In the past year, the cryptocurrency industry has witnessed a surge in wallet launches from a diverse array of entities, including centralized exchanges, NFT marketplaces, traditional financial firms, and DeFi protocols like Aave, which introduced its new Family wallet at Devcon last week. These efforts are in addition to the hundreds of existing wallets already in the market, raising the question: why do crypto users need more wallets? The more pertinent question, however, is why does every company want to launch its own wallet?
Owning the end-user through a crypto wallet has proven to be a lucrative business. Wallets typically serve as the first point of contact for crypto newcomers seeking to buy their first tokens, positioning wallet providers in a unique position of influence over their users. This influence translates into a take-rate, primarily through in-wallet swaps on users less sensitive to fees.
For example, MetaMask generates a significant revenue from such swaps. Wallet providers also benefit from privileged insight into transaction order-flows, knowing the trades made by countless users. This information is highly valuable and can be sold to professional block builders who exploit Maximally Extractable Value (MEV) — though this practice borders on ethical concerns.
Moreover, wallets are increasingly becoming the preferred interface for on-chain activities. There’s evidence suggesting that decentralized exchange front-ends are increasingly taking a back seat as wallets, solver models, and DeFi aggregators gain prominence.
Wallets becoming financial superhubs
This trend is known as the “Fat Wallet” thesis, proposing that wallets will evolve from simple “send and receive” interfaces to feature-rich hubs incorporating trending on-chain dapps, minting activities, and messaging capabilities. This evolution could potentially lead to a “30% Big Tech tax” on these distributions. Wallets also exhibit strong potential for B2B integrations with crypto payment services.
Recent examples include wallets enabling users to spend their DeFi yield or idle stablecoin holdings via Visa integration. Despite the various competition strategies and the emergence of new wallets every other week, the Fat Wallet thesis provides a convincing rationale for why the industry is teeming with wallet launches. In this highly competitive landscape, companies employ different strategies to capture a larger user base.
Coinbase Wallet, for instance, has opted for market incentives, offering a 4.7% APY on USDC holdings. Meanwhile, Magic Eden promises claimable rewards for its ME token, but only if users utilize Magic Eden’s proprietary wallet. Despite these efforts, the free market ensures that no single wallet will likely dominate the market, thereby offering consumers various options.
Serious businesses are banking on the evolving landscape of crypto wallets, anticipating new monetization avenues as these platforms transform into comprehensive digital financial hubs. Nevertheless, the true winners in this battle for wallet supremacy will be determined by their ability to offer value and innovate, securing their place in the future of crypto finance.
