Recently, wallets-as-a-service startup Magic raised $52mm from PayPal and others. This post breaks down what 'wallets-as-a-service' means, introduces similar solutions in Paper, Crossmint, Sequence, and Coinbase, and how brand and agency leaders should think about this within their broader consumer engagement strategy.

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'Wallets-as-a-service' is not about hardware wallets like Ledger for self-sovereign diehards, or self-hosted web wallets like MetaMask that require safely storing a seed phrase offline and paying your own gas. It's not for web3 natives, in other words. It's for onboarding the mainstream!

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'Wallets-as-a-service' are one of several emerging technologies that make up the growing 'web2.5' trend in general, which is about making selective decentralization trade-offs in pursuit of a seamless user experience that still delivers on digital ownership and interoperability.

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How 'wallets-as-a-service' work, and how brands and consumers benefit

If you've ever tried to set up a web3 wallet, you know how much friction is involved.

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Instead of a simple email-password, you are given a 'seed phrase' of random words that you need to write down and store offline for maximum safekeeping. This is how web3 maintains full decentralization: no one but you is capable of gaining access to your account or acting on your behalf. This is great for certain use cases when users are ready to climb the learning curve, but for onboarding new consumers to the space with sometimes free-to-earn digital assets, it's just overkill.

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Of course, the opposite of a fully decentralized wallet is a fully custodial wallet: one in which the brand owns, controls, and is liable for the users' wallets and their contents. This approach may be right for some brands (though we at Mojito often question it), but for others looking for a middle ground: 'wallets-as-a-service' was born.

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Wallets-as-a-service use an underlying technology called multi-party computation.

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Instead of asking consumers to store their own private key with a seed phrase offline, the private key is 'sharded' into three fragments of data, two of which are needed in order to control the wallet. Each is encrypted and authenticated uniquely:‍

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1. Email/SMS -- One fragment is tied to the consumer's email or phone number, and requires proof of ownership through a one-time password like 2FA.

2. Local Device ID -- Another fragment is tied to the consumer's physical device or browser that was used to create the wallet.

3. Vendor Solution -- The third fragment is stored by the wallet-as-a-service provider with a range of security options, some better than others.  

The consumer can operate the wallet with two of the three shards, while the wallet-as-a-service company can never unilaterally gain control.

THIS IS ALL IN THE BACKGROUND.

The consumer is never aware or bothered by any of this. This makes for a seamless wallet experience where users don't pay gas, and brands don't take on unnecessary risk or liability because the wallet is also non-custodial.

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Our 0.02 ETH 🍃

Mojito has met with all of these teams, tried all of their tech, and used multiple in the wild with customers.

• Magic -- The most well-funded, largest headcount, and longest tenured team, however, also the priciest and most centralized in terms of security.
  
  
• Paper -- The fastest, most secure, and most white-labeled product we tested on the market with the most flexible team and approach to partnerships.
  
  
• Crossmint -- The most b2b2c focused in terms of creating a direct-to-consumer connection with their own brand and family of growing apps.
  
  
• Sequence -- The most gaming focused, and farthest ahead on smart contract wallets (ERC-4337).
  
  
• Coinbase -- Mobile-only 'wallet-as-a-service' right now, but already has one of the best self-hosted wallets with their exchange and on/off-ramps plugged in.

At Mojito, we believe the future of consumer engagement is onchain.

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‍This is important for you to know -- brand and agency leaders -- but consumers should not need to know or understand this any more than 'omnichannel'. That's what web2.5 is all about, and wallets-as-a-service are a helpful piece of that puzzle (dynamic NFTs, too!), which will continue to evolve.

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The key thing to solve for isn't your wallet provider. They're largely at parity and easily interchangeable / upgradeable. The key thing is your holistic product offering, which isn't influenced or constrained by your 'wallet-as-a-service' provider, but instead unlocked by use-case solutions like Mojito, which has wallet-as-a-service built right in.

Mojito enables brands to launch end-to-end web3 consumer engagement campaigns including wallets-as-a-service, fiat and crypto payments, free mint and paid drop mechanics, white-label secondary marketplaces, token-gating, and onchain rewards.

With Mojito, you can tailor your brand experiences for mainstream users only, web3-natives only, or both.

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As always, we love talking web3 consumer engagement with brand and agency leaders. Whether you're sourcing tech solutions with a clear scope, timeline and budget in mind, or you're just getting started, Mojito can help you every step of the way. Share your contact details and our team will reach out for an exploratory chat. Get in touch.

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