Backed with $3 million, Soul Wallet aims to take self-hosted crypto wallets to the next billion
If you own a non-custodial crypto wallet like MetaMask, you know the headache of keeping your 16-word seed phrase safe. That’s the responsibility that comes with having complete control over one’s digital assets.
A third-party wallet, such as one hosted by an exchange, stores private keys on behalf of users and provides a better user experience. The risk is the lack of transparency about how user funds are managed, which can lead to incidents like the FTX meltdown.
Some believe that a new technical change in the Ethereum ecosystem is about to solve the dilemma between asset management and user experience. At the center of the movement is the ERC-4337 standard introduced by the Ethereum Foundation, the non-profit research partner of Ethereum, the world’s second-largest cryptocurrency with a vibrant community of developers.
Jiajun Zeng, a former product manager at TikTok’s parent company ByteDance and Chinese on-demand services giant Meituan, was one of the first to adopt the new standard. His startup Soul Wallet just raised $3 million in a seed funding round to offer an online, self-custodial Ethereum wallet built on top of ERC-4337.
Comparing existing crypto wallets and wallets powered by the new tech upgrade is like “comparing Nokia to iPhones,” Zeng said in an interview with CoinTech.
“After the FTX implosion, people are refocusing on achieving a better user experience on a self-hosted wallet,” notes Zeng.
At EthDenver, a major Ethereum developer conference that attracted more than 30,000 attendees in the Colorado capital in early March, the new standard caused quite a stir among blockchain application builders.
Through ERC-4337, Ethereum plans to bring smart contract capabilities to wallets (via what’s called “account abstraction”, but let’s not get into the details). Basically, developers can program smart contracts, or lines of code that execute predefined agreements, into wallets.
Being smart means putting an end to some of the old problems of crypto wallets, such as reliance on seed phrases. Instead, smart contract wallets allow users to recover their accounts through social recovery, such as using someone’s trusted contacts, a different wallet, or even a third-party service. For those using WeChat, it’s a similar account recovery process.
Developers can also code other custom features into wallets, such as allowing users to pay gas fees with stablecoins instead of limiting payments to Ethereum.
MetaMask, a popular self-custodial Ethereum wallet, uses an ancient cryptographic method called EOA, or externally owned accounts, where if a user loses their private keys, their funds are lost forever. Early mover Argent has included some smart features in its portfolios, but features are still limited, Zeng said.
The challenge of introducing a new technological standard is scaling up. MetaMask has sticky users because it is compatible with many popular decentralized apps. The question is how Soul Wallet and other similar startups can compete to build a significant pool of partners.
Ethereum is touting smart contract wallets as the future of Ethereum, so dApp developers will feel incentivized to make the switch, believes Zeng, an active member of the Ethereum community.
“We are targeting the next billion crypto adopters rather than trying to win users away,” like MetaMask, Zeng said.
“In developing countries like South America and Africa, people are using cryptocurrencies to hedge against currency inflation, so it depends on how crypto adoption can spread in these regions,” he continued.
“As far as developed countries go, adoption will depend on how dApps and NFTs evolve.”
Soul Wallet is currently undergoing internal testing and will launch in Q3 or Q4 according to Zeng after a series of rigorous audits. The team consists of a dozen people spread across the US, Japan, Thailand and China.
Investors who have participated in the latest “party round” include Struck Crypto, Game7DAO, NGC ventures, Dispersion Capital, Alchemy, Ankr and Signum Capital. The funding was also backed by some notable angel investors such as David Hoffman and Ryan Sean Adams of Bankless; Kristof Gazso, the co-author of ERC-4337; Marc Zeller of the Aave-Chan Initiative; Scott Moore of Gitcoin; Terence Tsao of Arbitrum; and Tim Beiko of the Ethereum Foundation.
Updated March 16, 2023 with the investor list of the funding round.