In the last year, we have seen wallets launched by centralized exchanges, such as Kraken and Coinbase, NFT markets like Magic Eden, TradFi companies Naver and CoinFlip. And of course DeFi protocol wallets, such as Osmosis Polaris Wallet, Uniswap and Aave, which announced its own family wallet at Devcon.
These are all in addition to hundreds of existing wallets which work perfectly well. This raises the question, why do crypto users need to have more wallets than they already have?
The question is wrong. The correct question is why every company wants their own wallet. The business of owning end users via a cryptocurrency wallet can be quite lucrative.
Wallets are usually the first point of contact for crypto novices who want to purchase their first crypto tokens. This places wallet providers in an extremely close relationship with the end user, giving them the power to negotiate a higher take-rate.
This take-rate can be exercised primarily through in-wallet exchanges on “fee-insensitive” Users (i.e. normies). MetaMask, for example, earns an average of about $1.5 million per week on wallet exchanges.
Wallet providers are also privy to the transaction order flow. In other words, wallet providers can see what trades thousands of users make. The wallet companies could sell that information to professional block-builders who extract MEV.
It is obvious that the latter is a bit dubious. MetaMask wallets may already do this. Banana Gun trading bots, which have integrated wallets, are also known to be doing it.
In addition, wallets are becoming more and more popular as the interface of choice for onchain activity. Data shows that DEX frontends are increasingly being pushed into the background as solver models (CowSwap and 1inch Fusion), DeFi aggregators, wallets and other solutions take over.
This thesis has been popularly referred to as the “Fat Wallet” The thesis is another example of how the crypto industry predicts trends with a single proclamation. The thesis is not new — it first emerged in early 2023, but is now seeing some attention again thanks to a well-articulated update from Robbie Petersen.
Investors and builders who are betting on the Fat Wallet hypothesis also believe there will be valuable ways in the future for wallets users to monetize them.
As wallets become more utilitarian and barebones “send and receive crypto” It may not surprise you to find a Big Tech tax of 30% on distributions with feature-rich hubs stuffed full of trending onchain Dapps, messaging and mints.
Wallets are also a natural fit for B2B crypto payment services integrations. Recently, wallets like Zeal and Fusion have allowed you to spend your stablecoins or DeFi yield via Visa integration.
The Fat Wallet hypothesis may just be another failed investment concept, but the fact that a new wallet is launched every week in this industry makes it a very convincing one.
Wallets are competing on many levels to attract the new wave users who come aboard every bull market.
Coinbase Wallet, a well-established wallet that offers market incentives to its users, announced today a 4.7% APY rate on USDC.
Magic Eden has promised claimable airdrops for its native ME token — but only if you’re using Magic Eden’s very own wallet.
Everyone wants to have the first wallet that binds the user. It’s tough work. Good news: free market competition is most effective in preventing economic concentration. Consumers can relax knowing that no single wallet will likely ever dominate the market.
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