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<p>Smart contract wallets are a type of wallet, mainly on Ethereum, that is made possible by account abstraction. Instead of controlling a wallet with a private key, the user controls a smart contract holding the funds. Smart contract wallets offer <strong>recovery without seed phrases, transfer limits, account freezing and multi-signature (multi-sig) transactions</strong>. These features make smart contract wallets<strong> more secure, user-friendly and interoperable than regular wallets</strong>. Smart contract wallets can also interact with decentralized applications (DApps) and can be used for standard cryptocurrency transfers.</p>



<p>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.</p>



<h3 class="wp-block-heading" id="how-smart-contract-wallets-differ-from-regular-wallets">How smart contract wallets differ from regular wallets</h3>



<p>To understand how smart contract wallets differ from regular wallets, let’s compare them in terms of security, usability and interoperability.</p>



<figure class="wp-block-image"><img decoding="async" src="https://academy-public.coinmarketcap.com/optimized-uploads/4e71f8f0b2ab41b2bcf408868e1d2c79.png" alt=""/></figure>



<p><em><a href="https://medium.com/1kxnetwork/wallets-91c7c3457578" rel="noreferrer noopener" target="_blank">Source</a></em></p>



<p><strong>Security</strong></p>



<p>Smart contract wallets&nbsp;<strong>do not rely on seed phrases for recovery</strong>. Instead, they use trusted third parties known as&nbsp;<strong>guardians</strong>&nbsp;— who can help you regain access to your wallet if you lose your device or forget your password. Guardians can be friends, family members, or even other devices that you own. They also allow you to set daily or weekly limits on how much you can transfer from your wallet to prevent hackers from draining your funds. Moreover, smart contract wallets allow you to require multiple signatures or approvals for certain transactions above a certain threshold or involving untrusted recipients.</p>



<p><strong>Usability</strong></p>



<p>Smart contract wallets allow you to interact with DApps directly from your wallet. You can also enjoy features such as<strong>&nbsp;gasless transactions</strong>&nbsp;(where someone else pays for the network fees),&nbsp;<strong>meta-transactions&nbsp;</strong>(where multiple actions are bundled into one transaction) and&nbsp;<strong>batched transactions</strong>&nbsp;(where multiple transactions are executed at once). They also often come with a user-friendly interface for a better crypto experience.</p>



<figure class="wp-block-image"><img decoding="async" src="https://academy-public.coinmarketcap.com/optimized-uploads/1de92c9b634c4d93b483c69139304e6b.png" alt=""/></figure>



<h2 class="wp-block-heading" id="header-1">Benefits of smart contract wallets</h2>



<p>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:</p>



<h3 class="wp-block-heading" id="lower-gas-fees">Lower gas fees</h3>



<p>Smart contract wallets can&nbsp;<strong>reduce gas fees&nbsp;</strong>by offering gasless transactions, meta-transactions and batched transactions.</p>



<h3 class="wp-block-heading" id="better-user-experience">Better user experience</h3>



<p>User experience is one of the key factors determining whether users will adopt a new technology or service. DeFi particularly struggles with providing a good user experience, often confusing and frustrating users, especially beginners. Due to the composability of smart contracts, smart contract wallets can&nbsp;<strong>improve user experience</strong>&nbsp;by providing an ecosystem of modules that users can interact with directly in their wallet.</p>



<h3 class="wp-block-heading" id="enhanced-security-and-account-recovery">Enhanced security and account recovery</h3>



<p>Smart contract wallets can enhance security by offering features such as recovery without seed phrases, transfer limits, account freezing and multi-sig transactions. These features can prevent hackers from draining funds, stealing data, or compromising accounts.</p>



<p>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.</p>



<h2 class="wp-block-heading" id="header-2">Risks of smart contract wallets</h2>



<p>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:</p>



<ul>
<li><strong>Malicious modules</strong>: 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.</li>



<li><strong>Wallet control outside of the owner</strong>: 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.</li>



<li><strong>DApp Integrations</strong>: Improperly designed integrations with dApps can make wallets susceptible to malicious transactions.</li>



<li><strong>Phishing</strong>: 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.</li>
</ul>



<p>Here are steps you can follow to mitigate the risk of a smart contract wallet exploit:</p>



<ul>
<li>Complete security audits on all code relating to the wallet</li>



<li>Follow secure code deployment standards.</li>



<li>Verify the addresses you interact with before signing any transactions.</li>



<li>Verify transactions before signing.</li>



<li>Confirm dApps&#8217; integrity.</li>



<li>Understand the purpose and capabilities of each module in your smart contract wallet.</li>



<li>Be aware of the trade-offs between flexibility and security when deploying smart contract wallets.</li>



<li>Stay vigilant against phishing scams.</li>



<li>Keep an eye on your transaction history to spot any malicious transaction data early.</li>



<li>Access smart contract wallet apps through official websites.</li>
</ul>



<h2 class="wp-block-heading" id="header-3">What is ERC-4337 and what does it mean for smart contract wallets?</h2>



<p>ERC-4337 aims to improve the user experience and security of smart contract wallets by implementing account abstraction. Account abstraction allows users to use smart contracts as their primary accounts instead of externally owned accounts (EOAs) that require private keys. ERC-4337 allows users to use smart contract wallets without having EOAs or private keys.</p>



<p>You can think of ERC-4337 as an&nbsp;<strong>upgrade that facilitates the use of smart contract wallets</strong>. Thanks to ERC-4337, wallets are able to take on much more innovative and intuitive designs. Features such a multi-feature authentication, unique wallet recovery methods and automatic payments can easily be implemented with ERC-4337. ERC-4337 should lead to the rise of more secure and user-friendly wallets as well as more intuitive innovations in wallet design.</p>



<h2 class="wp-block-heading" id="header-4">Popular smart contract wallets</h2>



<p>Some of the popular smart contract wallets are:</p>



<h3 class="wp-block-heading" id="argent">Argent</h3>



<figure class="wp-block-image"><img decoding="async" src="https://academy-public.coinmarketcap.com/optimized-uploads/5f5d7ae59bfe46d3afc1189497e69c87.png" alt=""/></figure>



<p>Argent is a popular Ethereum-based account abstraction wallet. It has features such as social recovery, daily limits, wallet locking and a guardian system. It also supports various DeFi protocols such as Aave, Compound, MakerDAO and Uniswap. Argent is available on iOS and Android devices.</p>



<h3 class="wp-block-heading" id="safe">Safe</h3>



<figure class="wp-block-image"><img decoding="async" src="https://academy-public.coinmarketcap.com/optimized-uploads/90891fc079914833925c5f1100e77d25.png" alt=""/></figure>



<p>Safe is a multi-signature smart contract wallet that requires a minimum number of people or devices to approve a transaction. It supports Ethereum and other EVM-compatible chains such as Polygon, Avalanche, BNB Chain, Arbitrum and Optimism. It also integrates with various DApps such as Balancer, Compound, Curve and Yearn Finance. Safe is available on both web and mobile platforms.</p>



<h3 class="wp-block-heading" id="squads">Squads</h3>



<figure class="wp-block-image"><img decoding="async" src="https://academy-public.coinmarketcap.com/optimized-uploads/2135a5df8e8b4ee2abd73e2163c054e0.png" alt=""/></figure>



<p>Squads is a Solana-based social smart contract wallet that allows users to create groups of friends or family members who can collectively manage the funds in the wallet. By design, Solana differs from Ethereum and Ethereum Virtual Machine (EVM) chains, allowing account abstraction to be supported natively on the chain. As such, Squads is able to take advantage of and support these features with DApps such as Kamino Finance which offers bundled transactions, or Octane, a transaction layer which enables gasless transaction implementation on Solana. Squads also supports various liquid staking providers on Solana.</p>



<h3 class="wp-block-heading" id="instadapp">Instadapp</h3>



<figure class="wp-block-image"><img decoding="async" src="https://academy-public.coinmarketcap.com/optimized-uploads/2038cae76d744b85b1834f44b75698c0.png" alt=""/></figure>



<p>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&nbsp; 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.</p>



<h3 class="wp-block-heading" id="biconomy">Biconomy</h3>



<figure class="wp-block-image"><img decoding="async" src="https://academy-public.coinmarketcap.com/optimized-uploads/4f8a4e6a3b4b415daee28e1c88c3c3d5.png" alt=""/></figure>



<p>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.</p>



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What are smart contract wallets?

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