Business Logic Considerations for Cryptocurrency Wallet Products

Author: jojonas

Wallets are one of the most promising segments when viewed comprehensively. A well-performing wallet has the potential to achieve profitability comparable to medium and even top-tier CEXs. What can wallets do? Let's break it down:

web3 traffic entry point, dapp aggregator, user asset management, DID, hardware, payment, account abstraction.

web3 Traffic Entry Point

What is a traffic entry point? For example, WeChat is a social traffic entry point, Meituan is a local life traffic entry point, Taobao/JD/Pinduoduo are e-commerce traffic entry points, and search engines are information traffic entry points… Whenever users have a need in their daily lives, the first thing they think of to satisfy that need is the corresponding traffic entry point.

How much value can a traffic entry point generate?

Human business activities since ancient times can be directly divided into two main parts — production and sales. Production includes market research, technology, material procurement, logistics, product planning, project management, etc.; sales are clearer: user reach and conversion.

Before the emergence of internet platforms, how could product information reach users? By spending a lot on advertising; investing considerable manpower and resources in ground promotion; or maintaining complex distributor channels. (Of course, these methods are still heavily used by the internet, as the network effects relied upon by internet platforms depend more on sales.)

Now, with a snap, the traffic entry point has arrived. As long as the platform is willing, it can instantly let hundreds of millions of people receive information about your product. How much should you pay for that?

Traffic entry points are inexhaustible mines.

Where is the traffic entry point in web3? Naturally, one would think of wallets, because to use web3 products, users must have their own set of public and private keys, whether they know it or not. Suppose a wallet achieves high daily active users; just a display position on the homepage might sustain the entire team, while other features are just a bonus…

However, it is worth noting that the competitive barrier for a pure wallet client is very low, and the cost of user migration is almost zero. Therefore, I believe the key points are:

1. User stickiness. Whether you are making SBTs or whatever, at least you need to make users leave something with you, so they won't be so cold-hearted when they leave;

2. Always leading user experience. Product design itself can be copied; in web2, due to high user migration costs, product experience became a decisive factor in early competition. Web3 has higher requirements; if you slack off in product design throughout the entire lifecycle, and someone else surpasses you, users will leave — there are no guaranteed jobs;

3. Advertising and public relations. Precisely because user migration has become easier, advertising and public relations have become more important. What effect does cognitive marketing aim to achieve? Even if others do it better than you, your users have no reason to move away because they feel you are also good, and very special, and refreshing…

4. Concern for user asset security. If a wallet product can emerge at this stage that integrates AI monitoring for the vast majority of current security incidents and provides accurate alerts when users are at risk; if product security can achieve a level of understanding suitable for novices, it could easily outperform Metamask. This approach of identifying urgent needs and market gaps to outdo the big players seems to have a specific commercial term, but I can't recall it…

5. Convenience. The reason traffic entry points can become traffic entry points is largely due to their convenient access. There are no super entry points in the desktop internet era because once I open a browser, switching from an A navigation page to a B aggregation page, or directly entering a URL, has no significant conversion cost; but in mobile internet, entering a URL in a mobile browser and then jumping to the corresponding service can be quite frustrating. Hence, apps emerged to reduce intermediate steps for one-click access. Browsing news or tracking subscriptions can be done from the browser's favorites, but for high-frequency services, apps are almost a necessity.

As e-commerce, dining, local life, and other commercial services are gradually restructured by the internet, users will have more and more corresponding apps, leading to a demand for aggregation services, much like the navigation page of a desktop browser. However, pure aggregation services still have no barriers; if you can do it, I can do it too. Therefore, aggregation services have become the battleground for those who can provide core foundational services, such as WeChat, Alipay, Baidu, etc.

This logic, when applied to web3, reveals that we are still in the "desktop web3" era, with a trend towards mobile but not yet a wave. Currently, mobile web3 applications only solve the convenience issue without reconstructing the business logic. What does this mean? Taking local life as an example, before mobile applications, there was hardly any talk of web pages for group buying, grocery shopping, haircuts, or local entertainment. Because often, for example, when friends want to go to KTV to sing, it’s not a serious scene where one sits in front of a computer; it’s just a casual mention among friends on the way, and then they want to find a place to book. This is a reconstruction of business logic based on mobile convenience, as the marketing focus for service providers may be on promoting stores on the platform, ratings, etc., facing a broader customer base and more chain-like word-of-mouth dissemination.

So, besides convenience, what else can mobile web3 applications do that is more reconstructive compared to desktop?

Here are a few examples, thought of on the spot while writing, and not deeply considered, open for discussion:

1. Instant trading. The pros and cons of DeFi have been mentioned many times; if various financial ecosystems based on DeFi expand, such as on-chain foreign exchange markets, the importance of instant trading will further highlight. DeFi operates 24/7, but users do not want to be glued to their computers all day.

2. Payment. QR code payment is now very widespread; web3 on-chain transfers also offer QR code options. If blockchain is to achieve mass adoption in the future, payment will certainly be a crucial part, so whether wallets can seize the payment market will greatly influence their competitiveness; mobile payment methods like QR codes/facial recognition are two different experiences compared to desktop payment methods like security shields/passwords.

3. Instant trust. This might be a bit far-fetched, but I have been advocating for putting everything on-chain, including RWA and similar concepts, for a long time. Many friends criticize existing blockchain projects for lacking business thinking, merely copying existing tracks to compete with web2, without doing things that only blockchain can do. I don’t think this criticism is entirely correct, but when it comes to things that only blockchain can do, "instant trust relationships" is one.

I have mentioned this concept before; it’s somewhat idealistic but very exploratory. Taking many civil disputes as an example, when parties involved exaggerate and bystanders fan the flames, it is difficult for legal practitioners to handle the situation fairly because there is often no useful evidence left when the event occurs. Now, if two people have some kind of transaction, they can simply pull out their phones and put the relevant proof on-chain, making it easy to make a judgment later. This cannot be done in desktop web3 because no one is going to have a computer on hand when they suddenly want to act; that would not be a spontaneous decision but rather a deliberate provocation.

I won’t list similar scenarios, but overall, from the perspective of traffic entry points, the importance of wallets is very prominent among various web3 projects, and mobile applications will definitely be a battleground for wallet project teams. In this regard, Metamask has not performed well, while the mobile app experiences of TP, Zerion, and others are much better.

Dapp Aggregator

What wallets hold is actually the life and death power over numerous long-tail dapps.

A possibly overlooked statistic is that in 2021, Metamask's service fees for token swaps within the wallet exceeded $100 million, and this was generated by less than 2% of its active users (as most users do not use Metamask's built-in swap aggregation service at all).

Metamask's transaction fee ratio is dozens of times that of DEXs like Curve (it seems), so why do users still trade on it?

Because it’s convenient. Never doubt that users are inherently lazy. A transaction demand that opens the wallet for direct exchange versus opening a DEX website for exchange is just one step apart, with possibly a few cents in fees difference; some will always choose the former.

Excluding token exchanges, if you frequently use TP or other wallets, you will find that many dapps are built-in. You may not often use these features, but there will always be someone who does. When the user base is large enough, the absolute number will always be considerable.

What can dapp aggregation bring?

1. Similar to search engines or portal sites, adjusting the order may seem insignificant, but as the old saying goes, when the user base is large enough, the impact becomes very obvious. Otherwise, bidding for rankings would be a lonely endeavor…

2. Application market. Similar to the Apple Store, TapTap, etc., without even mentioning the commission, just the corresponding user volume as a distribution channel means something that everyone understands.

3. Feedback user stickiness. The platform's network effect is also not worth discussing further.

4. Facilitate new project incubation. Once the traffic entry point reaches its limit, it will inevitably seek investment and incubation routes to find new growth points; history has always been like this.

5. Solidify the position of the traffic entry point.

Currently, the most famous aggregation service, such as DappRadar, actually does not provide a good product experience in my opinion. It is difficult to intuitively understand from its page which dapp is performing well, what is good about it, and a brief description of the project’s functions. In my view, it merely displays information without truly addressing users' informational needs. For professionals, the information provided is too sparse and lacks reference value, leading them to turn to deeper tools like CryptoRank, Token Terminal, etc.; for novices, the information is not tailored to their cognitive curve, with aggregated information only consisting of simple data like a few UAWs. If I ask you where this UAW ranks among similar dapps, what the various types of interactions represent, and what results they can reflect, there is nothing.

Information aggregation services may seem simple, but they are actually a very important category in web2, requiring relatively high technical standards. For example, when Toutiao first emerged, many people looked down on and rejected it because news aggregation often seemed lowbrow under a noble scrutiny. But today, no one dares to underestimate Toutiao's recommendation algorithm. Based on this algorithm, Douyin introduced a groundbreaking product experience paradigm of swiping up to the next video and double-tapping to like, directly causing the average lifespan of onlookers to drop by 20 years.

I don’t know if existing wallet apps should do dapp aggregation, but from a user perspective, they might have to. Because if a user wants to use web3 applications on their phone, the current simplest path might be: open wallet → built-in dapp browser → type in URL → wallet login → do things. What? The wallet doesn’t support a dapp browser? What? It doesn’t support login? Goodbye.

But whether it can be done well is another matter.

User Asset Management

This is something I personally find quite important, but many current products do not pay attention to it, basically just listing items. Zerion and others do a bit deeper, displaying transaction records and other information more intuitively. Income and expenditure statistics, yield statistics, asset risk distribution, etc., are not difficult to implement if there is a will to do these functions.

On the other hand, why don’t wallets aggregate more asset management services, including LSDs, etc.? I haven’t figured this out yet; perhaps it’s a matter of cost? It’s hard to do it alone, but negotiating with partners to do it together might be relatively easier. CEXs have already provided a textbook example in this regard. Wallets are not vertical products that just provide transfer functions; some products may be more suitable for heavier functionalities; have you ever seen WeChat, Alipay, or Meituan say they only provide core functions and leave the rest to you?

DID

Whether it’s off-chain identity verification, on-chain identity aggregation, or on-chain behavior verification, they are all based on wallets (referring to public keys); if a wallet also provides DID services, why would users go far to seek other options?

Of course, in my understanding, DID is something that cannot be well implemented at this stage; even the DID track itself has some doubts. Some DID projects seem obsessed with real identity verification, as if this would make the floating crypto ecosystem appear more grounded and valuable in the real industry. But have they considered that the transparency and anonymity provided by blockchain are actually a sequential concept, meaning that real identities are first wrapped in anonymity, and then high transparency is provided based on that anonymous identity? On-chain does make it impossible to hide, but unless it’s a necessity like anti-terrorism or anti-fraud, or voluntary exposure, no one should know who someone is.

When I talk about the advantages of blockchain, I often mention an example: your phone number is often exposed inadvertently, leading to a barrage of ads and scams. But on-chain identities are isolated from the real world, eliminating this problem. Now we want DID! With a wave of the flag, the scammers continue their music and dance.

This is still a minor issue; currently, many projects are waving the DID flag, but in essence, they are KYC; this is quite strange because many people are scrambling to "sell" their personal information for free, and then boast that "web3 social is already here," which is truly impressive. Why don’t we launch a project claiming to airdrop 100,000 to all DID holders in a year, and then run away selling user information for 300,000?

So your DID is Defraud rather than Decentralized, right? Wealth code dddd, oh no, I mean did.

……

In my view, DID is a process like this:

1. Real identity verification is not done through centralized KYC methods but through zero-knowledge proofs (compared with databases); that is, I confirm that this account is mine, but others do not know. However, if I am a terrorist, relevant agencies can still verify it.

2. Currently, most products in the blockchain ecosystem do not have a demand for real identity verification. So why not skip this step?

3. Complete transparency on-chain, with all fraud exposed. Fraudulent behavior can be governed through centralized (law) or decentralized (code) means.

4. On-chain users cannot directly know the real identity corresponding to an address. However, users can privately exchange identities, transforming from strangers to acquaintances; of course, this risk is borne by the users themselves, as it is ultimately their decision.

5. Verification and authorization. It would be best to integrate (collaborate with) some security services; I think this could be a breakthrough point for DID product competition.

6. Multiple identity integration. That is, one real identity can correspond to multiple virtual identities, but there needs to be a distinction between the main identity and anonymous identities.

……

For wallets themselves, DID is also one of the business strategies to consider after establishing a foothold, so I won’t elaborate further.

Hardware

From a security perspective, the popularization and affordability of hardware wallets are one of the prerequisites for the large-scale application of blockchain. Independent hardware wallets may be difficult to popularize, but if a hardware wallet chip is built into a phone (I’m just speculating), that would be a completely different matter. Regardless of the web era, I believe the logic of mobile internet has always existed; and since it’s not possible to directly open various dapp web pages on a phone, considering the complexity of direct address logins (private keys or mnemonic phrases), wallets will be an important traffic entry point for mobile web3.

Looking further ahead, the Internet of Things, smart driving, etc., may all rely on distributed network systems, and at that time, hardware terminals will play a more important role.

Why emphasize hardware terminals instead of just installing apps directly on phones?

The primary consideration is security. The dark forest of web3 is not an unfounded concern; for novices, it can be a minefield, and with bad luck, they could face dire consequences. Installing an app is an extremely uncontrollable action; iOS is okay, but due to the open-source nature of Android, you never know where the user downloaded the installation package from, what the installation package has been modified into, or how many permissions have been deceitfully obtained after installation.

If the issue of zeroing out permissions with a single click is not resolved, the so-called mass adoption is just a pipe dream. This can be attributed to users, but the solution must come from the underlying infrastructure. Hardware, relatively speaking, offers more certainty in the hands of B-end users; if customized security is done well, it becomes a "lazy product" that can directly face most novices.

As for usability, most current hardware wallets are standalone and require pairing with another device to operate. However, I believe the ultimate result will be a single device that encompasses all the functions of existing phones and hardware wallets. I’m not sure about the future of Solana Mobile, but this is the right path.

Payment

Payment is one of the biggest entry points for blockchain to achieve mass adoption, but it will also be the most challenging area. On-chain payments have many advantages over traditional electronic payments; the most typical example is that you don’t have to specifically exchange currency or prepare cash/visa when going abroad. Of course, the biggest resistance lies here, as it involves issues of foreign exchange and capital freedom.

Currently, cryptocurrency payments are basically third-party services, including Binance Pay, Coinbase Commerce, and also Moonpay, Alchemy, etc. Even before BTC was born and ETH had not yet risen, there were companies doing similar businesses, as payment is one of the bridges between crypto and external funds. However, decades in the payment sector have not seen significant progress, and I believe the main reason is compliance/regulatory issues. I once watched a documentary where a guy worked hard to grow a bitcoin payment business, only to be shut down by the government and ended up in jail.

The payment field has a high barrier to entry, which is the foundation for mass adoption, but it is also very difficult to scale up, as compliance will definitely require a lot of relationship building. Currently, I have no understanding of how existing crypto payment products handle compliance, so I won’t speculate further.

Account Abstraction

Account abstraction is a broad concept that refers to abstracting both EOA and CA into a universal account.

First, the so-called "account" concept on the blockchain applies to those that adopt an account model; Bitcoin and other UTXOs do not have this concept. Based on this, accounts are divided into external accounts (EOA) and contract accounts (CA), with the former being what most users currently use, and the latter being controlled through smart contracts, allowing for more functionalities. It is common to hear someone say they mistakenly sent money to a contract address; this is the CA, which has the same token transfer functionality as EOA.

Most wallets based on EOA, such as Metamask and Ledger, can be understood as essentially providing the frontend; on this basis, MPC wallets enhance the security of EOA by splitting private keys. Of course, this still depends on whether the MPC project is reliable.

Contract wallets, on the other hand, use CA, controlling the same account with multiple private keys; the logic is the same as MPC, but they are fundamentally different. Relatively speaking, MPC has a higher technical difficulty but narrower application scenarios.

In addition to the security enhancement of contract wallets compared to EOA, the improvement in user experience offered by contract wallets is also noteworthy. Users no longer need to remember complex private keys or mnemonic phrases and can support "trusted third-party recovery." This improvement is a significant boost for the mass application of wallets. Additionally, due to the programmability of smart contracts, smart contract wallets may have potentials in the B2B application layer that we cannot currently foresee.

Despite this, contract wallets are not expected to see large-scale applications in the short term. Apart from the fees associated with creating contract wallets (deployment costs) and promoting contract wallets, the main issue lies in user demand. Most users do not have a strong need to pay for creating a contract wallet. In the short term, MPC may be an easier option to popularize, as it splits a single private key into multiple fragments and performs off-chain calculations, achieving enhanced security at a low application cost. (Who doesn’t have a few devices?)

Of course, when looking at account abstraction, one aspect is security logic, and the other is business logic. From the perspective of the product's commercial logic, how to improve security and usability, as well as market promotion, may be more worthy of attention.

Finally, to summarize, this article mentions the things wallets can do, including: web3 traffic entry point, dapp aggregator, user asset management, DID, hardware, payment, and account abstraction; most of these actually have high thresholds, especially the last three. What truly belongs to project teams that can be attempted are the first three. These three are not about competing in technology or understanding of web3; ultimately, it’s still about product experience and operations. I believe web2 has many experiences that can be referenced.

One point to mention is that most users currently do not know what the product form of a wallet should look like. Project teams do not need to refer to existing product frameworks but should think outside the box about what the core needs of users are, how to shorten the direct path, how to enhance the experience of meeting these core needs throughout the process, and where suitable places are to insert growth businesses.

For example, the frameworks of TP wallet and Zerion have some differences: TP shows a single wallet at first glance, while Zerion shows the entire portfolio. If you are in a "main wallet + multiple miscellaneous wallets" model, then TP's experience will be better; but if you have certain asset management needs, Zerion's experience is better. After confirming this through data, many subsequent business logic aspects will differ.

I have also used the C98 wallet, which has a more adventurous product form.