Building a customer-oriented technology stack centered on the wallet

Building a customer-focused tech stack with a focus on the wallet.

The wallet-centered customer experience stack is the most important and largest “mining” B2B infrastructure opportunity in the current encryption market.

Written by: Superstructure

Compiled: Deep Tide TechFlow

As Web3 matures, infrastructure and tools are also constantly evolving. One of the interesting developments recently is the emerging stack around embedded wallets. Dozens of companies and projects are vying to provide seamless non-custodial onboarding experiences for global dApp developers. Although improving the cryptocurrency user experience alone cannot solve the problem of massive adoption with such huge value risks, it is crucial to provide tools that allow developers to provide a seamless wallet interaction experience. Therefore, the author believes that there is a huge opportunity to build a customer-centric technical stack centered around wallets.

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The experience stack

In b2b software of different technical paradigms, one of the biggest rewards is what I call the “experience stack”. It means different things in different texts, and there are often overlapping and coexisting experience stacks, but overall, we can identify platforms like Salesforce, later Intercom, Twilio, and Shopify…

These companies start from different product strategic starting points and target markets, converge on a privileged position, become “record suppliers” of companies, and mainly manage their end-to-end customer relationships. The “experience stack” is not the only component that companies need to integrate, but it is everything else in the value chain that revolves around its operation and enjoys great strategic choice, pricing power, and value extraction . This usually corresponds to an innovation in “customer records”, reflecting the central position of the supplier’s complete solution in managing customer relationships, such as cloud CRM, e-commerce order history, or the recent “customer conversation” history that has become increasingly important with chat-based customer engagement.

As technology is always changing and developing, as the old S curve gradually disappears, new S curves continue to emerge and advance, we see some overlapping “experience stack” paradigms emerging from Web2. Salesforce’s major victory in the SaaS CRM field laid the foundation for its competition with companies such as Intercom and Twilio for future “conversation-style” CRM, while Shopify’s e-commerce stack for building small and medium-sized complete merchant platforms has begun to see the competitive situation below the cloud provider’s increasingly large “Lego block” services.

While AI will emphasize the conversational part of this “experience stack,” in the corner of the Web3 world, we’re watching a very interesting category of competitors that are entirely wallet-centric and focused on the on-chain transactions they help users execute. This wallet-centric customer experience stack is being explored from multiple angles, but we can see it converging around the same bottleneck points to achieve the following:

• Make it easy for users to get started, whether they’re existing Web3 users or new users, with an experience that is mnemonic-less or equivalent.

• Manage wallet connections, transactions, and switching.

• Allow users to transact without paying gas fees, pay in any gas token, and authorize operations with session keys.

• Manage users, sessions, and all edge cases associated with wallets.

• Make it easy for users to move in and out of cryptocurrencies with their chosen payment method.

• Allow users to transact more complexly and complete higher-level wallet-aware workflows, such as depositing funds into defi yield storage vaults or gaining access to tokens.

While it’s not just the wallet itself (linking Web2 credentials to Web3 wallets for simple logins, pre-/post-transaction session management), the wallet is the primary and most important customer relationship paradigm. In the wallet-centric world of Web3, the wallet is a contained self-payment and identity solution that users have some regulatory power over and natively allows them to express their preferences as blockchain transactions. Fundamentally, dapps or protocols are “talking” to customers using wallets (in any form) and having rich, ongoing “conversations,” the history of which (at least for now) is public and on-chain. What WalletConnect’s 2.0 protocol essentially does is allow dapps and wallets to communicate with each other via encryption, initially for transferring value and data related to transactions but soon including the messages themselves.

Market Segmentation

The recent downturn in cryptocurrency has emphasized the need for us to be clear on who we mean by “consumers,” so I’ll attempt to articulate in a convenient 2×2 chart the potential buyer/integrator demographics for this emerging experience stack category.

First, we have Web3 native applications attempting to reach Web3 native users, such as Defilama and Bungie. These are crypto-native builders who are attempting to reach existing Web3 users with niche (but valuable on an ARPU basis) audiences, whether they are NFT, DeFi, or tech users.

This segment is definitely poised for growth and I am highly bullish on the absolute growth prospects of on-chain Web3 native economies in the mid to long term, but it is definitely the most challenging segment currently and may only be 5-10M MAUs (monthly active users) in terms of active smart contract platform users. Some of these companies may stack their own for certain needs and be more willing to use lower-level technologies like wagmi and ethers themselves. As many interactions of Web3 native users are transaction-centric, free + open source wallet connection libraries like Rainbow and WalletConnect may already suffice for many of their use cases. From what I know, this segment is the hardest to grasp and most irregular in terms of preferences, so vendors competing here will face significant challenges.

We also have Web3 native builders going directly after the mass market. Here, I’m thinking of companies like Stepin, Axie, Polymarket, OpenSea, etc. These are application developers from the crypto world, but trying to target the mass market directly through their product. They are highly focused on experience as their users are more likely to be newcomers and need end-to-end customer experiences and onboarding management platforms. However, these are all startups and they may want a very product-led sales experience where the product can be used for free up to a certain point, their developers can try it out and evaluate it, and only interact with salespeople when necessary. Another example of such a company is what I call “non-custodial neobanks” like Turkey’s Cenoa, which leverage DeFi to provide differentiated financial services to the mass market (in this case, the service is to hedge against inflation and earn USD savings yield).

On the big corp and Web2 side targeting builders, we have a set of existing players attempting to reach high net worth, existing Web3 niche markets by experimenting or expanding overlap between their most loyal and valuable customers and the existing Web3 user base. This brings to mind things like Tiffany’s NFT drop and even Twitter’s profile picture integration, the latter of which is actually aiming to attract existing Web3 users who already own NFTs and provide a good experience for them in the niche of Crypto Twitter.

Finally, existing Web2 brands and large enterprises attempt to reach the mass market. They may be targeting their existing audience, sometimes new audiences, but fundamentally they are attempting to reach regular people and use Web3 technologies. Here, the user experience advantage can be very high, particularly as existing companies transition from innovation departments to more profit-analytical business deployments (and therefore become more stringent), their explorations into the Web3 realm will increase. I also lump in influencers and celebrities who are increasingly deepening into Web3 into this category, as they are, in themselves, “enterprises.”

Different participants come together

Some large companies, such as OpenSea, choose to cobble together their own solutions and integrate low-level libraries. But more and more startups and projects are emerging to solve these problems for dapp developers in a repeatable way for all niche markets. Their methods, starting points, and strategies are all different, but they tend to converge around the core needs of the end-to-end “experience stack” mentioned above. Overall, competitors come from the following areas:

• Centered around key management (e.g., Lit Protocol), tend to focus on security, programmability of recovery options, and trustlessness.

• General web3 platforms (e.g., Thirdweb), which offer various dapp building blocks, all centralized under one platform.

• Smart account platforms (e.g., ZeroDev), which focus their services on smart accounts and place non-gas or sponsored transactions at the center. Some suppliers focus on the account itself, while others focus on the payer/bundler.

• Authentication providers (e.g., Dynamic and Web3auth), whose feature set revolves around managing the relationship between users and their wallets, including Oauth integration, session management, and so on.

• Minting platforms (e.g., Hypermint), which focus on a specific common Web3 use case and provide brands with a complete one-stop solution.

• Wallet connection libraries (e.g., RainbowKit), which are almost exclusively focused on the minimum connections/ wallet functionality required for on-chain interaction.

These solutions are becoming increasingly competitive with each other, and directly or indirectly compete for the key positions that suppliers/solutions occupy in the “experience stack”. They usually appear in the form of SDKs with attached backend services and vary depending on the standards they are built on.

The fog of war

The fog here is thick, with several parts and different participants having different views – distinguishing core value from peripheral value, balancing proprietary differentiation and open standards. This means that several “friendly competition” scenarios have emerged, in which one or more participants compete to win limited attention and budget from buyers for their “Web3” requirements, or as value-added infrastructure components that can collect taxes without being designed out of the equation due to some accumulated long-term advantages. What will be the ultimate winning focus? In this field, which combination of components is internalized and differentiated, and which is outsourced or integrated? There are several different theories, and I provide a high-level description of this emerging field with a quick Wardley map here. I drew a high-level view of the value chain that supports wallet-centric experience stacks:

Participants like ZeroDev focus on smart account services and integrate with any private key management provider, while Dynamic takes a more comprehensive identity-centered approach, covering categories from embedded wallets to session management. Of course, as the creator and maintainer of the Safe smart account core protocol, Safe has expanded its service scope through a basic authorization suite, including transactions and connections to relays. Some components in the value chain are aggregated with each other, and it is not yet clear whether experience stack providers aggregating MPC wallet providers or SCW implementations will win customers, or whether choosing one implementation of each major component is better. For example, ZeroDev, starting from the smart account SDK corner, already has multiple hosted, semi-hosted, and non-hosted embedded wallet providers available for use with its smart accounts. Thirdweb and Dynamic also provide first-party and third-party options for these “instant wallets”, and as “account abstraction” continues to drive the prosperity of smart contract wallets, one might expect players to try to integrate one or more smart account frameworks.

Such a complex network – although clearly forming this end-to-end experience stack – is not uncommon in the early stages of category creation. While a series of experiments are underway in this field, we can see some different potential winning strategies, but cannot determine their exact details, configurations, and timing.

Many unresolved issues = Alpha

The creation phase of this category is a fluid process, with different arrangements of similar concepts, components, and messaging being tried out. As customers continue to develop, early PMFs stabilize, and here the providers (and their customers) still need to navigate many unresolved issues in the maze, eventually solving these problems. This means that there is still a lot of “alpha” in this space.

For example, we can expect the experience stack market to favor some obvious directions, as Web3 has almost accelerated the development of Web2 history, including the development of rich and competitive “integrated” ecosystems, deeper emphasis on dappuser communication and embedded communication tools (possibly Web3 tools like XMTP), as well as functions for managing customer journey stages, such as reservation management and marketing automation tools (again, possibly Web3-native tools). We can foresee that sales promotion in this space will be more focused on traditional metrics such as LTV or ARPU, but with the twist of blockchain transactions. There will be a lot of Web2 Salesforces in Web3’s “Salesforce”.

But there are still many very tricky questions to be answered before this category fully unfolds.

The scope of non-custodial is broad, with strong views on a range of issues related to handling traditional EOA from security and usability perspectives using MPC and related approaches. However, without going into the specific details of the debate, there are fundamental differences between the goals that the Lit protocol aims to achieve and its attributes, and more institutional and web 2.5 solutions like Fireblocks, and is being evaluated by developers who hope to create and maintain the ability to create and maintain easy-to-use seedless accounts for users. We even see participants like Odsy Network conducting low-level experiments, which adopt completely different approaches, making wallets themselves decentralized and programmable in the Cosmos ecosystem, called “dWallets”.

Additionally, the coexistence of embedded wallets and existing independent wallets, as well as the portability and pluggability of private keys, is also an important unresolved issue. If users who use embedded wallets want to enter a more independent wallet experience, the so-called “graduation” problem will arise. As new Web3 users “grow” in their Web3 journey, they may need a more independent wallet, and dapps will need to consider how they want to handle this issue. Some experience stack vendors, such as Sequence, are inclined to solve this problem – their specific wallet application provides a solution for early entry, later participation, retention, and graduation to multiple dapps that use the Sequence wallet. Other participants, such as Coinbase WaaS, are researching low-level and flexible ways to allow dapps to provide services for whitelabeled starting wallets and allow users to pop keys into independent wallets. There is a natural tension between the “application wallet” argument and the “fat wallet” argument that will represent users as intermediaries in Web3. But even after these embedded wallets are successful, users still need some natural reintegration, as they may have multiple embedded wallets in use in different applications, which may be an opportunity for mainstream Web2 platforms to capture end-user relationships and pull them away from experience stack vendors and independent wallets.

Of course, we still have issues with MPC and smart accounts. Are these technologies substitutes or complements?

Some experience stack vendors focus on one or the other, while others see value in offering hybrid solutions (such as Lit+Stackup or Safe and Web3auth).

One observation is that although there are still many issues to be resolved, key management may be commoditizing in the benefits that integrators can absorb, so I represent it as being on the border of commodification/efficiency.

It appears that pure key management providers/networks will compete to become drivers of these higher-level full-featured SDKs, and typically will not directly engage with integrated customers unless certain aspects of key management are sufficiently differentiating.

The implementation of key management will greatly affect the adoption rate of smart accounts combined with key management solutions, making it comparable to something like a solution based solely on MPC.

Intelligent accounts also have the emerging concept of “modules,” which extends the functionality and programmability of wallet logic to external developers who can specialize in different recovery schemes and other transactions.

It is currently unclear whether this will become an important scalability point for the experience stack, or whether it will capture the general attention of developers, like another higher-level abstraction, such as full-stack “workflows.”

Nevertheless, MPC and intelligent accounts both appear to have the potential to play important roles in the development of the experience stack.

The depth and breadth of the problems related to intelligent account/account abstraction are also issues that need to be addressed.

One view is that suppliers in this field should provide services on as many chains as possible to cater to customers’ long-tail needs for chains – which also reflects one of MPC’s greatest advantages, its basic blockchain agnosticism.

There are some factors that will cause experience stack providers to move towards more or less hosted implementations, as well as choices between more or less decentralized chains, but one of the basic value propositions that using Web3 technologies like NFTs brings to your product is the “combined return” they offer, allowing your product to interoperate with native Web3 standards, liquidity, and existing primitives without permission. It is currently unclear how this issue will be addressed, as different integrators may place more emphasis on interoperability and composability than other factors.

Whether experience stack providers should be generalized or focus on specific industries is also an open question. For example, Sequence is focusing heavily on game developers, providing not only wallet and identity verification infrastructure, but also data indexing and NFT commoditization solutions, fiat gateways, and Unity/Unreal SDKs. We may see other suppliers tending towards the “unmanaged network bank” space, selling to traditional and online banking fintech customers as they seek to bring the advantages of chains to users without the hassle of dealing with chains. Other participants, such as Dynamic, have taken a more generalized approach.

There will also be some participants who focus on bottom-up distribution and mobilization of the Web3-native developer community as a bet on future innovation from the core of Web3 (i.e. Web3 natives) directly. It is likely that several big winners will emerge in several different focus areas, and there will be a competition for basic general infrastructure and standards that runs through the issues of smart contract wallets and key management ecosystems.

There is still a basic fuzzy “account” model here. It is not yet clear what the dominant authentication and login models will be in which area. Are we talking about a Waystar Royco dapp account, or an embedded wallet account for experience stack provider AcmeCo?

Some solutions focus more on one or the other approach, and many solutions’ designs and the inherent degree of the stack they occupy are also different. Different segments of potential experience stack customers may have different views on owning customers through wallet relationships, depending on how deeply their products go into the Web3 space.

Finally, what is the ultimate goal of the organizational structure and business model? Will we see several large, centralized players standing firm in the end?

It is very possible. But there may also be many open solutions that erode the profits of more centralized service providers over time and constantly force them to innovate higher-level stacks to maintain their added value. On the other hand, it is possible that the winners become so large that the only way to ease the pressure is to decentralize or open up their solutions in some way.

The most basic and important risk of Web3 is still the risk of value – we cannot apply those issues that are beyond the scope of early adopters’ speculative activities that only blockchain can make us bear. In this sense, simply improving the user experience of Web3 is not enough to save it from the current use case winter. But this does not mean that improving the user experience of dapp users – the Web2 experience with Web3 guarantees – is not a necessary condition for reducing value risk over time. The wallet-centric customer experience stack is currently the most important and largest “mining” b2b infrastructure opportunity in the crypto market.

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