Web3.0 Crypto Wallet: Understand the New Billion-Dollar Platform Track in One Article

Author: 7 O'Clock Capital

Introduction

If the popularity and development of the internet have created mobile payments, then the arrival of Web3 has written a new chapter in crypto payments and pushed the development of crypto wallets to a new peak.

The function of traditional e-wallets is to store assets and facilitate mobile payments. On the basis of storing assets and mobile payments, crypto wallets add the function of identity identification. This is also the entry and authentication that allows users to navigate various DApps in Web3.

In the traditional internet, a person's identity is often symbolized by their reputation and behavior in the real world. In Web3, the symbol of identity is displayed through the assets in the crypto wallet, transaction behaviors, and collected NFTs.

1. The Evolution of Crypto Wallets

(1) The Development Cycle of Crypto Wallets

Bitcoin has been born for 13 years, and the blockchain has gone through four iterations from 1.0 to 4.0, with wallets also experiencing four stages of evolution. They have developed from single-asset wallets and single-chain wallets to multi-chain multi-asset wallets, evolving from simple transfer and receipt to blockchain ecosystem aggregation service platforms.

Figure: Stages of Wallet Development

1. From 2009 to 2012, wallets began to enter the initial development phase alongside the birth of Bitcoin and blockchain.

2. From 2012 to 2020, the hacker era and the emergence of Ethereum led to a surge in smart contract wallets, a significant increase in transaction activities, and the popularity of DeFi liquidity mining. The number of crypto wallet users exceeded 50 million, entering a rapid expansion phase.

3. From 2021 to the present, the explosion of NFTs, DAOs, public chains, and Web3.0 applications has made crypto wallets a popular choice for storing assets and trading. Supporting cross-chain assets has also become one of the key considerations for users when choosing wallets, with a greater emphasis on interaction functions and user experience.

(2) Classification of Crypto Wallets

Crypto wallets can be classified into decentralized wallets and centralized wallets based on whether users control their private keys. Among decentralized wallets, they can be further divided into cold wallets and hot wallets based on whether they can connect to the internet. Cold wallets can be categorized into hardware wallets, paper wallets, etc., based on different storage media, while hot wallets can be categorized into mobile wallets, web wallets, etc., based on the tools used for internet connection. Additionally, crypto wallets can also be classified based on public chain ecosystems, whether they are custodial, and other types.

Figure: Classification of Crypto Wallets

2. Current State of the Crypto Wallet Market

(1) User Scale

The user base is growing, and market share is rising accordingly.

The significant rise of digital assets has driven the market demand for secure storage of digital assets and on-chain activities, bringing a development opportunity for the digital wallet industry, with a large influx of developers and funds. According to data from Blockchain.com, the average ownership rate of crypto tokens in 2022 was 3.9%, with over 300 million people globally using crypto assets. The number of users with crypto wallets reached 68.42 million in 2021, and by July 2022, the number of crypto wallet users had reached 81 million, showing exponential growth. Looking ahead, wallets will not only serve as the entry point into the crypto world but will also take on extended functions such as digital asset management and social interaction, underscoring their importance.

Figure: Global Wallet User Numbers from November 2011 to July 11, 2022 (in millions)

(Data source: https://www.statista.com)

(2) Business Model

Gradually shifting from a To B model to a To B + To C model.

The business model of crypto wallets has been continuously evolving alongside their development. When crypto wallets were primarily tools for storing user private keys, they focused on accumulating users and developing their deposit functions, which limited their profitability and ability to generate good revenue.

To generate income, crypto wallets have broken traditional business models by launching value-added services (such as financial products, PoS mining, trading, asset aggregation, market information, etc.) and advertising to increase revenue.

Currently, the crypto wallets in the market mainly target both To B and To C sectors, with the To C sector being the primary source of profit for most crypto wallets.

Figure: Profit Models of Crypto Wallets

(3) Primary Market

Crypto wallets, as the infrastructure of Web3, are favored by investment institutions.

Crypto wallets are one of the main tracks for institutions to invest in the crypto field. In the first half of 2022 alone, the total financing amount in the wallet sector reached $400 million, far exceeding other sectors. Data shows that the investment amount in wallets has continued to grow over the past three years, with global crypto wallet financing rising from $200 million in 2018 to $900 million in 2021.

Figure: Global Crypto Wallet Industry Financing Amount from 2018 to Present

3. Segmented Tracks of Crypto Wallets

There are numerous wallets on the market, with over 200 crypto wallet products currently available in the Google Store. The competitiveness among various wallets mainly depends on their user scale in the crypto market. Therefore, some mainstream wallets often collaborate with major public chains to expand their transaction share. Users generally consider convenience, usability, and security when evaluating wallets, and the development direction of crypto wallets is based on these aspects. 7 O'Clock Capital will analyze representative wallets from the current mainstream mobile wallets, public chain ecosystem wallets, trading platform wallets, asset custody wallets, hardware wallets, and identity wallets.

Figure: Overview of Wallet Products

(1) Mobile Wallets

1. BitKeep

BitKeep wallet is the largest Web3 multi-chain wallet in the Asian market and is an important strategic partner of 7 O'Clock Capital. Established in Singapore in 2018, BitKeep completed a $15 million Series A financing round in May this year, achieving a valuation of $100 million, led by Dragonfly Capital. Currently, it has over 6 million active users.

Figure: BitKeep Wallet Product Image

Product Features:

1. Provides precise DEX market K-line functionality;
2. Supports cross-chain exchanges for 18 public chains;
3. Offers "borrow Gas fee trading" functionality, allowing easy trading without the need for main chain coins as Gas;
4. Built-in NFT trading market, supporting NFT project INO and NFT minting;
5. Supports over 70 main chains, thousands of DAPPs, and hundreds of thousands of crypto assets;
6. Supports OTC trading;
7. Launched a Web3 ecosystem open platform, BitKeep Business, for B-end users.

BitKeep wallet is one of the well-known digital asset wallets in the industry, integrating brand, technology, functional experience, user reputation, education, and service. It employs various security mechanisms such as cold-hot separation and offline signing to ensure fund safety. BitKeep continuously refines its products and aims to become the safest and most powerful entry point for Web3.

2. Rainbow

Rainbow secured $18 million in Series A financing in February this year, led by the venture capital fund Seven Seven Six, established by Reddit co-founder Alexis Ohanian. The product is currently in its early stages, and users can follow official Twitter updates for random NFT airdrops.

Figure: Rainbow Product Display Image

Product Features:

1. Rainbow adds fun compared to other wallets, featuring a rainbow gradient button and rich emojis, making it overall more vibrant than MetaMask;
2. Allows users to purchase crypto assets using bank cards;
3. Dapps interaction;
4. Supports purchasing and viewing NFT collectibles;
5. Supports Layer 2 networks (Polygon, Optimism, and Arbitrum);
6. Social features, linking to social media like Facebook and Instagram to showcase NFTs in the wallet;
7. Provides the DefiPulse index feature to view quality DeFi assets within the wallet;
8. Asset sending/receiving can be done directly through ENS usernames.

3. ZenGo

ZenGo raised $20 million in Series A financing, led by Insight Partners, with Distributed Global, Temasek Holdings, and Austin Rief Ventures participating. ZenGo wallet is also a non-custodial wallet with over 650,000 users.

Product Features:

1. The platform supports over 40 crypto tokens;
2. Intuitive and user-friendly interface with biometric recognition;
3. No fees for sending, receiving, or storing crypto tokens on the platform;
4. High security, using ClearSign firewall and MPC encryption technology;
5. 24/7 customer support;
6. No option to connect the ZenGo wallet to third-party DeFi applications.

Summary: With the increase in user demand and the maturity of product development, mobile crypto wallets will become the traffic and distribution platform for Web3 applications, ultimately promoting a paradigm shift in the entire Web3 track from "wealth creation effect" to "everyday applications."

(2) Public Chain Ecosystem Wallets

1. EVM Ecosystem: Metamask

Metamask is one of the six major products under the Ethereum technology development company ConsenSys and has also received support from the Ethereum Foundation. On March 15, ConsenSys announced the completion of a $450 million Series D financing round at a valuation of $7 billion, led by ParaFi Capital, with other investors including Temasek, SoftBank Vision Fund 2, etc.

Features:

1. MetaMask has over 30 million monthly active users;
2. Global user base, with high participation from the United States, the Philippines, and Brazil;
3. Lightweight open-source Ethereum wallet, also available as an app wallet;
4. Supports testing Ethereum smart contract functionality and the most comprehensive Dapps;
5. Compatible with hardware wallets Ledger and Trezor;
6. Simple user interface, very suitable for beginners;
7. Users can customize their wallet experience, such as adding new APIs to MetaMask;
8. High gas fees. The only criticism is its overly simplistic UI design and page.

2. Solana Ecosystem: Phantom

Phantom raised $9 million in Series A financing in the summer of 2021, led by a16z, with Variant Fund, Jump Capital, and Solana Foundation also participating. Phantom is a hot wallet specifically for the Solana chain.

Features:

1. Allows safe and easy storage, purchase, sending, receiving, exchanging tokens, and collecting NFTs on the Solana blockchain;
2. Currently supports Google, Edge, Firefox, and Brave on web browsers, and iOS on mobile;
3. Offers special services to directly view NFTs and stake;
4. Users can directly stake SOL within the wallet to earn rewards;
5. Users create and manage their private keys;
6. Connects to hardware wallets;
7. Links to other apps (e.g., Serum or other Farming Apps).

However, SOL has faced security vulnerabilities, with a large-scale theft occurring in August, resulting in losses exceeding $580 million.

3. Cosmos Ecosystem: Keplr

Keplr is built by Chainapsis specifically for Cosmos-SDK and is designed for flexible and multifunctional account management within the Cosmos ecosystem.

Figure: Keplr Product Display Image

Features:

1. Keplr enables users to explore interoperable blockchain applications within and outside the Cosmos ecosystem;
2. The Keplr wallet supports various native integrated protocols, including over 10 protocols such as CosmosHub, Kava, Secret Network, Akash, and Sifchain;
3. The wallet is compatible with all Dapps in the current Cosmos ecosystem;
4. Unlike other wallets like Metamask, Keplr generates a new mnemonic phrase for each new wallet created.

Cosmos is one of the popular tracks in 2022, with over 200 projects in the ecosystem, allowing participation in the following interactions through the wallet:

1. Stake $ATOM to validator nodes for airdrop participation;
2. Participate in staking new chain ecological projects of Cosmos SDK chains;
3. Add LP (provide liquidity) on Osmosis.

4. Layer 2 Ecosystem: Argent

With the vigorous development of Layer 2, Layer 2 wallets have also become necessary infrastructure. Argent is a Layer 2 wallet active on the ETH chain, with the advantage of easily transferring Layer 2 assets to Layer 1 at low cost and high speed. In April 2022, Argent completed a $40 million Series B financing round, led by Fabric Ventures and Metaplanet, with participation from Paradigm, Jump, and Animoca.

Features: Argent is a user-friendly crypto wallet with over 500,000 users. The official disclosure indicates plans to launch decentralized products such as lending and staking, and to explore new fields like virtual real estate, gaming, DAOs, and NFTs.

Starting from the crucial security aspect of crypto wallets, Argent eliminates the concept of private keys/mnemonic phrases and uses social recovery features to ensure user ownership of the wallet, thereby lowering the usage threshold and gaining significant market competitiveness. However, compared to other wallets, Argent users cannot easily switch between most commonly used EVM networks, which somewhat limits its usage scenarios and makes it difficult to establish user stickiness.

5. Aptos Ecosystem: Martian Wallet

Currently, Martian DAO is building various products for the Aptos ecosystem, including Martian Wallet, Curiosity NFT market, trading platform, etc.

Martian Wallet is a crypto wallet built using its Aptos web3.js module version, used for managing digital assets and accessing decentralized applications on the Aptos blockchain. It also supports minting NFTs on the Aptos development network and has launched a Chrome extension wallet, with an iOS version to be released later.

The Aptos public chain is a brand new public chain, making new ecosystem projects very worthy of interaction and airdrop opportunities. The process is simple: after installing the wallet via the Google Chrome extension, click Airdrop to receive test coins and visit the official website (https://martianwallet.xyz) for NFT minting and interaction.

6. Sui Ecosystem: Sui Wallet

Sui is built on significant innovations in consensus algorithms and utilizes novel data structures to produce high-performance Layer 1. The development team, Mysten Labs, is a company building infrastructure for Web3, with team members coming from Facebook.

Sui has raised $300 million in Series B financing, led by FTX, with participation from a16z crypto, Jump Crypto, Apollo, Binance Labs, Franklin Templeton, and Coinbase Ventures.

Recently, the project launched an ecological wallet product, Sui Wallet, which is currently just a trial tool but allows for early experiences. The entire process is simple: enter the #devnet-faucet channel on Discord to receive test coins, formatted as !faucet + your address.

Summary: Multi-chain deployment has become a definite trend, with more and more public chains choosing to directly support the Ethereum Virtual Machine (EVM) and borrowing Ethereum wallets. For public chains that are not EVM-compatible, developing wallets and other infrastructure is a strategic requirement for improving ecological development. However, the lack of interoperability between different public chains is also a bottleneck limiting the overall development of the industry. Wallets are engaged in fierce competition in a multi-chain parallel landscape, and it is highly likely that a wallet encompassing all public chain ecosystems will emerge as a phenomenal product in the DeFi field.

(3) Trading Platform Wallets

Trading platforms are also launching their own crypto wallets, with Coinbase Wallet, OKX Wallet, and 1inch Wallet as representatives.

Coinbase Wallet is also known as the most suitable wallet for crypto beginners, currently available as a web extension and mobile app. Users can scan the QR code on the extension wallet with the mobile app to connect and access DApps and DeFi applications on the desktop with one click. However, the Coinbase extension wallet page is overly simplistic, and relevant transaction records can only be viewed on the app. Additionally, users must confirm all transactions in the extension through the mobile app, while also supporting NFT storage. As of now, Coinbase Wallet supports Ethereum, Polygon, and Optimism.

OKX Wallet is the official wallet of the OKX exchange, developed and used to meet users' Web3 needs, backed by one of the largest digital asset trading platforms globally. Currently, OKX has over 20 million users worldwide, and OKX Wallet, as a secure and fully functional Web3 wallet, will enable exchange users to quickly enter the Web3 world. The features of OKX Wallet include:

1. Multi-chain and multi-asset support, supporting over 25 public chains and 1000+ DeFi protocols;
2. Provides NFT purchasing, trading, and creation functions;
3. Web3 user entry point, integrating various DApps (DeFi, GameFi, and selected DAOs);
4. Open-source API, developer-friendly, allowing Web3 developers to easily connect their DApps with OKX Wallet;
5. Good user experience, integrating the needs of beginners and professional users, providing complete process guidance for newcomers.

1inch Wallet is built-in DEX aggregator, supporting trading and transferring hundreds of tokens on Ethereum, BNB, Polygon, Optimistic Ethereum, Arbitrum, Gnosis, Avalanche, and Fantom public chains. 1inch provides users with deep liquidity and better swap rates. Recently, it announced the distribution of 300,000 OP airdrops to 1inch wallet users on the Optimism network to reward users interacting through 1inch wallet.

(4) Asset Custody Wallets

Safeheron is a preferred asset custody wallet, characterized by high asset security. It has completed $7 million in Pre-A financing, co-led by Yunqi Partners and Web3Vision, with participation from PrimeBlock Ventures, Cobo Ventures, M77 Ventures, 7 O'CLOCK CAPITAL, and Zhang Fan, co-founder of Sequoia Capital China.

Safeheron is the only self-custody service provider in Asia that masters MPC (Secure Multi-Party Computation) and TEE (Trusted Execution Environment) technologies. Since its product launch, it has provided services to over 20 clients, who have collectively custodied over $1.5 billion in crypto assets and facilitated transactions worth over $4 billion using Safeheron's wallet services. Official website: https://www.safeheron.com

Figure: Safeheron API Signature Mechanism

Main Features of the Wallet Include:

1. Replaces single-point private keys with distributed private key sharding;
2. Self-designed multi-layer security technology combining cutting-edge MPC cryptography and hardware isolation;
3. Wallet is open-source and verifiable;
4. Transactions are free or have very low transfer service fees;
5. Supports multi-chain and multi-currency, including NFT assets.

Digital asset custody has undergone many evolutions, from only hot wallets to the current mix of hot wallets, cold wallets, and multi-signature wallets. The combination of MPC technology and TEE technology has made Safeheron stand out in the asset security custody market. Currently, Safeheron has also officially reached a strategic cooperation with MetaMask to jointly enter the enterprise-level MPC multi-signature security field, firmly occupying a high ground in the market.

(5) Hardware Wallets

Cold storage is the preferred storage method for everyone; it is not only the choice of long-term token holders and Bitcoin supporters but also suitable for institutional custody services. By disconnecting the encrypted USB device from the internet, it provides users with physical-level security protection, eliminating the situation of third parties controlling funds.

Here is a comparison of three mainstream hardware wallets in the market:

Figure: Comparison of Three Mainstream Hardware Wallets

In addition to the above three hardware wallets, OneKey Wallet must be mentioned, as it is the only hardware wallet invested in by Coinbase and has also developed a mobile app wallet with distinct features and smooth usage. OneKey Wallet recently announced $20 million in Series A financing, led by Dragonfly and Ribbit Capital, with participation from Framework Ventures, Sky9 Capital, Folius Ventures, Ethereal Ventures, Coinbase, Santiagoroel, and Fishkiller.

OneKey hardware wallet has the highest sales growth rate in Asia, with a rich product line, including OneKey Swap, OneKey Desktop, OneKey extension, and OneKey app. The hardware wallet supports all EVM chains, including ETH, Polygon, BSC, OKT, as well as BTC, Solana, Near, Trx, etc. It is currently adding multi-chain support and functionality optimization at a weekly update pace. It is compatible with OneKey extension and MetaMask, allowing users to participate in DeFi, making it an essential hardware wallet for DeFi participation.

Features:

1. Full platform support for desktop, browser extension, and mobile app;
2. Supports multi-chain, multiple mnemonic phrases, and simultaneous use of multiple software and hardware wallets;
3. Supports passphrase;
4. Built-in multiple nodes and default chain switching;
5. Weekly iterations, adding new features and chain support, as well as functionality optimization.

Summary: On one hand, wallets are essential tools for users to interact on-chain and can be seen as important entry points from the real world to the crypto world; on the other hand, the essence of wallets is private key management tools, with strong asset attributes. The future development of crypto wallets will continue to enrich and expand around these two characteristics, optimizing business and resource aggregation towards a comprehensive and integrated direction.

(6) Multi-Chain Wallets

Coinhub is a multi-chain decentralized wallet product serving the DeFi ecosystem, now available in both browser extension and mobile versions, supporting over 40 public chains including Bitcoin, ETH, BSC, Solana, Polygon, Avalanche, Tron, Arbitrum, and Optimism, collaborating with over 2000 DApps, with users distributed across more than 50 countries and regions globally, covering over 1.5 million users through self-media traffic.

Coinhub fully displays user assets through contract analysis, intelligently recommends quality applications through data analysis, and achieves convenient financial management, one-click mining, and optimal trading through aggregating DeFi tools. This allows users to comprehensively understand current data and manage assets conveniently in the new DeFi ecosystem, reducing user risks and achieving asset appreciation.

(7) Identity Wallets

The emergence of the concepts of Web3 and the metaverse has provided a deeper positioning for the attributes of crypto wallets, which will serve as users' identity identifiers, representing not only digital assets but also digital identities, endowing wallets with social attributes.

Formatic Wallet (now renamed Magic)

It has completed $27 million in financing, led by Northzone, with investors including Tiger Global, Volt Capital, Digital Currency Group, CoinFund, and Reddit co-founder Alexis Ohanian.

Features: Users can register a wallet by simply entering their email address, with no mnemonic phrase generation. Users' identities are protected by a delegated key management system based on hardware security modules (HSM) that complies with SOC 2 standards. From a developer's perspective, the integration of Fortmatic is extremely simple, making it a developer-friendly wallet. For any existing web 3 application, it can be integrated by copying just a few lines of code. However, it currently mainly supports EVM networks.

(8) Web3 Wallets

The Web3 wallet Steakwallet has now been renamed Omni, raising $11 million in seed funding at a valuation of $50 million in September. Investors include Spartan Group, GSR Ventures, and Eden Block.

Omni claims to have built its own custom smart contract middleware, allowing users to stake across more than 20 protocols and includes liquid staking options. Users can also move assets across different blockchains via cross-chain bridges and display NFTs from different chains on the mobile app. It is currently available on all major Ethereum Virtual Machines and Layer 2 scaling solutions (such as Arbitrum, Optimism, and Polygon), and the company is preparing to integrate with zkSync and Starknet.

4. Future Outlook for Crypto Wallets

As one of the essential tools for participants in the crypto market, wallets occupy a very important position in the infrastructure field. Currently, many entrepreneurs are entering the wallet track. We believe that in Web3, the importance of wallet entry will surpass that of trading platforms and become a gathering place for Web3 traffic and one of the infrastructures of the metaverse, with its value reflected in the following aspects:

(1) DID Identity Verification

In a lengthy article titled "Decentralized Society: Finding the Soul of Web3," Vitalik Buterin pointed out that Web3 currently has considerable limitations at the application layer, stemming from the lack of native components representing "human identity and social relationships." Wallets are the perfect Web3 components, with all information such as identity, licenses, medical records, and addresses displayed through smart contracts to create a unique DID system. Wallets will ultimately achieve functions such as off-chain identity verification, on-chain identity aggregation, on-chain credit scoring, and on-chain behavior verification.

(2) Web3 Gateway

The current four layers of the Web3 stack are protocols, infrastructure, use case layer, and access layer. Due to the complexity and structural issues of each layer, they cannot be well integrated. Wallets sit at the top of the stack, serving as entry points for various Web3 activities, which will thoroughly bring the Web3 stack into reality. For example, wallets will replace existing login or registration systems, eliminating the need to create new accounts on all websites using Facebook or Google credentials, instead approving logins entirely through wallets, becoming the primary entry point for most Web3 applications.

(3) Public Chain Connector

The development of Web3 applications is based on smart contract platforms such as Ethereum, Solana, Avalanche, and Cosmos. Whether layer 0, layer 1, or layer 2, a wallet will be developed to adapt to the ecological development of its own chain, both to enrich the ecosystem and to compete for traffic. However, the competitive landscape of multi-chain has fragmented the liquidity and composability of DeFi products, preventing digital assets from circulating freely across all public chains. Wallets will act as connectors, bridging all public chains.

(4) Becoming the "Alipay" of Web3

While supporting payments and transfers, all DApps will be integrated into the wallet, allowing project developers and users to gather significantly to form a new generation of internet ecosystems based on blockchain technology. In this ecosystem, all online operations by users can be conducted through wallets, including social interactions, short video browsing, shopping, ordering food, hailing rides, and traveling.

(5) Metaverse Hardware Devices

Wallets will evolve into small chips, allowing for a perfect blend of the virtual and real worlds. Similar to contact lens devices, once implanted, they can achieve naked-eye AR effects, with daily use complemented by a mobile-like control terminal. Information about each person will be displayed directly on their face through AR, including age, occupation, relationship status, social connections, and digital assets. In the metaverse, everyone's information will be transparent and interactive, allowing users to log in for any metaverse experience and purchase anything sold in the metaverse, fully utilizing the interoperability of wallets to provide a better user experience.

At the same time, the future development of wallets also faces challenges:

1. Regulatory compliance issues. The service providers of Web3 applications will be digital representations of real people off-chain, but considering the global regulatory compliance and public adoption of Web3, real person verification may be unavoidable. In the future, the coexistence of both may not be ruled out, where accounts verified by real people will enjoy more rights in the Web3 world, while purely digital identities will still be accepted.

2. Another derivative issue is privacy protection. Using wallets for various verifications and binding off-chain information raises the question of how to protect users' identity information, which is a challenge that needs to be addressed in technical implementation.

The narrative of Web3 is constantly being dismantled and reshaped, attracting more new developers and users. However, compared to the 4 billion internet users globally, the current user base of Web3 is still far from comparable. Data shows that as of the first quarter of 2022, Facebook had 2.936 billion monthly active users, while the monthly active users of the wallet Metamask were only 30 million, indicating that the proportion of digital asset wallet users is still very small, and the future market potential is enormous.

We assess that in the digital world of Web3, there are still billions of users to be discovered, which means that the wallet-related field still holds infinite possibilities. This will also be a stage for adventurers to showcase their skills. In the future, whoever captures the majority of users in the Web3 world will win this battle.