Author: Binance Research; Translation: LianGuai0xxz
1. Research Report Highlights
● Account abstraction (AA) aims to simplify user experience and has made significant progress in new features and innovations.
● As part of Ethereum’s roadmap, AA aims to replace externally owned accounts (EOA) with smart accounts by integrating programmable logic. With the introduction of ERC-4337, AA is now supported on the Ethereum mainnet without the need for changes to the core consensus layer.
● Zk-rollup solutions StarkNet and zkSync have launched native AA solutions, and wallet providers Argent and Bravoos have emerged to offer these solutions.
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● Many traditional institutions have identified numerous use cases, such as Visa, which has paved the way for exploration and experimentation in this field. Wallet service providers and protocols like Lens Protocol and CyberConnect have also adopted AA, demonstrating realized and potential benefits to encourage user adoption of Web3.
2. Overview
2023 has witnessed the emergence of new innovations. For example, the BRC-20 token standard has brought new possibilities to the Bitcoin network. In Ethereum, a feature called “Account Abstraction” (AA) has been formally introduced through the ERC-4337 standard. This is a key enhancement that simplifies and creates new user functionalities by modifying the underlying account structure.
2.1 Account Abstraction
First, we emphasize the key points of the existing Ethereum account structure and provide an overview of this field in this section.
Types of Account Structures
As the name suggests, AA introduces programmable logic that allows users to interact with their existing accounts. Previously, wallet solutions adopted externally owned accounts (EOA), where users had a pair of private and public keys.
“Not your keys, not your coins.” While EOAs give users full control over the funds with their private keys, it also means that the funds cannot be recovered if the private keys are lost. Additionally, traditional EOAs have limited functionalities; users can only send and receive transactions to another EOA.
Figure 1: Types of Ethereum Account Structures
Therefore, AA aims to merge EOAs with contract accounts (CA), allowing them to programmatically control their wallets, thus giving rise to the term “smart contract wallet.”
Technical Overview
To understand how the process works, the general mechanism described in the following diagram outlines the key components of AA. These functionalities together allow developers to build smart contract wallets compatible with on-chain dApps.
Figure 2: AA Overview
2.2 AA Ecosystem
The AA ecosystem has rapidly expanded in the past year, as developers recognize the need for a clear user experience and friendly interactions between wallets, applications, and end-users. By implementing AA, efforts are made to enhance existing infrastructure and expand possibilities for users to participate in on-chain activities in an intuitive manner, thereby encouraging wider adoption. Progress in this field can be broadly categorized into “Infrastructure” and “Social” domains.
Figure 3: Current AA Ecosystem Diagram
◆ Blockchain: Supports AA with EVM-compatible blockchains and scaling solutions such as zk-rollups.
◆ Wallet Providers: Wallets that utilize AA to provide specific functionalities for users.
◆ Payments: Offers fee abstraction through the LianGuaiymaster contract, allowing users to execute digital transactions without owning the native tokens of the blockchain.
◆ Games/NFTs: Utilizes token standards such as ERC-4337 and ERC-6551 to improve on-chain gaming experience and expand the utility of NFTs.
◆ Social Media: Adopts AA in the form of signature abstraction, allowing users to interact with social networks using their Web3 wallets.
3. AA Growth and Adoption
3.1 On-chain Adoption
Despite being in the early stages of development, there are signs of increasing adoption and enthusiasm within the developer community for the AA market. In particular, the ERC-4337 EntryPoint contract was deployed on March 1st this year. This functionality can be used on EVM-compatible blockchains such as BNB Chain, Polygon, and Avalanche. Since then, transaction activities and the total number of ERC-4337 smart accounts have rapidly increased, especially in July.
Figure 4: Monthly Active ERC-4337 Smart Accounts and User Activity
According to Figure 4, we observe a steady increase in the number of smart accounts, with nearly 300,000 new accounts added in July, and a significant increase in user activity. Interestingly, most of the AA activities are driven by Polygon. This is attributed to the launch of the social network CyberConnect, where all CyberConnect accounts are ERC-4337 wallets.
3.2 Exploring Use Cases
To understand the use cases of AA, we focus on key infrastructure projects that have implemented new functionalities using token standards such as ERC-4337 and ERC-6551. These projects aim to promote the adoption of blockchain technology in the real world while improving the end-user experience.
Please note that the mention of specific projects does not constitute an endorsement or recommendation by Binance. Instead, the referenced projects are used merely to illustrate the adoption of AA. Further due diligence should be conducted to better understand these projects and their associated risks.
LianGuaiymaster
By embracing the concept of fee abstraction, the LianGuaiymaster component of ERC-4337 refers to smart accounts that can be sponsored and have their transactions paid for by third-party entities. Known as “gasless transactions,” users can pay transaction fees without owning the native tokens of the blockchain, thus improving accessibility. The owner of this contract can also further define which rules can be sponsored by users.
Visa
Payment giant Visa has experimented with the LianGuaiymaster contract to abstract basic blockchain interactions and improve the on-chain user payment experience through a self-hosted smart contract wallet. This concept aims to reduce friction for users conducting transactions through wallets and explore the “untapped potential” of digital transactions among consumers.
Figure 5: Visa’s LianGuaiymaster Proof of Concept addresses today’s challenges
In this case, the contract acts as an intermediary currency exchange service that can receive digital currency from users and convert it into native tokens of the blockchain to pay for Gas fees. Alternatively, the LianGuaiymaster contract can also pay for Gas fees on behalf of users, allowing them to transact on their wallet platform without incurring charges.
Figure 6: Visa’s LianGuaiymaster contract design diagram
Recently, the company has further improved this approach, and now users can directly use Visa cards to pay for transaction Gas fees. These experiments bring users the “convenience and ease of traditional payments” and provide them with a seamless and secure channel to interact with blockchain technology.
Usage of the LianGuaiymaster contract
In fact, within the entire field, the on-chain adoption rate of the LianGuaiymaster contract has been steadily increasing, with Optimism leading the way. This is because new projects like the Beam Wallet launched on Optimism at the end of July. It uses LianGuaiymaster, allowing users to pay Gas fees with their transfer tokens instead of the native tokens of the blockchain.
Figure 7: Sharp increase in Gas amount paid by the LianGuaiymaster contract this year
The significant increase in the Gas amount covered by these solutions indicates the growing demand for these intermediary services to simplify the user experience. Therefore, by abstracting the complexity of blockchain transactions, users no longer need to hold native tokens of the blockchain solely for paying Gas fees. This improves existing payment infrastructure and creates a more accessible and user-friendly environment for digital transactions.
Wallet Management
AA also abstracts the friction when interacting with on-chain dApps using Web3 wallets. After the notable crash in the crypto space in 2022, self-custody of assets has become a top priority for users. However, users have faced challenging issues in securing their accounts. These problems include:
● The private keys in existing wallet solutions are a single point of failure. If users lose their mnemonic phrase or private keys, they will not be able to recover their wallets.
● Users are vulnerable to social engineering attacks as malicious actors can devise new means to attack their private keys.
By incorporating AA into existing wallet solutions, it will expedite these accounts to become smart contract wallets with programmable logic, empowering them with new functionalities such as batch transactions and social recovery.
Safe
Safe, formerly known as Gnosis Safe, is a significant participant in the wallet management space. This decentralized custodial protocol can be used on Ethereum and EVM-compatible blockchains, creating a large number of wallets on a weekly basis.
Figure 8: Number of Safe wallets created weekly
Safe stands out in this field because of its multi-signature scheme, which requires multiple authorized entities to sign transactions on the same account instead of a single private key. This reduces the risk of malicious attacks stealing funds from the account.
The platform recently integrated the ERC-4337 standard through a plug-and-play interface, which provides developers with the flexibility to build and create wallets using the modules provided. By implementing signature abstraction, it allows users to customize the rules for authorizing wallet-initiated transactions. For example, to prevent suspicious activity, users can specify transaction limits to reject certain transactions and enhance security. It also introduces social login through Google or Apple ID as an experimental feature, eliminating the need for users to remember mnemonic phrases. This opens up possibilities and offers a frictionless Web3 experience.
Argent
As a major wallet provider on Starknet, Argent introduces the concept of “social recovery,” allowing users to recover lost or forgotten private keys. According to Chainalysis data, as of 2021, about 20% of Bitcoin is lost because owners can’t remember their private keys.
Therefore, Argent users can nominate “guardians,” who can be other wallets or accounts they trust. If a user forgets their mnemonic phrase, each guardian needs to sign transactions to help the user access the wallet.
Alternatively, users can also use their email addresses and phone numbers for offline recovery, introducing familiar two-factor authentication mechanisms. This adds another layer of protection to their accounts and eliminates the need for users to remember complex passwords and protect private keys. However, this may compromise user anonymity as their personal information is revealed.
Braavos
Braavos, a wallet provider on Starknet, also introduces its smart wallet, which adopts a form of signature abstraction. This means that users can customize how they sign and verify transactions. In this case, users can use their phone’s biometric identity features (such as facial or fingerprint recognition) to access their wallets. The authentication method provides a secure and user-friendly onboarding experience.
These AA innovations aim to simplify the user experience and create new possibilities for developers and users to interact with blockchain. Through different abstraction schemes, we believe these positive developments will enable existing wallet solutions to provide familiar Web2 interfaces for mainstream adoption.
Delegation
A new type of account contract, “delegable accounts,” leverages AA to allow users to delegate signing authority to approved external contracts. This account contains relevant rules that can be encoded in a customizable way based on user preferences. They can then interact seamlessly with these applications without manually approving each transaction.
Automatic Payments
Visa demonstrated an “automatic payment solution for self-hosted wallets.” Wallets can be set to enable periodic payments based on predetermined conditions, rather than requesting payment on the blockchain every time. While users still have full control over the wallet, they can authorize automatic, programmable payments for utilities and subscription fees.
Figure 9: Visa’s design diagram for delegated accounts
1. Merchants deploy smart contracts for automatic payments.
2. Users with delegated accounts in their wallets approve automatic payments and add the smart contracts to their allowed contract list.
3. Each month, when merchants create a bill for the user’s subscription fee, the automatic payment contract will automatically debit the required payment amount from the user’s delegated account.
Therefore, users do not need to manually authorize these transactions and can easily schedule periodic payments. This application allows users to conveniently set programmable payment instructions, highlighting the potential for real-world applications.
Social Media
Decentralized social media network Lens Protocol has implemented AA through disLianGuaitcher. It provides users with tools to delegate signing authority to the disLianGuaitcher wallet for functions such as posting, commenting, and changing profile metadata. This allows users to interact with dApps continuously without needing to approve each time. Additionally, disLianGuaitcher pays for the gas fees for these transactions, eliminating the need for users to hold native tokens for in-app interactions. The protocol has experienced adoption growth over the past year.
Figure 10: Daily social media activity on Lens Protocol
Delegation effectively abstracts signature verification and changes the in-app user interaction for a more user-friendly experience.
Token-Bound Accounts
ERC-6551 introduces the Ethereum standard for Token-Bound Accounts (TBAs), which will be officially deployed in May 2023. This new standard allows NFTs to operate as “smart contract accounts” and become their own wallets using a permissionless registry. This enables owners to host NFTs within TBAs.
Figure 11: Number of token-bound wallets created per day
Figure 12: Enhancing existing NFTs through abstraction with ERC-6551
Sapienz
Stapelverse launched the Sapienz project, introducing a paradigm shift for digital culture by integrating the ERC-6551 standard. Users will receive a customizable character that can be unlocked based on the NFTs they own. They can equip the character with different cosmetics and personalize it according to their preferences. These cosmetics are attached to the character’s TBA and can be located in each user’s general inventory.
Figure 13: Sapienz’s ERC-6551 Functionality
Through different variants of abstraction, ERC-6551 has upgraded each NFT to have its own smart account. Historically, ERC-721 NFTs have remained relatively static and stateless, as they couldn’t have any additional functionality beyond metadata non-fungibility. Therefore, ERC-6551 significantly enhances the utility of NFTs, allowing them to hold assets, manage identity, and participate in on-chain activities.
4. Notable Developments
Smart contract wallets already exist today, but their implementation remains challenging due to Ethereum’s inability to natively support them. Instead, it relies on “relayers” operated by intermediaries to convert user-signed messages into typical Ethereum transactions. In fact, Ethereum faces existing limitations:
1. Given Ethereum’s maturity and the need to coordinate the implementation among many nodes, technical debt on the blockchain introduces inertia towards these new changes.
2. Wallets are likely to incur additional gas costs due to the complex processing logic embedded in these accounts.
Therefore, newer L2 chains have become viable alternatives for developers to experiment with AA. They include:
◆ zkSync, the first EVM-compatible chain to implement native AA at the protocol level. This means that all accounts need to implement the IAccount interface, which is fully programmable and allows for various customizations.
◆ Similarly, the zk-rollup solution StarkNet also implements AA. This includes Argent, which is used by 80% of StarkNet users. Visa’s Delegated Accounts and Automatic Payments experiment is also conducted on this chain.
◆ Optimistic Rollups, such as Optimism and Coinbase’s Base, also implement forms of AA. They provide APIs for developers to create new solutions with supporting features, such as social onboarding and gasless transactions. Recently, the Base, Safe, and Gelato teams offered bounties at ETHDenver to encourage projects to incorporate AA.
Looking ahead, we review improvement proposals and highlight the ongoing development in this field.
Figure 14: Ethereum Improvement Proposals related to AA
Figure 15: Timeline of AA Adoption and Market Development
◆ February 23, 2023: Introduction of an Ethereum Improvement Proposal (EIP) to implement ERC-6551. This will enable NFTs (ERC-721 tokens) to have their own smart contract accounts (TBAs).
◆ February 28, 2023: ERC-4337 EntryPoint contract is officially deployed on Ethereum.
◆ March 8, 2023: Instadapp launches the Avocado smart contract wallet. It features built-in AA functionality, allowing users to pay gas fees in USDC on any supported chain. Other features include network abstraction, allowing users connected to one network to transact on any other network.
◆ April 26, 2023: Metamask announces support for AA adoption through MetaMask Snaps, an open-source system that allows developers to extend the functionality of the MetaMask wallet and integrate it into a “Snap”.
◆ May 8, 2023: ERC-6551 is officially deployed on the Ethereum.
◆ May 17, 2023: Visa deploys the LianGuaiymaster contract on the Ethereum testnet to experiment with frictionless and gasless transactions.
◆ July 13, 2023: Safe adds ERC-4337 compatibility to its Safe{Core} AA stack.
◆ July 17, 2023: Lens Protocol launches a profile wallet based on ERC-6551, providing its own social relationships, voice, and monetization opportunities for NFTs.
◆ August 2, 2023: OKX announces that its OKX Wallet supports AA, allowing users to create smart accounts within its mobile application. It is supported on Ethereum, BNB Chain, and other EVM-compatible chains, enabling users to manage assets across different networks.
◆ August 8, 2023: Circle introduces a programmable wallet under its Web3 services product line, providing a one-stop platform for developers to build and deploy their wallets.
◆ August 11, 2023: Visa launches a way to pay gas fees on Ethereum using Visa cards.
5. Conclusion
The abstract concept aims to eliminate the complexity of wallets and blockchains and provide a familiar interface for Web3 dApps. By focusing on user experience, AA is a powerful tool for promoting user adoption and provides developers with an attractive opportunity to create a frictionless and familiar experience. We have seen Visa’s innovative leadership in encryption, which reveals the way AA can bridge the gap between Web2 and Web3 interactions, showing signs of institutional adoption.
In fact, providing programmable logic for wallets provides developers with endless possibilities to extend these contracts and provide functionality for users. It is gratifying to see the increase in interest in this research field, as on-chain data shows the growth in user adoption and preferences for using these technologies. While it is available on scaling solutions such as StarkNet and zkSync itself, we note progress in integrating AA into a wider ecosystem.
Looking ahead, ERC-4337 has laid the foundation for improving the underlying account structure of Ethereum. This paves the way for more innovations, such as ERC-6551, which injects the power of AA into NFTs, further enhancing the utility of NFTs. Once again, the progress of blockchain technology has proven its relevance through real-world use cases, and we eagerly anticipate these new innovations that will drive broader adoption.
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