Introduction

As the crypto industry evolves, Web3 wallets have significantly transformed their role. They have shifted from asset storage tools to central hubs for identity and asset management within decentralized multi-chain networks. This shift positions Web3 wallets as crucial gateways for users to explore and realize blockchain-native digital experiences. With the market landscape constantly evolving, the competition is becoming increasingly fierce.

Market Overview of the Wallet Sector

Web3 wallets serve as the primary tools for users to interact with decentralized applications (DApps), manage digital assets, and act as essential gateways to the Web3 world. Traditional decentralized wallet structures include keys, addresses, and application layers. However, Web3 wallets emphasize the application layer, attracting users with simplicity and ease of use. The global number of crypto asset users continues to grow, with the total revenue of the worldwide crypto wallet market reaching approximately $13.98 billion in 2022. Over the next decade, this is expected to exceed $33.71 billion. According to a report by Grand View Research, the global crypto wallet market size is projected to reach $482.7 billion by 2030, with a compound annual growth rate (CAGR) of 24.4%.

Source: grandviewresearch

Several factors have driven the growth of Web3 wallet users, including the approval of Bitcoin ETFs, the popularity of BRC20 and NFTs, and the rise of the Web3 concept. Notably, in 2023, the Bitcoin network’s Ordinals protocol profoundly impacted crypto wallets, enabling major Web3 wallets to capture a large user base and transaction volume quickly. Since the beginning of 2023, the market share of Web3 wallets has surged from less than 10% to 80%.

Source: dune

Types of Wallets

There are many ways to classify wallets, but based on whether they are custodial or non-custodial, wallets can be divided into two categories: non-custodial wallets and centralized custodial wallets.

Non-Custodial Wallets

Non-custodial wallets are managed by users, who keep the mnemonic phrases to ensure the security of their digital assets. Metamask, as one of the mainstream wallets, is a type of non-custodial cryptocurrency wallet. Non-custodial wallets do not save users’ wallet data; all private key data is stored in the user’s local browser or mobile application. When users must perform on-chain signature activities, Metamask retrieves the private key from local files for signing. However, if a user’s private key and mnemonic phrase are lost or stolen, Metamask will not be able to recover the user’s assets, resulting in permanent loss of assets. Additionally, hardware wallets, widely recognized as the safest option, generate private keys and wallet addresses offline, providing an extra layer of security.

Non-custodial wallets can be further categorized into three types:

1. EOA Wallets (Externally Owned Account): This is one of the most basic wallet types in the Ethereum ecosystem.
2. MPC Wallets (Secure Multi-Party Computation): This is a keyless wallet type where the private key is divided into multiple parts and managed by various parties, reducing the risk of single-point failures.
3. AA Wallets (Account Abstraction): This is a keyless wallet type where users can control the wallet through smart contracts, enhancing security and scalability.

Currently, some exchanges like Gate.io, OKX, Bitget, and Binance support EOA wallets.

Centralized Custodial Wallet

Exchanges mainly employ centralized custodial wallets. In this scenario, users trust the exchange to manage their digital assets rather than handling them independently. The account balance displayed within the exchange does not represent users holding their private keys; instead, it is merely an accounting figure within the exchange’s system. Consequently, users cannot directly interact with Dapps because the exchange accounts are merely digital records within the exchange’s internal system rather than actual on-chain assets.

The advantage of custodial wallets lies in their low entry barrier. Still, their security depends on the project team, and users do not have full control over their wallets, as with some exchanges. On the other hand, while non-custodial wallets have a higher entry barrier, users hold private keys, giving them full control over the assets within the wallet and complete access to their Web3 wallets, such as the Gate Web3 wallet.

What is a Web3 Wallet?

A Web3 wallet is essentially a digital wallet that provides a means of interacting with decentralized applications (Dapps) using hardware or software. It offers functionalities beyond traditional decentralized wallets, such as handling NFTs (non-fungible tokens), creating on-chain identities, collaborating with communities, and more. Web3 wallets play a crucial role in user interaction with Dapps, serving as an important tool for managing digital assets and can be considered the gateway for regular users to enter the Web3 world. Although they fall under the category of decentralized wallets, they differ from traditional decentralized wallets in several ways.

Traditional decentralized wallets are typically composed of three layers:

1. Key Layer: Responsible for the generation, import/export, and signature creation of private keys.
2. Address Layer: Related to the main blockchain, generating addresses according to the main chain’s format.
3. Application Layer: Primarily used for asset management, including the transfer of tokens in and out.

Compared to traditional wallets, Web3 wallets place more emphasis on the application layer, striving to attract users into the Web3 world in a simple and user-friendly manner.

Functions of Web3 Wallets

From an overall perspective, the functions of wallets can be categorized into four types.

Entry Point for Funds

Today, Web3 wallets have become the primary hubs for traffic and token transactions. According to data from Glassnode, over 2.5 million wallets are active daily on major public blockchains, with BTC and ETH blockchains accounting for over 80% of this activity. In the Web2 world, major account types like Visa, MasterCard, and Apple Pay have markets worth billions of dollars. Compared to the vast traditional payment market, Web3 wallets still have significant growth potential.

Source: glassnode

Dapp Store/Connection/Transaction

The role of wallets is not limited to asset management; individual users mainly use wallets to interact with Dapps. This interaction can be further divided into two modes: connection and ranking. The connection mode, typified by Metamask, involves three steps: activation, interaction, and signing. The other mode, a Dapp store display and ranking model, is represented by Bitkeep. This mode promotes Dapps within the product, including listing coins and NFTs, aiming to monetize user behavior. The Swap function is currently the most direct traffic monetization model for wallets, being more straightforward and user-friendly.

Financial Services

Nowadays, most people purchase funds, insurance, and other financial products not through traditional fund or insurance companies but via platforms like Alipay. The reform of wallets is similar; they safeguard funds and provide financial services. When users trust a wallet or platform, they naturally trust its recommended financial products and derivatives. Therefore, the future business potential of the financial sector is enormous. Once users are attracted, the advertising business will also become a major profit point.

Expansion of Wallet Functions

In addition to the functions above, wallets have gradually integrated with more functional models since 2021, such as decentralized identity verification (DID), secure wallet protocols (SBT), and NFT displays for personal characteristics. Establishing a DID ecosystem requires detailed tagging of users, and wallets are a natural link, facilitating project promotion, rating, and identity verification. Although these functions are still at the forefront and difficult to implement, wallets serve as account containers and are important in on-chain identity recognition. Therefore, the market prospect for wallets is very broad; despite the slow current development, there is still immense potential.

CEXs as Major Competitors in Web3 Wallets

In the crypto world, wallets have become a focal point for attracting users. Despite the plethora of wallets available on the market, few can boast a loyal user base comparable to that of exchanges. Why have exchanges, after profiting from trading activities, set their sights on the wallet sector?

• Many large Web2 company entrepreneurs struggle to integrate into the Web3 community and its token dynamics, potentially leading them to develop wallets. Similarly, exchanges venturing into Web3 wallets can achieve a comprehensive brand image.
• The traditional method of centralized exchanges (CEX) gaining traffic through listing new coins gradually diminishes. Consequently, Web3 wallet services might become a new growth entry point.
• Technologies such as MPC (Multi-Party Computation) and account abstraction have indeed lowered the barrier to user participation, aiding centralized exchanges in mitigating their overly centralized image. By introducing a new product matrix, centralized exchanges can address centralization issues.
• Decentralized exchange (DEX) competitors are gradually closing the user experience gap with centralized exchanges through micro-innovations like account abstraction, gas fee sponsorship, and auction-based routing.
• Actively aligning with decentralized environments and embracing trends more aligned with Web3 practices marks industry progress.
• The new narrative surrounding Web3 wallets helps exchanges cope with increasingly complex and stringent regulatory pressures.

Introduction to Exchange Web3 Wallets

Many exchanges have launched Web3 wallets to capture traffic in the Web3 space. This article introduces the Web3 wallets of four exchanges: Gate.io, OKX, Binance, and Bitget.

Gate Web3 Wallet

As a leading future crypto wallet, the Gate Web3 wallet is a decentralized, multifunctional wallet developed in-house by Gate.io for the Web 3.0 era. It is a secure, fast, non-custodial crypto wallet designed to meet the needs of Web 3.0 users for trading cryptocurrencies anytime, anywhere, bringing the Web 3.0 lifestyle into everyday life.

The Gate Web3 wallet, serving as a key to the Web3 world, offers the following excellent features:

1. Security and Transparency: Users have complete control over their assets. Gate.io is fully committed to safeguarding user asset security, allowing users to explore Web3 without worries.
2. Ease of Use: Users only need to connect the wallet once to integrate with the Web3 world seamlessly.
3. Multi-Chain Aggregation: Users can store and manage multi-chain token assets anytime, with one wallet providing access to the vibrant Web3 world.

OKX Web3 Wallet

The OKX Wallet, developed in-house by OKX Exchange, is a cryptocurrency wallet integrated into the OKX app, launched in May 2021. It capitalized on developing the inscription ecosystem, attracting numerous on-chain users, and successfully leveraging the Bitcoin inscription boom to rise rapidly. Although the OKX Wallet started relatively late, it has achieved rapid development quickly through continuous innovation and addressing user needs.

Binance Web3 Wallet

The Binance Web3 Wallet is a self-custody cryptocurrency wallet integrated into the Binance app, designed to allow users to enjoy a decentralized finance (DeFi) exploration journey. As a digital gateway to blockchain-based applications (Dapps), the Binance Web3 Wallet helps users securely and conveniently manage cryptocurrencies, perform cross-chain token swaps, earn yields, and interact with various blockchain platforms.

Bitget Wallet

Bitget Wallet, formerly known as BitKeep Wallet, is a globally leading one-stop Web3 trading wallet. Founded in 2018, the product structure of the current Web3 wallet—comprising wallet, Swap, NFT marketplace, and Dapp—was originally the standard format of BitKeep. Bitget Wallet offers users a comprehensive suite of on-chain products and DeFi services, including wallet management, Swap transactions, NFT trading, and a Dapp browser.

Obstacles in the Development of Web3 Wallets

The development of Web3 wallets has entered a fast lane, with various innovations accelerating this process, such as the DeFi Summer in 2020 and the inscription ecosystem in 2023. However, the growth of wallets has continuously faced multiple challenges, including usability, security, and issues related to privacy and regulation.

Usability

Regarding usability, Web3 wallets are more complex to operate and understand compared to centralized asset management platforms. Centralized platforms provide convenient services where users do not need to understand the underlying logic. In contrast, using a wallet requires users to perform every step themselves, which means they need a basic understanding of blockchain technology. If there are interaction or authorization issues, users cannot seek help from customer service, which can be very challenging for those unfamiliar with the necessary operations. This complexity hinders new users from entering the Web3 space.

Security

Although wallet security has been continuously improved, there are still many areas that can be enhanced. Providing more user-friendly phishing prevention alerts in browser extensions and mobile applications is one of these areas. For experienced cryptocurrency users, the security of wallet assets has always been a concern. For novice users, these security risks are an even more significant barrier.

Privacy and Regulation

Privacy and regulation are unavoidable topics in the Web3 space, and wallets face the same issues, including user data privacy and compliance with wallet operations. Users hope to control their data, breaking the dominance of traditional tech giants over user information. However, data decentralization also means a lack of regulation. In disputes or asset theft, third parties and law enforcement agencies find it challenging to intervene.

Conclusion

Web3 wallets are not only tools for storing digital assets but also crucial for interacting with decentralized applications (DApps). However, they face challenges such as usability, security, and privacy issues. As solutions for digital asset management, Web3 wallets hold tremendous potential. We look forward to seeing Web3 wallets provide users with more secure and convenient digital asset management services, driving the entire blockchain industry toward a more open and inclusive future.