The DeFi Dream Arrives with Account Abstraction

by Chris Coney
By Chris Coney

Around the same time that I published a previous article, new code was introduced into the Ethereum (ETH, “B”) technology stack, which solved the exact problem I wrote about.

Now, I understand that it can be difficult to keep up with crypto-related news because there is a plethora of information being generated by the crypto space every day.

So, focused and purposeful research is key.

When I started publishing crypto research in 2016, it was easy to stay on top of everything and share my findings out of pure interest.

Now, though, my primary goal is to gather information that will provide the greatest value to my readers.

This boils down to finding what my subscribers need in order to:

•   Make the greatest amount of money …

•   Tightly manage risk …

•   And do all the above in the easiest and quickest way possible.

Believe me, this is a lot harder than it sounds.

In fact, I probably throw away 90%–95% of my findings because it does not fit these criteria, so it is not worth your attention.

But what I’ve got for you today delivers on that third bullet point in droves.

Introducing ERC-4337

If you are familiar with Ethereum, you’ve probably heard of ERC-20. This is the Ethereum token standard that allows great interoperability in DeFi.

Recently, another crucial standard was integrated into the Ethereum technology stack called ERC-4337. And this is arguably one of the most valuable additions to Ethereum since it was launched.

Smart Wallets

ERC-4337 introduces the ability to create blockchain smart wallets. These are individual smart contracts you can control with your private key, which also function as your wallet.

Smart wallets are just like the DeFi wallets you are used to … except they, themselves, are smart contracts.

What that does for you is add smart functionality to your wallet, including:

1. Social recovery — Nominate the smart wallets of trusted friends who are allowed to restore access to your wallet in case of an emergency, such as a lost key.

2. Two-factor authentication — An extra layer of security so that more information is required for a hacker to compromise a wallet.

3. Pay transaction fees with any token — The holy grail user experience I previously wrote about.

4. Sponsored transactions — The ability for third parties (like a decentralized application) to incur your transaction fees.

5. Recurring payments — Crypto subscriptions made easy.

6. Batch transactions — No need to submit transactions one by one.

To me, No. 3 — the ability to pay transaction fees with any token — is one of the most useful new features.

This means when I onboard new subscribers in my Crypto Yield Hunter service, they can now easily go from:

•   Dollars in their bank account

•   To dollars in their exchange account

•   To USD Coin (USDC, Stablecoin) in their smart wallet.

From there, everything can effectively be done in USDC, like being quoted transaction fees, paying those fees and investing with USDC.

It brings the DeFi investing experience squarely in line with the way most people have become accustomed to with traditional investing.

Now there is no need to keep a balance of ETH to pay transaction fees and top it up when it gets low.

Neither is there any need to keep a balance of three different crypto assets to pay transaction fees on three different DeFi networks.

With ERC-4337, now you can just have one smart wallet with USDC in it — and no matter what DeFi network you conduct a transaction on, you can use USDC to pay that transaction fee.

How simple is that? As simple as it should be.

An Avalanche of Adoption

While this new level of simplicity in using DeFi is surely great for you, it is also great for everybody else.

I know for a fact that many people took one look at DeFi and ran the other way because it was too technical to use.

As crypto continues to become more user-friendly, I believe the floodgates will open, and everyone can benefit from this increased adoption.

For example, with this bottleneck removed, it should unleash an avalanche of new capital into DeFi — capital that is in the hands of people who simply found DeFi too complex to use.

And as a DeFi educator, I feel a great sense of responsibility to get this information out to those people.

Conclusion

This is a fantastic innovation, and one I have yearned for since DeFi was born.

But is there any downside?

The only possible downside I can see is that while this does, indeed, reduce complexity on the user end, it is at the cost of increased complexity on the technical end.

Because we are introducing a more complex object on to the blockchain — the smart contract-based wallet — it creates a larger attack surface for hackers.

It is kind of like having the latest S Class Mercedes with all the extra options. While it has tons of fancy technology, that also means many things can go wrong.

One of the reasons why the Bitcoin (BTC, “A-”) code is so secure is because — to use DeFi terminology — it is not smart, it is “dumb.”

The Bitcoin feature set is intentionally kept as tight as possible, since introducing complexity would increase security risks.

As an asset with a half-billion-dollar market cap, I think this is the correct move.

And this brings us right back to Weiss Ratings. We will do the hard work of trawling through all the different DeFi smart wallet options and recommend the ones we think you should use.

So, if you are not subscribed to a crypto research service like Crypto Yield Hunter, I invite you to explore your options on our website and see what service is right for you.

But that is all I’ve got for you today. Let me know your thoughts on ERC-4337 and what your favorite new function is by tweeting @WeissCrypto.

I will catch you here next week with another update.

But until then, it’s me Chris Coney saying, bye for now.

About the DeFi & Crypto Educator

Chris Coney is among the world’s most experienced educators in the field of decentralized finance (DeFi) and cryptocurrencies. He is also one of the few analysts in the world specializing in the field of “yield farming” — hunting for the high yields now possible in the fast-growing DeFi world — and showing others how they can do the same.

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