Competition landscape and future of cross-chain wallets.

Original Title: "The Future of Cross-Chain Wallets"

Original Authors: Brendan Wong, Lawson Graham, Megan Ho, Rohan Khandelwa, Jojo Chen, Emma Guo

Translated by: Lynn, MarsBit

Introduction

With the rise of decentralized finance, the demand for cross-chain compatibility is more evident than ever before. As the number of blockchain networks and protocols continues to increase, interoperability has become a major challenge for the cryptocurrency industry. In order to thrive in the multi-chain environment of Web3 and meet the needs of the next generation of Web3 users, wallet providers need to offer cross-chain products that provide streamlined and interoperable DeFi functionalities such as exchanges, as well as user interface designs that optimize the user experience across multiple networks. Ultimately, the growth of cryptocurrency adoption depends on innovative product and engineering designs that abstract the complexity of individual blockchains and unlock differentiated value for end-users.

Interoperability and Current Limitations

First of all, we must answer the question of what is blockchain interoperability and why it is important. In the past few years, so many unique blockchains have emerged, and there is a view that which blockchain is better is determined by a minimalist approach - which chain is "the best" and provides the most functions, protocols, and standards. However, it is often difficult to infer what is "the best". One chain may offer faster and cheaper transactions, while another chain may offer better privacy. All of these benefits come with trade-offs. Therefore, the general consensus is cooperation and mixing usage on different chains as needed. For example, one chain may be the ideal choice for DeFi activities, while another chain may be safer for long-term asset storage. Therefore, interoperability has become a very important step for the future. Although many chains, such as Cosmos and Polkadot, have built-in interoperability in their design, other chains, such as Ethereum and Binance Smart Chain, are isolated. This is where interoperability comes into play.

Interoperability refers to the ability of different networks to exchange and utilize information, or the ability of systems to operate meaningfully with other systems. Each blockchain has its own unique functionality, protocols, and standards, which can make it difficult to transfer assets between different chains. Without interoperability, we may encounter issues such as fragmented liquidity and a divided ecosystem, which hinder the network from realizing the full potential of DeFi.

Currently, users must constantly switch between wallets to ultimately complete transactions on different chains. For example, if a user wants to transfer X tokens from one blockchain to another, the user needs to individually approve transactions on each chain, resulting in a large number of network wallet pop-ups. The lack of interoperability not only leads to inefficient and insecure user experiences and interfaces, but its complex process also hinders widespread adoption, especially for beginners who want to enter the decentralized ecosystem.

Cross-chain Wallet

Currently, wallet and interoperability issues stem from too many steps. In order for users to use their assets on another chain, they must first find a suitable bridge to use. For example, our users want to use LayerZero's Starport protocol - the most popular and only local asset bridging protocol that guarantees instant termination - as their bridge. They must first go to the Stargate website, log in with their MetaMask wallet, use the Stargate process to bridge their assets to the chain they want, and then wait for the transaction to complete. All of these steps must be performed, even for token bridging. Once the token is bridged, users can use it normally. However, instead of forcing users to take several cumbersome steps, why not let the wallet abstract all the bridging work?

Cross-chain wallets are the key infrastructure to solve the mainstream inaccessibility and lack of interoperability of DeFi. Cross-chain wallets are digital wallets that can store multiple types of cryptocurrencies and seamlessly interact with multiple blockchain networks. By using cross-chain wallets, users can easily transfer assets between different chains, access a wider range of DeFi applications, minimize gas fees, diversify their holdings, and experience the inherent advantages of various different chains. These wallets will fundamentally reduce the loss and friction that users experience when interacting with multiple blockchains.

One of the biggest advantages of a cross-chain wallet is its ability to reduce friction and increase efficiency. Users do not need to use multiple wallets or exchanges to manage different assets, but can instead integrate everything into one place, abstracting away the complex transactions that users must manage. This can save time, reduce the risk of errors or mistakes, and lower the barrier to entry for new users.

Interstellar, and why LayerZero?

With the continuous development of Web3, cross-chain wallets will become an important tool for users. By achieving seamless interoperability between different blockchain networks, cross-chain wallets will realize a more integrated and accessible ecosystem.

As part of our research, we explored the underlying infrastructure needed to establish a world-class cross-chain wallet. To enable value transfer between chains, developers can utilize cross-chain messaging protocols to support arbitrary contract calls on different chains.

When choosing cross-chain information transmission infrastructure for a wallet, application developers should consider security, ease of implementation, user experience, and supported networks. As part of our research, we have studied multiple information transmission infrastructure protocols that meet these standards and have decided to use LayerZero for our wallet MVP.

LayerZero is a cross-chain interoperability protocol that enables communication between various blockchain networks through seamless and lightweight message passing. When building cross-chain wallets, LayerZero provides several core advantages:

Efficient and Secure Communication — LayerZero enables fast and secure communication between different blockchain networks, greatly reducing transaction times and improving overall user experience. LayerZero is the only scalable information transmission protocol (with a value guarantee of over $10 billion) that has never lost user funds. In addition, all transactions are protected by Pre-Crime, a proprietary security layer that tests all messages locally before running on the mainnet.

Developer-friendly — LayerZero is developer-friendly, providing an easy-to-use API for builders to directly integrate cross-chain information transmission into their applications. In addition, the LayerZero team offers a powerful support team to debug issues and review code.

Seamless Integration — LayerZero seamlessly integrates with different blockchain networks, allowing users to manage multiple cryptocurrencies in one wallet without the need for multiple accounts or wallets. In addition, LayerZero's integration includes gas abstraction, which allows end users to pay for multi-chain transactions with their native source gas tokens.

Lower transaction fees — Compared to traditional cross-chain solutions, LayerZero can achieve cross-chain transactions at lower costs, which can save users money. In particular, Stargate's unique protocol design utilizes a unified liquidity pool for 1:1 local asset cross-chain exchanges, releasing cost efficiency without compromising security.

广泛的网络支持 —LayerZero supports a wide range of networks, currently over 30 EVM and non-EVM networks, including Ethereum, Polygon, Avalanche, Aptos, BNB, Optimism Arbitrum, and more.

Overall, LayerZero's fast and secure cross-chain information transmission protocol makes it an ideal solution for building cross-chain wallets. It seamlessly integrates with multiple blockchain networks, provides lower transaction fees, and offers higher security and reliability as its ultimate guarantee. Its developer-friendly features also mean that it can be easily integrated into existing applications, making it an attractive solution for building cross-chain wallets.

Competition Landscape

The competition pattern of cross-chain wallets is mainly dominated by several top wallets, which have established positive brand image and user emotions.

Competitive Analysis

MetaMask, Kepler, and Trust Wallet.

XDefi, Exodus Wallet, and Atomic Wallet.

Liquality, ONTO Wallet, and Cross Wallet

Nadox, Coinbase, and CLV.

Biport Wallet, Frontier, and 03Labs.

Benchmarking

User Emotion/Acceptance and Intuitive User Interface/User Experience Design

The following competitive landscape displays a cross-comparison of the entire industry's cross-chain wallet suppliers, based on user sentiment/acceptance and intuitive, user-supported user interface design metrics. These metrics are determined by user and industry interviews as well as online presence and average user numbers.

The content you provided is:

Competitive landscape.

Matrix

Matrix

During the entire market research process, we discovered several important features that are key to wallet adoption and ease of use:

1. Simple and intuitive user interface design, abstract exchange process, simplified user experience, and improved overall adoption rate of the wallet. Overly complex user interface designs often confuse users during the exchange process, hindering adoption.

2. An in-app investment portfolio tracker that allows users to monitor the performance of their digital assets and track their balances across multiple blockchain networks.

3. "Discovery" page, to search for coins and dApps beyond DeFi, to enhance the user experience.

4. Guided educational videos are very helpful in assisting new users to get started with Web3 and retaining them.

5. A "Favorites" list of currencies allows users to easily access their top currencies during exchanges.

6. Including coins verified by wallet providers enhances user trust (usually displayed visually next to the coin).

Industry Interview

We conducted in-depth user interviews with 25 users who have different experiences with cryptocurrency and wallets.

User Demographics

New cross-chain users - 28% (7)

Existing cross-chain users - 32% (8)

Developers - 40% (10)

We have decided to primarily interview developers because they are also considered the end users of universal/cross-chain wallets. We aim to build a product that takes into account the needs of developers so that they can continue to build and improve upon it in the future. We have also chosen to interview influential individuals in the cross-chain wallet space, such as Gonzalo, the user experience lead at LayerZero. Additionally, in order to address the pain points of new cross-chain users, we have decided to allocate a certain percentage of the interview content to them.

We have discussed the issues of the following roles:

User role positioning.

Major Takeaways from the Interview

1. Lack of user-friendliness - Some cryptocurrency wallets lack user-friendly interfaces, making it difficult for users to understand how to use them. In particular, users are most frustrated by several key issues:

a. Feedback for ambiguous instructions and user errors.b. Slow transaction speed.c. Users are unaware of the status of the transaction.d. The fee structure is unclear.

e. Tedious onboarding experience.f. It is difficult to determine which coin to use during the exchange process to maximize value.

2. Complexity — The setup and use of cryptocurrency wallets can be complex, especially for non-technical users. The process of creating a wallet, managing private keys, and executing transactions may be daunting and confusing for many people.

a. Need several applications for various purposes, such as exchange, storage, etc.

 Interstellar

UI/UX Design Choices

From our research, it can be seen that there are many opportunities to improve the current wallet experience.

Through our design, we focus on...

Extract any non-essential information to prevent users from being overwhelmed. Eliminate the need to rely on multiple services/DApps to complete a task. Ensure that users with varying levels of understanding of cryptocurrency feel supported and unrestricted in their financial decision-making process. Human-machine interface design.

Homepage

We have chosen a design language that is consistent with LayerZero's brand, while incorporating our own ideas to give the wallet a distinct outer space theme. We have maintained the majority of the black and white color scheme, only adding color sparingly to indicate status and special information.

User Experience Design

1. Abstraction of gas fees

Question: When users do not have the required assets, the current experience of paying gas fees requires them to use multiple services to complete their transactions.

Current user flow

We hope to reduce the headache of this process by eliminating the need for multiple services, while providing necessary support to users to make the best decisions that align with their goals. We have come up with the following improved user flow:

New User Flow

2. Bridging and Swapping

Question: Most multi-chain wallets separate the concepts of bridging and exchanging into two different actions for users to choose from. However, both of these services serve the same purpose: users want to exchange one asset for another.

Our improved design combines these two concepts into one. Users can select both network and assets through a dropdown menu.

New content

3. Other experience improvements

**Question:** Most wallets display the current activity in a confusing or overwhelming way for users. Users are often overwhelmed by the list of all past activities, which can be buried after multiple clicks.

Our design only highlights the pending transactions, which are the most important transactions that users see at first glance. If users want to view all past transactions, they can do so by selecting the "Archive" option from the dropdown menu in the upper right corner.

**Question:** The transaction confirmation page includes a lot of information and new vocabulary, which may be very difficult for new users. This may lead to paralysis, where users abandon the transaction, or users may ignore all the information.

Our improved design only displays transaction rates and fees, while hiding all other information under "Advanced Information". Although experienced users can still access this information if they wish, new users will not be intimidated or misled by it.

Trademark Design

Backend Development

In order to better understand the current dilemma, our team has created our own concept proof, which is what a cross-chain wallet could look like. For our development, we found it best to improve upon the current wallet rather than create our own, as it's a simple question of why reinvent the wheel. That's why we chose to fork the most popular wallet to date, MetaMask. Most of our work in development revolves around understanding MetaMask's codebase and then implementing the bridging and accessibility features into the current architecture to create a more seamless experience for users.

LayerZero and Stargate

We first explore what LayerZero is. If you want to delve deeper, we strongly recommend reading their whitepaper.

LayerZero's core is a messaging protocol that enables arbitrary contract calls between chains. The protocol works through independent relayers and oracles to validate systems and handle communication between endpoints. Endpoints are deployed on every network supported by LayerZero; these are smart contract libraries that serve as the developer interface for validation. In the network, relayers are any entity that can retrieve and submit transaction proofs, while oracles are any entity that can retrieve and submit block headers.

In order to understand this architecture, we will go through an example message passing flow. For instance, let's say I want to send a message from Ethereum to Polygon. First, I would create and send a transaction to a LayerZero smart contract on Ethereum, which includes my information and the recipient address on Polygon. Then, the message would be sent to a validator contract, which would send the transaction proof to a relay and a network contract, which would tell an oracle to fetch the block header. Once the block header is confirmed, the oracle would send it to the network contract on the Polygon chain. The message is then passed to the validator contract, which retrieves the block header and proof from the relay to verify the contract's validity. Once the proof is verified, the payload is sent to the communication contract to be executed. The following diagram illustrates this interaction:

Figure 4, from the LayerZero whitepaper.

Stargate is a bridging protocol built on LayerZero's information service. The Stargate protocol is the first protocol to solve the three dilemmas of bridging (instant finality (source), unified liquidity, and local assets). It achieves this goal by maximizing the potential of the LayerZero protocol: achieving instant finality without the unsafe locking and minting processes used by other bridges, or the "wrapped token bridge" mode, but instead instantaneously transferring local assets. Of course, this also solves the problem of native assets. Balancing the unified liquidity pool of the entire protocol with a proprietary Delta algorithm is key to achieving this goal. Finally, unified liquidity is achieved through a built-in, self-adjusting process that allows contracts to automatically supplement and provide more or less liquidity to other chains. This approach is called fragmented liquidity.

Experience

Overall, working in MetaMask's codebase is a rather interesting experience. The codebase is designed to have two parts: the backend and the frontend. Most of the backend work is contained in the application folder, which includes all the scripts needed to pull and push information, making it independent of the frontend. The frontend is comprised of a series of components contained in the UI folder.

For our project, we decided to build most of the functionality on the front-end of the program. Although severely lacking in optimization, we believe this is sufficient as a proof of concept. If we were to start from scratch and build a complete concept, we would spend more time understanding the back-end and building functionality there, while only calling the back-end from the front-end instead of handling everything on the front-end.

In our feature experience, we have decided to use ethers.js to abstract away the complexity and allow for simpler contract calls instead of using native built-in methods by creating a low-level contract call to sign transactions. This works well with our strategy of building everything on the frontend, allowing for quick prototyping of user experiences without worrying about low-level complexity.

After designing our wallet, the construction process was relatively simple. We first built a bridging page that allows users to bridge local assets from one chain to another. We decided to partner with Arbitrum, Optimism, and Ethereum because Arbitrum and Optimism are Ethereum Layer 2 solutions that use the same native assets. This made testing and implementation easier because we were able to make more abstract contract calls to Stargate's EthRouter instead of their normal Router. After completing our bridging page, we moved on to our next effort, which automatically queries balances during changes and presents bridging options when users do not have enough assets.

Bridge Flow

We start from the first task, which is to query the balance on other chains. This simply involves calling the equivalent Etherscan API to view the user's balance on a specific chain. From there, we simply add checks in the exchange, send, and execute transaction processes to verify if the user has enough balance to perform the exchange, check the user's balance on other chains, and then recommend a bridge using the bridging method and strategy defined above.

Most of the experience was gained through integration with LayerZero and their cross-chain bridging protocol Stargate. Their documentation is thorough yet concise, making integration a seamless experience, especially for developers. Building these protocols into our wallet was as simple as sending a transaction using ethers.js. Transaction monitoring is achieved through querying LayerZero's custom bridging scanner, while gas fees estimation is built into the contract, allowing for easy querying using ethers. Our team was impressed by the simplicity and directness of LayerZero's approach.

The final step is to rebrand the user interface. MetaMask has a great branding system, with text and color schemes defined in constants, allowing for consistency throughout the entire wallet. The only issue is that these color schemes are defined in an npm package called MetaMask Design and imported into the actual code. Because we are concerned that modifying the imported package could lead to dependency failures and other issues, we have decided to simply hardcode the updated font and color schemes into the frontend CSS.

Challenge

Finally, our team found that the biggest challenge was understanding the codebase. Although MetaMask's codebase itself has relatively complete documentation, we found it difficult to find resources online or through connections that could truly help us understand what we needed to do and where to start. A large part of our early progress was simply trying to understand the nature of how the frontend and backend interacted, and where to actually implement the functionality we needed. In addition, we also had a lot of issues with dependencies and environments. Only half of our team was able to actually build the wallet, while the other half had issues with React and Node.js versions/dependencies. This led to a nightmare of coordinating independent tasks and work meetings, requiring us to make most of the progress during work meetings where one member had to piggyback off another member.

Conclusion

Overall, we have collected a lot of unique insights from studying cross-chain information transmission protocols and current market trends, and have built a more seamless wallet to allow for local GAS abstraction between chains. Engaging with wallet developers and end users to identify the needs and trends in this area has been very insightful; these interviews have provided the necessary steps for our paper to reach the next million users in cryptocurrency. Wallets are intermediaries between users and the space, so perfecting wallets is essentially helpful in creating a better experience for everyone in the blockchain ecosystem. Additionally, developing the wallet with the technical support of the LayerZero team has been a great experience. Despite facing various challenges, their team has been very supportive of us and eager to assist in any way possible.

Finally, from our market research, we noticed that most of the wallet market space is controlled by two players: Coinbase and MetaMask. Although Coinbase caters more to investors and those who are less familiar with cryptocurrencies, MetaMask is an open-source project used by most native users in this space. However, MetaMask seems to be heading in the wrong direction. From extremely strict licenses, rejecting any form of fork, to very strict and slow updates, as well as collecting IP addresses, MetaMask seems to be slowly but surely deviating from the ideal wallet. Although they want to maintain control, people seem to be realizing that more competitors and better innovation are needed in the wallet field.

However, in our experience, we have learned how difficult it is for developers to create competitive wallets. This is because MetaMask's authorization prohibits code reuse or forking, so developers looking to create competitive wallets must start from scratch. This is especially frustrating for wallet developers who lack experience or have new ideas. Additionally, once a wallet is launched, it will be difficult to compete with MetaMask and Coinbase, which already have over 90% of all wallet users. Due to their extensive integration and collaboration with most DApps and products, new wallets will find it even harder to gain traction.

In short, the dominant position of a few players in the wallet market has posed challenges for newcomers and innovation. Although popular among native cryptocurrency users, Metamask's strict licensing and slow updates have deviated from the ideal of an open-source wallet. The difficulties faced by new developers and competitors in this field constitute a barrier to the growth and mass adoption of cryptocurrencies. The first wallet that can achieve truly secure and seamless cross-chain exchanges - especially from EVM to non-EVM - will experience a significant competitive moat and play a key role in welcoming a net new user base for DeFi and consumer-facing applications. LayerZero and Stargate infrastructure will play a critical role in the development of this industry. The industry must continue to adhere to the principles of open-source and decentralized systems, allowing new ideas and solutions to emerge and thrive on existing single-chain islands. Only by adhering to the principles established by cryptocurrencies can we ensure the long-term growth and sustainability of a broader ecosystem.

Disclaimer: This article does not constitute investment advice. Users should consider whether any opinions, views, or conclusions in this article are suitable for their specific circumstances and comply with relevant laws and regulations in their country or region.

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