The Account Abstraction Landscape: ERC-4337, Bundlers, and Paymasters

Key Insights

• Wallet growth and success is largely contingent on integration breadth, as demonstrated by the historical market share dominance of MetaMask. However, MetaMask’s dominance might be challenged by new wallets that focus on network abstraction and key management, especially in sectors beyond DeFi.
• The development of ERC-4337 has served as a growth catalyst for smart contract wallets and their associated infrastructure providers – bundlers and paymasters. In particular, the design space around paymasters has caught the attention of both crypto-native projects as well as traditional finance incumbents such as Visa.
• Applications will continue taking advantage of account abstraction features such as gasless transactions, and the growing number of L2s will create opportunities for developing features that are not feasible on Ethereum Mainnet.

The average user experience (UX) in crypto is notoriously clunky and rigid. The prevailing wallet and application structure requires users to sign multiple transactions, often displayed in an unreadable format, and understand the inner workings of blockchain infrastructure. Each of these steps is a friction point that creates opportunities for customers to churn out of a product.

From an end user perspective, Uniswap is a straightforward application. Its users simply select which tokens they want to swap in and out of and then sign the corresponding transactions. But even Uniswap has an often-cited UX clunkiness to it – requiring users to sign an approve transaction and subsequently the swap transaction itself. Signing two transactions may seem innocuous, but as applications become more complex, the limitations around the functionality of an externally owned account (EOA) wallet (e.g., MetaMask) will become more apparent.

Wallets and applications work in tandem to ultimately write data to a blockchain. To maintain parity with traditional web applications, Web3 applications need more sophisticated wallets to abstract away the granular complexities of the blockchain. Smart contract wallets (also known as smart accounts) deliver a much-needed UX and security upgrade. Smart accounts are one means of unlocking many features, namely: