Smart contract wallets, based on contract accounts instead of externally-owned accounts (EOA), offers enhanced security, usability and interoperability for Ethereum users.
- Smart contract wallets, primarily on Ethereum, offer enhanced security, usability, and interoperability compared to regular wallets.
- By controlling a smart contract holding funds, users can recover accounts without seed phrases, set transfer limits, and utilize multi-signature transactions.
- Smart contract wallets can also interact directly with decentralized applications (DApps) and enable features like gasless transactions and batched transactions.
Join us in showcasing the cryptocurrency revolution, one newsletter at a time. Subscribe now to get daily news and market updates right to your inbox, along with our millions of other subscribers (that’s right, millions love us!) — what are you waiting for?
What Are Smart Contract Wallets?
Imagine smart contract wallets like owning your personal smart contract that manages your wallet. This allows you to manage your funds in a more convenient way than with the current wallet offerings.
How Smart Contract Wallets Differ From Regular Wallets
To understand how smart contract wallets differ from regular wallets, let’s compare them in terms of security, usability and interoperability.
Benefits of Smart Contract Wallets
Smart contract wallets are not only more secure, user-friendly and interoperable than regular wallets, but they also have the potential to boost DeFi adoption. Some of the benefits of using smart contract wallets for DeFi are:
Lower Gas Fees
Better User Experience
Enhanced Security and Account Recovery
All of these factors can help boost DeFi adoption by attracting new users to DeFi, increasing the confidence of current users, and fostering innovation and collaboration across DeFi DApps in different blockchain ecosystems.
Risks Of Smart Contract Wallets
As smart contracts are essentially code written by humans, they can contain errors, bugs or vulnerabilities. They are also exposed to operational risks or reliability issues. Smart contract wallets can be exposed to:
- Malicious modules: Smart contract wallets utilize modules to control their functions and features. These modules may, unbeknownst to the user, contain backdoors that allow for phishing or other attacks.
- Wallet control outside of the owner: Using a third party to deploy a smart contract wallet could mean that the owner does not have exclusive control based on the way the wallet is deployed.
- DApp Integrations: Improperly designed integrations with dApps can make wallets susceptible to malicious transactions.
- Phishing: Attackers may attempt to obtain multi-signature data from wallet users through phishing attacks which can result in funds being transferred without the user’s knowledge.
Here are steps you can follow to mitigate the risk of a smart contract wallet exploit:
- Complete security audits on all code relating to the wallet
- Follow secure code deployment standards.
- Verify the addresses you interact with before signing any transactions.
- Verify transactions before signing.
- Confirm dApps' integrity.
- Understand the purpose and capabilities of each module in your smart contract wallet.
- Be aware of the trade-offs between flexibility and security when deploying smart contract wallets.
- Stay vigilant against phishing scams.
- Keep an eye on your transaction history to spot any malicious transaction data early.
- Access smart contract wallet apps through official websites.
What Is ERC-4337 and What Does It Mean for Smart Contract Wallets?
Popular Smart Contract Wallets
Some of the popular smart contract wallets are:
Instadapp is a DeFi interface which allows users to easily access a wide range of DeFi DApps. Under the hood, Instadapp uses DeFi Smart Accounts (DSAs) which is a smart contract wallet which the user controls to interact with the various supported DApps on Instadapp. In 2023, Instadapp took it one step further by launching Avocado Wallet, a smart contract wallet with in-built account abstraction features. Avocado runs on the Avocado Network, a cross-chain liquidity network that aims to solve the liquidity fragmentation problem and enable seamless transfers of assets across different chains. Avocado Network will leverage Instadapp’s DeFi Smart Accounts (DSA) architecture and smart accounts to provide a unified interface for users and developers to interact with multiple chains.
Biconomy is a platform that provides plug-and-play APIs to simplify the web3 experience. It enables meta transactions, gasless transactions and relayer networks for various DeFi protocols and applications. Biconomy also offers their SDK modules for developers to build scalable and user-friendly DApps, such as smart contract wallets. Biconomy SDK allows these smart contract wallets to be deployed easily with account abstraction support. For example, wallets deployed using Biconomy’s SDK can easily integrate social logins as well as take advantage of DApps with in-built account abstraction related features such as gasless or bundled transactions.