As the crypto evolves, new paradigms are emerging, especially in how users and developers are interacting with wallets.
Traditional browser wallets (EOA wallets) are still a necessary tool to explore crypto, but consistently introduces friction for new users. This prevents apps from easily onboarding new users and providing a smooth in-app experience.
An alternative to this exists with Wallet-as-a-Service (WaaS) infrastructure, which embeds wallets directly into crypto apps, and allows users to interact with apps in a more intuitive manner. Instead of using a dedicated wallet application, WaaS offers methods for users to sign up directly to applications using familiar methods like email and social logins, while wallets are generated and managed automatically in the background.
Let's explore Wallets-as-a-Service in more detail, starting with the evolution of wallets, the benefits of WaaS implementations compared to traditional wallets, and how you can integrate WaaS into your own applications.
A Brief History of Crypto Wallets
Early Days (2009 - 2011)
In the early days of crypto, there were no seed phrases. The original Bitcoin software allowed users to generate a wallet.dat file, which stored the raw private key on their computer. These original wallets are what we refer to as “non-custodial” — completely controlled by the user, and no means for recovery if lost.
Dedicated Wallet Applications (2011 - 2016)
As Bitcoin grew in popularity, dedicated desktop wallets such as Electrum, as well as various mobile and web wallets began to emerge. BIP39, the proposal for seed phrases, was also introduced in 2013, which began making its way into some wallets as a more user-friendly way to display and manage private keys.
You can read more about the evolution of Bitcoin addresses here.
Ethereum and Browser Wallets (2016)
Ethereum was released in 2016 and revolutionized blockchain technology by enabling smart contract development. These self-executing contracts allowed developers to create decentralized applications (dApps) via EVM-compatible code, as assets became programmable beyond just cold storage.
Smart contracts brought programmability to blockchain, enabling use cases beyond simple value transfer, such as decentralized finance (DeFi), tokenization of assets, and autonomous organizations (DAOs). This innovation attracted developers who could now build complex applications using Solidity, Ethereum's purpose-built programming language. Browser extension wallets like MetaMask grew in popularity, as they provided an easy way for users to connect to and interact with onchain apps while maintaining control of their private keys. These wallets served as bridges between traditional web browsers and apps built on Ethereum – significantly lowering the barrier to entry for everyday users to participate onchain.
The Current State of Wallets
Wallets in the form of these third-party browser extensions still remain the dominant way for users to interact with most blockchain applications and protocols, despite their limitations.
Crypto has continued to evolve, and browser wallets can introduce significant friction to common onchain actions like trading or minting, as well as failing to address some of the fundamental security concerns around private key management.
These can create barriers to mainstream adoption, as revealed by both recent industry research and ongoing challenges faced by both users and developers. Let’s explore the issues in more detail.
The Problem with Traditional Crypto Wallets
A February 2024 survey report from key management network Web3Auth, published by CoinTelegraph, builds on the challenges posed by extension wallets. The survey found that among the main barriers to crypto adoption, 32% of users cited concerns about security and related risks, 24% pointed to the lack of user-friendly interfaces, and 19% struggled with the complexity of managing private keys.
Instead of being part of a crypto app itself, traditional EOA wallets are a separate piece of software. Signing and approving transactions means constant pop ups, which often degrades UX, and is confusing for newer crypto users who aren’t familiar with this kind of experience. Moreover, a user might have to manage multiple wallets if they want to transact across chains, which only adds more complexity.
Additionally, users have to manage their own wallet, and by extension, their private key/seed phrase. This presents a much higher bar for operational security that users need to be aware of in order to keep their funds secure, and a single mistake can lead to a complete loss of wallet access and assets in some cases. Estimates from River put the amount of lost or inaccessible Bitcoin at around 1.6M tokens (~$1.5 billion).
There are many wallet paradigms which aim to address these issues, one of which is Embedded Wallets, or Wallets-as-a-Service. Let's explore WaaS in more detail.
A Closer Look at Wallet-as-a-Service (WaaS)
The Wallets-as-a-Service model enables teams to take a different approach.
WaaS includes dedicated wallet infrastructure companies, which generate and manage both non-custodial and custodial wallets on behalf of applications and their users. These wallets can be “embedded” directly into each crypto application, rather than functioning as third-party extensions.
WaaS providers typically operate dedicated, secure infrastructure utilizing technology such as Multi-Party Computation (MPC) or TEEs (Trusted Execution Environments), and are regularly audited in order to securely manage private keys. With solutions like Turnkey, raw private keys are never exposed to the provider at all.
As a result, developers can build embedded wallets into their products without having to spin up dedicated custom wallet infrastructure themselves. Instead, developers can simply sign up for a service, generate an API key, and use the libraries or SDKs provided to start generating in-app wallets for their users.
Aside from better DevX and programmability, the core offering of crypto wallets "as a service" is that they address the shortcomings with browser extension wallets and provide a much more cohesive experience for the end users of an application. This subsequently results in better UX and faster product innovation as a whole.
The Benefits of Wallet-as-a-Service
Developer and User Experience
Improved DevX and end user UX are two of the largest reasons to opt for a WaaS solution.
It takes private key management out of the developer’s hands and into a company dedicated to storing them securely – often without compromising on security and control. As a result, developers can focus on building out a better product for their end users.
WaaS providers like Turnkey also often offer support for UX-enriching features like passkeys and biometric logins, as well as social recovery options that are already familiar to users who use traditional software. These wallets can still be non-custodial, and can be exported/imported by users.
This provides more familiarity, and reduces the level of operational security (opsec) associated with personally managing seed phrases and private keys.
Multichain support
Traditionally, if a user wants to transact across different chains, they might need multiple wallets and seed phrases. This adds an additional layer of complexity to managing their funds. Similarly, creating apps that have built-in multichain support can be tricky for developers.
WaaS services often have multichain support baked in, meaning that developers can spin up wallets across possibly hundreds of different chains, while associating them with only a single user. An example is Azura, which enables decentralized trading across multiple chains. This is made possible by implementing Turnkey's Embedded Wallets.
Flexibility and customizability
Wallet infrastructure gives developers more optionality when it comes to the kind of wallets their users have, and the actions that they can take with them.
Wallets can be custodial or non-custodial, allow multiple transactions to be approved or rejected in succession, set a limit on the amount of transactions per day, or even re-create the multi-signature wallet setup where two or more users are required to sign a transaction in order for it to be approved. It's even possible to pre-generate wallets for users before they sign up to your app, and activate them upon signup with a magic claim link.
Developers can customize the user experience to make their app feel more native and align it with the goals they have for their end users without necessarily sacrificing user control.
Depending how low-level their WaaS provider is, they may also act as a base layer for other Account Abstraction services, which enable useful features like gas sponsorship. Turnkey offers this via an API to make generating wallets and managing user actions programmable.
Security
A WaaS solution improves security for both developers and users simultaneously.
By utilizing a WaaS solution, developers don’t need to build out their own key management infrastructure from scratch. Instead, they can focus on creating better product experiences for their end users.
For users, most of the benefits go hand-in-hand with UX and flexibility. Passkey-enabled login flows are not only more intuitive for the end user, but ensure a smaller attack surface against phishing and social engineering. A UI that emulates traditional web and mobile applications means that users are less likely to make mistakes and lose their assets.
Institutions can also incorporate WaaS solutions to create multi-signature style wallet setups, as well as access control and role-based policies. This allows only users with designated privileges to take specific actions, such as requiring users to have admin access to transfer large amounts of crypto.
Wallet-as-a-Service Use Cases and Implementations
Let's take a look at some specific areas in crypto where applications and teams are currently using Wallet-as-a-Service solutions.
DeFi
DeFi can get very complex very quickly, and onboarding users to buy tokens from different DEXes can be a challenge. Users who are used to the frictionless experience of buying a token on a centralized exchange (CEX) are typically deterred by the multi-step approach of setting up a non-custodial wallet to make the same trades.
With WaaS, emulating a CEX-like experience is easy. Applications like Moonshot use Turnkey's infrastructure to create in-app embedded wallets, utilize biometric passkeys for login and transaction approvals, and allow users to trade on Solana in literally a few clicks.
This all happens in a cohesive mobile experience, and sets a big precedent for what DeFi and trading apps are capable of with the right UX.
Developer Tooling
Some Wallet-as-a-Service solutions are relatively low-level, and provide a lot of flexibility for developers to build with. Developers can either build on these primitives directly, or utilize existing developer tooling built out on top of WaaS solutions instead.
One example is Alchemy, a developer tooling company that has integrated WaaS solutions like Turnkey to build out more opinionated and feature-rich account abstraction solutions, such as their Account Kit.
AI Agents
Agents are a perfect use case for WaaS, as agent wallets can be programmatically created and managed using API keys. It also opens up the opportunity to create more complex interactions between users and agents, such as having agent-controlled wallets that require a level of approval before taking onchain actions.
Platforms like Spectral enable anyone to provision an AI agent and create an associated wallet so that they can trade autonomously, while ensuring the end user remains in control.
Turnkey's Wallet-as-a-Service (WaaS) Solutions
At Turnkey, we believe that embedded wallets are the future.These function just like non-custodial wallets do, but can be "embedded" into crypto applications.
Developers can generate and manage millions of wallets using our API, with private keys securely generated, stored, and accessed via AWS Nitro Enclaves, a type of tamper-proof Trusted Execution Environment (TEE). All sensitive operations are performed inside of these enclaves, and private keys are never decrypted outside of them.
Wallet-as-a-Service providers are changing the way we interact with onchain applications in crypto, and using a dedicated wallet infrastructure solution like Turnkey lets you build an intuitive user experience, while we focus on building a secure product suite that helps you manage your private keys.
If you want to get started or learn more about what we do, check out our primer on Embedded Wallets here, or dig into our developer documentation.
If you have any questions, feel free to drop us a DM on X, or join our support channel via Slack.
Happy building!
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