and UX. The simplest smart contract wallet is a multi-sig, and we’ve already seen these attain PMF with Gnosis SAFE on Ethereum securing >$20b in assets. However, in our view this is just the beginning. We believe the future of smart contract wallets will allow for users to pick any point on the security <-> usability spectrum, with the UX being tailored for different use cases such as DeFi, on-chain gaming, etc.
In the near-term, we see an opportunity for a DeFi optimised smart contract wallet. Such a wallet would allow for improved security and additional functionality. Such a wallet would have the following benefits:
Social Recovery. Key management is perhaps the biggest hurdle to clear for new users of blockchains and DeFi. While key generation and documentation around security best practices have improved, it is still extremely common for even very technical users to experience total loss as the result of lost or compromised seed phrases or private keys. A multisig of close friends/family would allow users to move funds off the wallet even if they lose their seed.
Transaction Permissioning. A simple multisig would allow social recovery, but also require multiple burdensome hardware wallet confirmations/signature chasing for every transaction. To simplify UX, the wallet could allow certain types of transactions with only one signature, while forcing more dangerous transactions (e.g. withdrawals) to go through the multi-sig process. Further programmability could include address bundles, with different permissioning for each (e.g. withdrawals to previously whitelisted addresses go through with a single signature).
Key Rotation. Best security practices typically recommend that users rotate their keys regularly to reduce the likelihood of a key compromise and ensure proper functioning of a self-custody setup. In practice, rotating keys for a typical wallet is an extremely time consuming and costly endeavor, as any tokens or funds need to be physically moved from one wallet to another, costing gas and potentially triggering taxable events. Smart contract wallets can change their signing keys without changing the wallet address, greatly simplifying the process.
Cross-chain UX improvements. Cosmos’ wallet ecosystem has significantly worse chain-hopping UX than that of Ethereum, in part due to the sovereign nature of each appchain and their associated wallet customizations. Interchain accounts combined with smart contract wallets could be a powerful combination to maintain feature parity and homogenize the user experience for those using multiple appchains.
On-chain Logic:
Front-end:
Custom Wallet: