Embedded Wallets: Powering a Wave of Consumer Apps

Key Insights

• Embedded wallets, as opposed to external wallets like MetaMask, sit naturally within an application. This architecture is used by apps like friend.tech and creates a seamless UX as users never leave the app to sign transactions.
• Account abstraction developments over the past year can be combined with embedded wallet systems to provide stronger recovery models and smoother UX.
• Established incumbents like Circle, Coinbase, and Fireblocks, as well as new startups, are entering this space, signaling a large market opportunity.
• Successful wallet providers can expand their product offerings into other domains, creating the conditions for sticky market positioning.

After a long stretch of advancing and funding infrastructure, the pendulum is swinging back toward application development. As developers create new crypto-based apps, with the blockchain itself being an entirely new layer within the traditional app infrastructure stack, two UX challenges still need to be solved:

• Self-custody solutions are the ultimate promise of crypto. They are clearly desired by the market post-FTX and centralized custodian blow-ups. However, most self-custody wallets to date optimize heavily for asset security and custody, as opposed to providing a smooth UX when interacting with apps.