This piece is a follow up to my previous post outlining why monolithic wallets will lose ground to vertical specific ones.
The explosive growth of the broader crypto market over the last 3 years is opening the door for verticalized wallets to flourish. These verticals may be delineated by use case (e.g, gaming), region (e.g., southeast asia), age group (e.g. GenZ), or any other grouping. Sharing my thoughts on some examples and potential features I think would be interesting:
NOTES:
I’m focusing on mostly EVM compatible to limit the scope a bit; there are many amazing wallets built on other chains
These are not meant to be mutually exclusive nor collectively exhaustive of EVM compatible wallets
These verticals are emblematic of some that I find interesting, they are also not mutually exclusive nor collectively exhaustive of verticals
Onboarding - Today, if you made the average person set up a Metamask wallet and fund it with fiat they would have a tough time. It’s not very intuitive, the experience can be scary, and nearly half the time funding with a credit card is blocked. A wallet might be built to easily onboard such that it is a great starter wallet when introducing people to crypto. It likely won’t be the perfect wallet for someone forever, but offers a simple first-time experience. As users get more comfortable they could outgrow this wallet and move their assets to a more secure wallet.
Features: Seed phrase recovery, Spending limits, Lightweight social with friends, Stupid simple user interface, Fiat-Crypto ramps
Examples: Coinbase, Rainbow, Argent, CypherD, Boku
Social - DAOs, NFTs, and tokens can all reflect your personality and social self. Consequently, certain wallets may be built in such a way that you can interact with friends, showcase your NFTs, contribute to DAOs, etc. in a much more user friendly way. Users might be able to easily discover new communities or NFTs. They might be able to create squads/groups of friends that pool money together to group buy assets or invest. Fundamentally, we are shifting to money being a social experience - from saving to buying to investing. It’s only natural that we would expect upstart wallet companies to leverage the composability of web3 with social features to create new experiences.
Features: Hide $ value of others’ holdings, Recommended communities or NFTs, Follow friends’ wallets, Peer-to-peer messaging, Multi-owner/user wallets
Examples: Genesis, Clutch Wallet, Prysm, Primitives
Gaming - Many people have pointed to gaming as one of the potential main drivers of adoption for new crypto users. Gaming is fun, and if the “crypto” part is behind the scenes it could be a great trojan horse to onboard more users into the space. Gaming will likely be driven by fungible assets layered into an ecosystem of players, economics, and competition. This means a wallet might gain popularity if it enables players to see, plan, and/or change your loadout or “skins” outside the game. Alternatively, a game specific wallet might leverage web3 composability and have the best compatibility/integrations across multiple games.
Features: View in-game assets, Connect with players, Trade in-game assets while not “playing” the game, Customize character, Smooth integrations with other web3 games
Examples: LootRush, Cartridge, Cradle, Ronin, OpenFort
Regional - Payment companies are split with regional winners like Stripe, Adyen, AliPay, etc. While there are many variables related to this, one of the major ones is regulation. Each region requires different licenses and approvals to be issued by the government. While regulation has been slow for the broader space, I can guarantee you it is coming and will be more robust than it is today. This means that it’s likely certain licenses and approvals will block some of these global companies from operating in different regions and at different stages of the value chain (e.g., fiat to crypto exchange). Some countries may even prioritize local companies to award licenses to, hopefully spurring economic growth. Given that, global players will acquire or partner with certain regional leaders (or avoid the region entirely). This opens up space for regional winners to build close ties with local regulators and capture market share that way.
Features: Local licensing/approvals, Easiest fiat to crypto transfer in a given region, Region specific partnerships (e.g., transfer crypto to corner store for cash withdrawal)
Examples: Arriba, Jambo, HoneyCoin, Reserve, Ejara, Bitso, Rain, BitMex
Loyalty - Consumer loyalty/points programs are huge businesses. It’s often cited how many US airlines have points programs worth more than their core business itself. However, these programs have always frustrated consumers with their lack of composability and financialization. These ecosystems are closed. The only way to convert your points into something else is through partnerships that the company has established themselves. There is rarely, if ever, a secondary market for membership cards/passes/etc. If you have access to a special clothing drop via your status as a premier fan you can’t sell that. What if you could earn rewards in any company but spend them in another company? The composability of web3 enables exactly that. Starbucks has been an early mover here with the launch of their badges and I suspect we’ll see even more adoption in the future.
Features: In-wallet loyalty program swaps, NFT Membership rentals for temporary use, Digital access pass for IRL events
Examples: Hang, NFTKred, Recur, Toki, tyb, Mercury
Trading - Arguably the most used aspect of crypto is simply trading. Today, we see tens of billions of dollars of tokens traded daily. Up until only a few years ago margin trading, options, and leverage were tough to come by. FTX rose in dominance, in part, to their robust trading product. And while we don’t typically consider something like FTX a wallet, it effectively is a wallet connected with an expansive set of trading features connected to an exchange with large liquidity. We are now seeing stock trading platforms enter the space as well (and vice versa). This speaks to another unique opportunity, cross-platform liquidity. If you can leverage your assets on one application while having your collateral sit across other applications and chains (stocks + AAVE) then you open up even more opportunities for traders.
Features: Margin trading, Access to stocks + crypto, Leverage, Tax management, Cross-platform leverage
Examples: FTX, Robinhood, Coinbase Pro, Binance
Banking - Wallets are both your identity and your bank account. It stands to reason that there will be wallets built specifically to mimic how traditional banks operate. They may likely look similar from a user experience, with better integrations into DeFi protocols to power savings, loans, etc. In some cases the wallet itself may have decentralized lending pools to capture more of the margin - e.g., if AAVE builds a wallet.
Features: Automatic high yield savings, Integration with popular DeFi protocols (AAVE, Yearn, etc.), Fiat to crypto transfers, Credit/Debit card based on crypto holdings, Embedded DeFi for loans (home, personal, etc.)
Examples: Aave, Donut, DolarApp, Eco
Developer - Wallets that optimize for top tier APIs and easy integration for developers could (similar to a wallet built for onboarding) be a strong entry point to capturing new users. Developers building applications targeted towards users without wallets likely want to focus on the application and its smart contracts, not building a wallet for new users to onboard into. Similarly, web3 native teams that want to automate operations may leverage developer friendly wallets. They would be heavily incentivized to use institution grade wallets that have open up their core via a robust set of APIs, enabling customers to customize how their wallet is embedded into the day to day operations of their business.
Features: Native integrations with popular protocols and apps, admittedly lot of opportunities i’m missing here
Examples: Fireblocks, Turnkey, Wally, ZeroHash
Merchants - Ecommerce, by and large, is a low margin business. They accept credit card payments for their customers’ convenience vs their own. Similarly, accepting crypto as payment may be inevitable but it doesn’t mean they want to take on the risk. Imagine you are selling a widget that you earn 20% gross margin on, now someone pays you in Bitcoin and the price drops 10% the next day. You have cut your gross margin on that product in half and may even have turned your profit negative for that widget. Merchants operate in the real world where 99% of their expenses are in cash. Accepting crypto opens them up to exchange rate risk that could significantly impact their profitability. This leads me to believe that a wallet built specifically to solve the issues of merchants accepting crypto could have quick adoption (among merchants that choose to accept crypto). In addition to exchange rate risk, merchants will also have to deal with onerous tax requirements related to exchanging crypto to fiat for micro profits and losses.
Features: Tax adjustments, Auto-sell crypto upon receipt, Fee-free exchanges, integrated crypto + fiat tax software, Embedded DeFi for working capital loans
Examples: Coinbase Commerce, BitPay, Stripe, Datamynt, Fung, Due, Flexa
Security - Some assets users will want to buy and hold for years at a time. Given that, how easily you interact with them could be less important than storing them in an ultra secure wallet (of course this may not be a tradeoff either). Some early companies like Ledger saw this and focused on offering “cold wallet” solutions - a wallet that is not connected to the internet - to increase security. Other companies like Coinbase or Gemini have built custodial solutions for enterprises to store large amounts of money. While convenient, there is a huge tradeoff relying on a partner to manage your funds. Notably, you don’t have full control and need to contact another human often to access those funds - stories exist of funds losing money on trades because their contact was on vacation.
Features: Auto-mask incoming and outgoing transactions, Transfer limits, Cold wallet, Non-custodial private key recovery
Examples: Ledger, Trezor, Entropy (not a wallet but relevant infra), Coinbase Prime, Anchorage, BitGo, Gemini
Do multiple wallets mean hyper fractionalization? Yes, but that doesn’t mean they will be bad businesses. I think people will have their profiles, assets, etc. split across different wallets. Primarily, for ease of use, but also security. It may be easier to use one wallet for certain actions - like gaming or trading - and one wallet for another set (just like we have our money in different accounts). Additionally, many in the space today know the existential dread of getting your wallet drained; one of the easiest ways to protect yourself is to limit your exposure in any one wallet and split assets across multiple wallets.
Ultimately, there are any number of verticals you could conceive of, and many that are probably more apt to provide a better framework for thinking about them than I provided. You could break the verticals I made apart and cross populate with some of the companies highlighted or create new verticals with wallets I didn’t include (e.g., Fashion, Privacy, DeFi, Remittances, Music, etc.). Regardless, I hope this serves as a catalyst for your thinking. A wave of new wallets over the next 5 years is coming. It will usher in new users, enable and incentivize new actions, and fundamentally change our relationship with “wallets”.