When Solana returns to the top, will there be new players in the wallet market?

Author: Joyce, BlockBeats

What wallets are available on Solana? For most users in the crypto community, the first names that come to mind are Phantom and Backpack. In this bull market, the wallet track on Solana has produced another phenomenal product, Backpack, following Phantom. However, despite being in the narrow market of wallets, Backpack and Phantom have not engaged in a "kill or be killed" battle; instead, both have benefited from the bull market and achieved good development.

In addition to these two well-known wallets, there are other wallets still surviving in the Solana ecosystem wallet market, with new players entering the scene. The emergence of Backpack proves that even under the halo of Phantom, a phenomenal wallet can stand out. However, Backpack's resource advantages are unique. In this period of narrative fatigue, how much space is left for new players in the Solana ecosystem wallet market? Solana has shone brightly in this round, with a surge in trading volume and a noticeable influx of new users. How can latecomers share in this "new user traffic conversion"?

Reviewing the Success Path of the Leaders

Before looking to the future, let's talk about the "founding paths" of the two leading wallet projects today. The advantages of Phantom and Backpack are irreplaceable, and they have already accumulated a scale effect that is difficult to challenge.

Riding the Wind and Securing First-Mover Advantage

Phantom was launched in 2021, at a time when MetaMask had already established a foothold in the wallet market. However, with the arrival of the bull market, a large number of new users flooded into the crypto community, leading to the emergence of many new wallets attempting to challenge MetaMask by creating differentiated experiences such as "new user friendly."

But differentiated experiences can only garner a brief moment of attention for wallets, and very few of these wallets survive. A16z founder Arianna Simpson described the fiercely competitive wallet market as a "graveyard." Among them, Phantom first gained attention with its elegant and smooth user experience, and most importantly, Phantom chose Solana as its launch ground. Jesse Walden, co-founder of Variant and an investor in Phantom, stated, "It can be said that Phantom's growth is closely related to Solana. The Solana ecosystem is very easy to get started with. There is a symbiotic relationship between Solana and Phantom; they drive each other."

With the rise of Solana in 2021, Phantom was able to quickly accumulate scale and become one of the breakout wallet projects. By 2022, Phantom seized the NFT craze and formed a strategic partnership with the NFT marketplace Magic Eden, allowing Phantom users to directly list NFTs on Magic Eden within the wallet.

Since then, Phantom's leading position has been unshakeable. Even in the bear market of 2023, Phantom still occupies an important position in the Solana trading market, with over 170 million transactions on its platform. During this period, Phantom also advanced an important strategy by entering Polygon and Ethereum. During the boom of the Bitcoin ecosystem, Phantom also followed suit and integrated with the Bitcoin network. At the end of last year, Bitcoin inscription market and wallet provider Unisat announced that it had supported Phantom wallet integration.

Fast forward to this year, Solana has once again returned to the center of the crypto community, and Phantom has also performed brilliantly. A month ago, Phantom became the third most downloaded free app in the App Store's utilities category, only behind Google Chrome and Google Search.

Backed by CEX, Creating a Closed-Loop Ecosystem

In September 2022, Coral, the developer of the Solana development framework Anchor, announced it had completed a $20 million financing round, led by FTX Ventures and Jump Crypto, with participation from Multicoin Capital, Anagram, K5 Global, and other strategic investors. The company launched an interactive wallet product that provides a crypto-native experience through "executable NFTs (xNFTs)," called Backpack.

However, Backpack's development came to a halt with the FTX collapse, until last October, when Backpack announced the launch of its trading platform, Backpack Exchange, which received a VASP license from the Dubai Virtual Assets Regulatory Authority.

From the outset, Backpack clearly communicated its airdrop expectations. In February of this year, Backpack announced on its official Twitter that Backpack Exchange's 24-hour trading volume exceeded $1 billion. At the same time, the 24-hour trading volume of SOL/USDC on Backpack Exchange surpassed Binance, reaching $800 million. This also brought a large number of users to the Backpack wallet.

In addition to being backed by CEX resources, Backpack's uniqueness lies in its design specifically for xNFTs, which are a token standard on the Solana blockchain representing ownership of executable tokenized code. Based on this, Backpack can combine the functionalities of a traditional wallet with the ability to support and run decentralized applications (dApps). These applications, in turn, promote the trading platform, allowing Backpack wallet to thrive.

Furthermore, Backpack is currently the only wallet on Solana that supports user-customizable RPC nodes. Users can pay to purchase RPC and add it to Backpack, which is considered a crucial step for early trading on Solana.

Where Are the New Opportunities for Solana Wallets?

What differentiated directions can new wallet projects choose? Currently, other players can only look for directions that leading projects are unwilling to explore, narrowing the user base, such as focusing on embedded scenarios or serving enterprise-level users in vertical directions. Finding space in these small markets is the first step to survival.

Embedded Scenarios

Apart from DEX trading, another important use case for wallets is dApps, but opportunities in this scenario are gradually being squeezed. Many decentralized applications are beginning to lean towards vertically integrating wallet functions. For example, the recent rise of Friend.Tech and its branches has integrated an embedded wallet using Privy's infrastructure to eliminate the mnemonic phrase requirement for new users.

Analyst MICHAELLWY believes this trend is shifting the wallet paradigm from "one wallet for all dApps" to "one wallet per dApp." Users may no longer use a single application to manage assets but may have multiple addresses and balances for various dApps, challenging the theory of "fat wallets" and suggesting a more decentralized wallet ecosystem.

However, as seen in the traditional internet market, truly valuable latecomer projects are often acquired by leading projects that already have scale effects. A month ago, Phantom acquired Bitski, a wallet-as-a-service platform supported by well-known investors such as a16z and Galaxy Digital. The Bitski team, including its co-founders, will join Phantom and expand its current team of over 80 people. As part of the Bitski acquisition, Phantom plans to introduce embedded wallets to Solana to provide a web2-like easy onboarding experience.

Developer-Oriented

If you search for "Solana wallet recommendations," the wallet project often mentioned after Phantom and Backpack is Solflare, a wallet product created by the team at the end of 2020. Solflare is one of the earlier Solana wallets, launched before Phantom, and one of its advantages in continuing to operate is its emphasis on community governance and developer orientation.

Solflare's open-source platform allows users to actively participate in the development and improvement of the wallet, such as protocol upgrades and feature additions. Compared to other wallets, Solflare places greater emphasis on decentralization and community governance, making it an attractive choice for users who value transparency.

In February of this year, Solflare encountered a surge in traffic during the JUP airdrop, with 30% of Solflare users experiencing a decline in performance. Solflare founder Vidor published a lengthy explanation detailing the issue and future improvement measures. This response garnered goodwill and recognition from the community for Solflare.

Enterprise-Level Applications

On June 10, the multi-signature protocol Squads based on Solana completed a $10 million Series A financing round, led by Electric Capital, with participation from Coinbase Ventures, Placeholder VC, RockawayX, L1 Digital, and Mert Mumtaz, co-founder and CEO of Helius and Odyssey Ventures.

This financing is intended to launch its retail wallet application, Fuse. This is a new wallet designed to provide security and programmability for users within the Solana ecosystem. Squads founder Stepan Simkin stated in an interview that Fuse does not intend to compete with existing wallets like Phantom or Backpack but focuses on providing advanced security features for smart accounts, such as two-factor authentication, recovery keys, and spending limits.

Unlike many projects that choose "new user friendly," Fuse is designed specifically for security-conscious users who already use hardware wallets like Ledger, aiming to provide a more secure wallet experience by leveraging Apple's security model and biometric verification. Stepan Simkin has a clear product positioning for Fuse, providing very specific use cases, including programmable automated trading and locking funds in timed vaults, offering users a "diamond hand."

In terms of revenue model, Fuse also differs from other wallets. Fuse's revenue channels include subscription fees and deployment fees for smart accounts, with an account creation fee of 0.05 SOL and a transaction fee of 0.2% (0% for Squads Pro subscribers). The Squads Pro subscription fee is $399 per month, or users can stake at least 1000 SOL with Squads Validator to access premium features.

Web2 Friendly

Just last week, Solana crypto wallet startup TipLink launched a product called the TipLink Wallet Adapter, with the slogan "The Easiest Wallet," which provides services for new Web3 users without the need for wallet browser extensions. This product links to users' Google accounts, avoiding the need to set up complex wallets. TipLink also launched Pro services to help developers distribute cryptocurrency to hundreds or thousands of users via links.

With TipLink, asset senders only need to connect to a Solana wallet and deposit the tokens or NFTs they wish to send to create a TipLink. They can then copy the TipLink URL or generate a QR code and send it to anyone. Recipients do not need to have a crypto wallet and can even log in via Gmail to receive tokens. With its newly launched API, TipLink allows developers and companies to store digital assets and create TipLinks for their users.

In February 2023, TipLink completed a $6 million seed round financing, co-led by Sequoia Capital and Multicoin Capital, with participation from Solana Ventures, Circle Ventures, Paxos, and other companies, including angel investors such as Vinny Lingham and Sarah Guo.

Beyond Wallets, the "Traffic Entry" Dividend Remains

In summary, there is not much space left for new players in the Solana wallet market. The positions of Phantom and Backpack are particularly difficult to shake. However, the heat of Solana is evident; do latecomers really have no chance to share in the influx of new users? In the concluding section, let's discuss the two commonly mentioned tags for Solana wallets: "user-friendly" and "fast transaction speed."

Theoretically, with a large influx of new users into Web3, the direction of "user-friendly" should be more favorable for new wallet players. However, the reality is not so. If a wallet only has a smooth and easy-to-use interface, even if it has a lower entry barrier than Phantom, it is still hard to succeed. After all, the speed of wallet development may not keep pace with the speed of KOL spontaneous dissemination. During the period when memes surged on Solana, countless "Phantom tutorials" appeared on YouTube.

Even TipLink, which highlights "low entry barriers," is tied to the characteristic of "enterprise-level applications," considering the needs of developers in its use case, which has already narrowed the usage scenario significantly.

But this does not mean that "user-friendly" has disappeared. The Solana ecosystem meme coin issuance platform pump.fun attracted a large number of users in just a few months, with cumulative revenue exceeding $40 million. Just the day before yesterday, pump.fun's 24-hour revenue reached $1.31 million, second only to Ethereum's $3.61 million.

In terms of transaction speed, within the already convenient and low-fee Solana ecosystem, faster "transaction speed" is important, but from the user's psychological perspective, a faster "speed of discovering favorable trades" is even more needed.

Following this logic, it is easy to understand that in the process of the two most dazzling Solana ecosystem meme coins, BOME and SLERF, the Solana ecosystem's tg bot has captured huge dividends. The main revenue channel for wallets and the only revenue channel for bots are both transaction volume cuts, but bots generally have a higher cut than wallets. For example, the BONK bot charges a 1% fee on each transaction, while some high-win-rate bots have even higher cuts, whereas Phantom's cut is 0.875%. During the meme boom, the total 24-hour revenue of various bots exceeded $5.33 million, and bot outages could even affect token prices.

Returning to the main topic, the profit opportunities in the wallet market lie in controlling transaction channels. From this perspective, as long as new users continue to pour in, there will always be incremental opportunities in the wallet market. Apart from the unchangeable first-mover advantage and resource advantage, Phantom's important nodes are closely tied to the demand for NFT asset trading, while Backpack attracted a large number of initial users through airdrop expectations. The brilliance of pump.fun and various trading bots comes from a precise understanding of user demand under the meme craze. The revenue channels for these projects are based on transactions, but transactions are just one aspect; transaction scenarios and narrative cycles are questions that all entrants need to consider.