How to win the wallet war Three essential frameworks for builders and investors to know

Mastering the Wallet War Three Crucial Frameworks for Builders and Investors to Succeed

Author: Michaellwy, Blockcrunch author; Translation: LianGuaixiaozou

A Web3 wallet is the main gateway for on-chain services, allowing users to interact with Dapps and store digital assets. There are over 350 wallets available on the WalletConnect website. Clearly, the wallet space has become one of the most saturated areas in the crypto world. The reason for this saturation is obvious: wallets are the first point of contact for all things on-chain. As we all know, widespread distribution means immense power.

In this article, I don’t intend to deep dive into the technical nuances of classifying wallets into categories such as EOA, AA, MPC, and ERC-4337. Although technical categorization is important, they typically only represent differentiation within a specific layer of the wallet. Instead, I intend to focus on three frameworks that provide insights into the business and strategic positioning of web3 wallets. These frameworks will help builders and investors better understand the wallet ecosystem and address the following questions: How can existing projects gain additional value in this saturated market? What strategies can new projects adopt to carve out their own territory amid competition from established giants? And finally, what are the niche markets within the wallet space that still have room for competition? These are the considerations we will discuss.

1. A wallet for everyone vs. Ecological Masters

In the diagram below, I have listed the major wallets along two different axes: functionality and blockchain ecosystem coverage. Although this is not a strict quantitative or scientific categorization, it is a summary based on my practical experience using these products. Instead of focusing on the exact position of wallets on the ecosystem map, it is more useful to observe the general quadrants they occupy. For example, wallets that cater to the Move chain and Bitcoin Ordinals ecosystems tend to be positioned lower on the map due to their focus on specific ecosystems. Wallets tailored for use cases such as trading, staking, and social interaction tend to tilt towards the right, showcasing their specialization.

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This framework divides the wallet landscape into four different categories:

(1) Top left: This is a highly competitive area where wallets strive to achieve comprehensive functionality. Here, we find wallets that aim to provide a “one-size-fits-all” strategy, attempting to cover all major features and utilities, serving all chains. Typical participants in this quadrant include CEX affiliated apps such as Trust (Binance), Coinbase Wallet, OKX, Bitget Wallet, etc.

(2) Top right: While wallets in this quadrant maintain a broad range of blockchain ecosystem coverage, they do not pursue all available functionalities. They focus on meeting the needs of the most active user groups. For example, Zerion and Zapper provide comprehensive DeFi portfolio tracking functionalities. Rainbow, on the other hand, leans towards NFT-centricity and focuses on in-app features like mining.

(3) Lower left: This quadrant represents wallets with a clear ecological inclination. Although they may support multiple chains, they tend to favor specific blockchains. For example, Phantom leans towards Solana, while Core Wallet leans towards their own Avalanche and its subnets, although they also support other EVMs. Their goal is to ensure an early foothold in emerging chains and establish a loyal user base from the start.

(4) Lower right: These wallets can be considered “ecosystem masters.” They focus on specific functionalities that target expected user activities, such as staking and exchanging. They selectively support chains and allocate resources to support the chains with the most activity and liquidity, as these chains are expected to provide significant ROI (Return on Investment).

2. Wallet Stack

The inspiration for the second framework comes from Messari researcher Kel. He divides the wallet technology stack into four dimensions: key management, blockchain support, user interface, and application logic. Based on this, I delved into the strategic content of different stacks. In Kel’s analysis, these four dimensions are described as distinct elements that, when combined, determine the accessibility, specialization, and business focus of a wallet.

In my opinion, the wallet technology stack is more like a multi-layered cake, with security and key management being the most important dimension at the bottom. Building on a solid foundation of reliable design, wallets can focus on more decorative UI adjustments to improve user retention at the top layer. Each layer’s functionalities have specific impacts on product strategy, including login, conversion, profitability, and retention.

(1) Security and Key Management: Self-custody is a crucial feature of Web3. This dimension focuses on how wallets manage private keys and ensure security. The functionalities involved range from Multi-Party Computation (MPC), hardware wallet support, to multi-signature functionality, and even social login supported by Account Abstraction (AA). Elements related to key management shape the wallet login process and determine its ability to attract new users successfully.

(2) Blockchain Support: Wallets can differentiate themselves based on the supported chains. Some wallets focus on the Ethereum ecosystem (L2 and EVM), while others cater to Bitcoin-related protocols (BRC-20 and Ordinals), Cosmos chains, or single chains like Solana and TON. Essentially, a wallet’s blockchain compatibility determines its potential market scope.

(3) Utility: This dimension emphasizes differentiation through the core functionalities of a wallet. Examples include supporting dApps through basic asset transfers, local staking, and NFT management. The utility scope of a wallet determines its revenue streams. Most wallets today offer features like exchanges and fiat on-ramps. Therefore, the ability to stand out depends on underlying improvements.

(4) UI/UX: As the initial interface, UI/UX determines the way users interact with the wallet. Elements at this layer include gas fee swapping, transaction alerts, multi-chain balance display logic, and integration with decentralized identities (DID) and the web3 domain, among others. This dimension shapes the main user activities within the application.

Now let’s look at two examples: one from the top-left quadrant, the Trust Wallet, and another from the bottom-right quadrant, the Uniswap Wallet.

The Trust Wallet is a epitome of an “all-in-one” wallet. It has a comprehensive set of features, almost covering all four dimensions of the stack. Particularly noteworthy is its support for almost all blockchain ecosystems. In contrast, the Uniswap Wallet adopts a “more streamlined” approach, with its design and functionality tailored for a trading experience, making it a more specialized tool.

Below, we list more examples to illustrate how different wallets position themselves in specific dimensions.

The precursor to the Omni Wallet was Steakwallet, which focused on native staking. It offers a clean user experience and supports native staking for over 20 tokens. From the start, Omni’s mission has been clear: to create a unique space highlighting DeFi earning opportunities such as staking, liquidity staking, and yield vaults.

Metamask has turned its swapping feature into a meta-aggregator, obtaining liquidity from DEXes, DEX aggregators, and market makers. This strategy ensures users get the best possible prices. In return, users pay Metamask a 0.875% exchange fee for the aggregated service received.

Trust Wallet stands out for its broad blockchain compatibility. It supports over 70 chains from different ecosystems, including EVM, Move chain, Cosmos, as well as sidechains like Solana and TON.

The strategic focus of OKX Wallet has always been on improving user registration and conversion rates. They introduced social login based on MPC, allowing users to create a wallet using their email address. This feature eliminates the need to remember a 12-word mnemonic, which is often a significant hurdle for crypto beginners.

3. Profitability and Substitutability

Another useful framework for evaluating a wallet product is to observe the profitability and substitutability of its features.

Profitability refers to the potential for features to generate revenue within the wallet. For example, certain features (such as fiat deposits, token swaps, and bridging) can easily generate revenue by charging additional platform fees. Features related to staking and DeFi earnings can allocate a portion of rewards as platform fees. Outside the asset management field, features related to dapps (such as dapp discovery/marketplaces) provide another revenue stream: platforms can charge advertising fees to increase the visibility of certain dapps.

High substitutability emphasizes the competitive differences of a particular function. It measures the degree of differentiation and substitutability of a product or service from its competitors. Basic utilities like token transfers, transaction history, and exchanges are functions that most wallets have. However, specialized features like staking and gas subsidies establish a stronger moat – when users decide to stake assets with a specific wallet, they are more inclined to use the same wallet for managing their on-chain funds. Another example is social functionality: community feeds and web3 profiles (features that Halo Wallet and Easy Wallet possess) can facilitate user connections. Once users establish social relationships on a platform, they become tied to that platform’s network effects and are unlikely to switch platforms.

Based on the three frameworks mentioned above, we can see that it is crucial for wallet builders and investors in the ecosystem to ask the following questions:

(1) Where does the wallet stand in terms of ecosystem coverage and functionality? In which quadrant of the first framework does it roughly belong? Does it focus on specific blockchains or use cases? Who are its main competitors on the ecosystem map?

(2) Which layer of the wallet stack does the project emphasize? Does it introduce meaningful differentiation and superior functionality, thereby expanding the coverage of each layer? Factors such as user conversion, market coverage, revenue generation, and user retention – which one is prioritized?

(3) Finally, when considering profitability and substitutability, how is the wallet’s fee structure set? Does it possess a strong competitive moat?

4. Two trends to watch

Lastly, I want to emphasize two key trends that are still making an impact. These developments may significantly change the future landscape of wallets.

(1) Embedded wallets

One notable trend is the rise of embedded wallets – many dApps are increasingly opting for vertically integrated wallet functionalities. Take the recent rise of Friend.tech and its fork as an example. Users have traditionally connected to dApps using Metamask or WalletConnect. However, to eliminate the need for new users to memorize mnemonic phrases, Friend.tech integrated an embedded wallet using Privy’s infrastructure.

As a result, the “one wallet for all dApps” paradigm has shifted to a “one wallet for one dApp” paradigm. Users may eventually use multiple addresses and balances to manage their various dApps instead of relying on a single application to manage their assets. This challenges the argument of a “one-size-fits-all wallet” and foreshadows a more decentralized wallet ecosystem. If we consider Friend.tech as a wallet, it would fall into a specific point in the bottom-right quadrant of the first framework: its use case is specific to managing friend.tech keys, and its chain focus rests entirely on Base.

Therefore, with the emergence of “wallet-as-a-service” (WaaS) products like Privy, Coinbase WaaS, Web3Auth, Magic Link, Ramper, UniLianGuaiss, Dynamic, Sequence, LianGuairticle, ZeroDev, and bionomy, the value proposition of “traditional” wallets may weaken. DApps may encroach upon the territory of wallet apps by incorporating wallet functionalities as auxiliary features and capturing a portion of the market share that was once dominated by independent wallets.

(2) The Role of Wallets in the MEV Supply Chain

This article primarily explores the role of wallets in the broader context of the Maximum Extractable Value (MEV) supply chain. Wallets serve as powerful gatekeepers in this ecosystem, translating user intent into on-chain operations. They determine the transaction path, whether through the public memory pool or private RPCs like MEV-Blocker (used by Uniswap wallets), Flashbots Protect (used by OKX wallets), and Blink (which governs searchers’ strategies, such as preventing frontrunning and sandwich attacks).

The value of user order flow within the MEV supply chain should not be underestimated. While people focus on the significant transaction fees accumulated by Metamask Swap, one often overlooked detail is that Metamask’s default RPC endpoint is Infura. You guessed it right, both Metamask and Infura are owned by the same parent company, ConsenSys. In simple terms:

• Whoever controls the wallet controls the RPC endpoint.

• Whoever controls the RPC endpoint controls the order flow.

• Whoever controls the order flow controls the MEV extraction.

This cascade of control highlights the strategic significance of wallets, extending beyond their user interface or asset management functions. They are at the core of the MEV supply chain, greatly impacting the user’s transaction process. Therefore, the competition among searchers for valuable transactions will incentivize wallets to monetize through Payment for Order Flow (PFOF).

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