ERC-4337 & Web3 Messaging

Application Development 29-Nov-2023

Web3 User Experience Background:

It is a well-known fact Web3 is clunky and lacks an easy or fluid User Experience(UX). However, there should be more discourse on the low re-engagement rate of existing Web3 users. I have already written about this in a previous post, but as a recap, if 100 new users enter Web3 this month, only 2.5 of them will re-engage next month. So it’s mostly us geeks who continue to go through the hoops of clunky Web3 user flows. In short, the current set of decentralized apps (dApps) is built for early adopters rather than late adopters.

Great front ends can only evolve if a solid foundational back end exists. For example, a Web3 wallet twelve-word seed phrase allows for self-custody and is secure, but there are better flows for mass adoption. A similar situation occurs when a blockchain asks for many authentications/signs every time we touch a blockchain. Multiple sign requests might offer solace to the early adopter geek, but this same user flow freaks out the late adopter, as it seems overdone and suspicious. Sometimes a different audience type interprets a feature polar oppositely from the original intent.

Ethereum Updates:

Ethereum launched ERC-4337 and Account Abstraction on March 1st, 2023 @ETHdenver. Ethereum is one of the most successful Layer 1 development platforms in Web3. Conversely, Bitcoin is a cryptocurrency designed for long-term investment holdings, akin to buying digital gold. Bitcoin founders had no intent to have a developer ecosystem build on top of its token (this is starting to change with Lightning Network but is still very early). Ethereum, on the other hand, has both its currency and a vast developer ecosystem where much more evolution has occurred in the last five years. Other blockchains are developer-focused too, but none as pervasive as Ethereum, so I will stick to the Ethereum example for now. Ethereum issued its whitepaper in 2013, and in most years since then, Ethereum has added functionality, features, updates, etc.; all are well summarized here. ERC-4337 is one of those updates in March 2023 that speaks specifically to back-end improvements that should usher in better front-end UX & UI. See more information on ERC-4337 here.

Ethereum was in the world for ten years before we had an update that specifically addressed UX, which suggests all the innovation up until now was very focused on back-end blockchain, cryptography, security, and ultimately community ownership. It was less about looking good and more about core capabilities which is entirely reasonable.

Until recently, wallets have transacted via Externally Owned Accounts(EOAs), and now there is a new way to transact under Smart Contract Wallets with significant front-end benefits. The full ERC-4337 spec can be found here, but I summarized some back-end changes in the table below, with future front-end improvements.

Front End UX Timeline:

This geeky ERC-4337 and Account Abstraction development in March 2023 paves the way for Web2-like onboarding, re-engagements, and account recovery. When will we see it improving the experience, and most importantly, when will we see higher re-engagement rates and lower attrition? Wallets and dApps could take at least three months to develop, three months to roll out, and another month to create a data set to measure improvements. Nevertheless, by Q4 2023, we should witness a significant step change in Web3 user health metrics.

What does this mean for Web3 Messaging?

  • Web3 messaging protocols, as listed in part 2 here, have only been in production for the last year and are very early in their evolution. I don’t think we yet know who the winning protocols will be, but we should have some signs by the end of 2023
  • 1: Many use cases are where Web3 messaging will find product market fit. Imagine a business sends a user an NFT notification, and the user buys a token from a button in the Web3 inbox, producing a much better experience for the user and higher conversion rates for the business (versus Twitter, Disscord & email channels).
  • ERC-4337 will improve the generic user experience in Web3, creating fertile ground for more native Web3 conversations. More specifically, ERC-4337 Account Abstraction will make Web3 messaging action buttons much easier to a) code & b) adopt.

ERC-4337 Applied to Layer 1 & Layer 2’s:

Ethereum is an L1 Blockchain, but ERC-4337 will also apply to L2s such as Polygon, Arbitrum, and Optimism. It will be interesting to see which blockchain(L1 or L2) deploys a better UX first. For example, the Lens protocol is built on Polygon and deployed interoperable Web3 messaging (with XMTP’s help). So I hope the Lens protocol via Polygon will utilize ERC-4337 soon too, which should bode well for Web3 social adoption.

Outside of Ethereum’s ecosystem:

I closely monitor the Solana Phone, which has a hard wallet and Web3 messaging from Dialect. ERC-4337 has no consequence to the Solana blockchain, but I see Solana Phone offering massive improvements to user experience, including Web3 messaging. Will Web3 hardware (Solana phone) or Web3 software (Ethereum 4337) usher in a better user experience? Predicting exact outcomes is difficult, but whoever substantially improves the UX first will be rewarded by user retention and, eventually, user growth.

Who will deploy better UX and win more user adoption?

Blockchains are the critical back end, and Wallets and Vertical dApps have been the front end to date in Web3. I think there are two ways this could transpire:

A. Wallets will own the user experience and user adoption or

B. Vertical dApps will own the user experience and user adoption

A. Wallets UX:

To date, wallets have been mandated by their respective blockchains to prioritize decentralization & self custody over user experience because necessity is the mother of invention. But we have an outstanding question: “Can wallets pivot to a better UX now that ERC-4337 makes it possible?” Here is a deep dive into wallet markets for more background. Considering the UX has been so poor to date, I think it fair to say wallets that develop a better UX have an opportunity to gain market share… it’s there’s to lose.

B. Vertical dApp UX:

Web3 does not have its first billion users yet, because there isn’t yet an “iPhone moment” or “killer app” to attract and retain the first billion users. Web3 is sitting at 100m users, and wallets and blockchains may not get us there, considering the anemic 2.5% re-engagement rate. It might take a new mass consumer app to drive mass appeal, such as:

  • Decentralized social media protocols like Lens or Farcaster
  • Decentralized Gaming apps akin to “The Fortnite of Web3.”
  • Decentralized shopping apps akin to “The Amazon of Web3.”

I predict that Web3 Social will win 100 million recurring users before a wallet will, and wallets have many years of a head start. This belief is predicated on the viral behavior of social networks. Just because your friend buys and sells cryptocurrencies via a wallet doesn’t mean a network effect will emerge and extend the same behavior to your friend’s full social circle. In contrast, if a new social network were to appear (Web2 or Web3), it would require some network effects to succeed; essentially, Social is a mass adoption vertical. Defi is a critical early adopter vertical in Web3, but Defi is not a mass adoption vertical, at least not yet.

Vertical dApps could attract many more users than wallets, and if that were to transpire, you would see more vertical d’Apps developing wallets to improve user retention. For example, UniSwap, a leading decentralized exchange, just announced the launch of its own wallet. While Coinbase is a centralized exchange, they also launched their own wallet in 2022, offering credence to the idea that vertical dApps will disintermediate wallets if wallets don’t improve UX. Apple’s blocking of Uniswap’s wallet is a different problem to solve which is why the Solana Phone experiment is super interesting from an open ecosystem perspective.

Bottom Line:

ERC-4337 is an excellent advancement for Web3 UX and fertile ground for Web3 messaging regardless of potential competition between vertical dApps and Wallets. However, the advancement currently sits in the back end, and the front-end improvements will take longer to come to fruition. Those who deploy a better UX first will gain first mover advantage and others will follow any UX success. 2023 will be a great year for UX.

Source: Medium