You get wallet auth, you get a wallet auth, everyone gets wallet auth

Overview

When we founded Dynamic over a year ago, we based it on a thesis - in 3-5 years, you will log into websites using wallets, not email or social, carrying your identities with you across sites. And as the year went by, even in this bear market, we are becoming more and more bullish about our thesis.

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In this blog post, I want to outline why we're more excited than ever about the future of wallet-based authentication, what signals we’re seeing from the market to solidify our belief that we’re heading in the right direction, and how we get through a high hurdle of adoption.

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Quick recap - why a future with wallet-based auth is exciting

Wallet-based auth introduces multiplayer mode for the internet, providing a deeper form of authentication. We cover some of the key use cases in a previous blog post, but as a quick summary, wallet-auth enables:

1. True cross-web one-click checkout: Wallet-based authentication enables seamless one-click checkouts across websites by storing user information securely in the wallet.
2. Cross-site interaction: Wallets enable interactions across different websites by allowing users to carry relevant assets and share them with other platforms.
3. Membership-only sites and gated commerce: Wallets facilitate easy configuration and transferability of permissions across consumer sites, leading to new interactions based on membership tokens or wallet balances.
4. Sovereign identity use cases: Wallets empower users with greater control over their digital identities, enabling secure and private sharing of personal information across various platforms.
5. New technologies enable unexpected offerings: The widespread adoption of wallet-based technology has the potential to unlock unforeseen use cases and offerings in the future.

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So what is Dynamic seeing in the market?

From our vantage point, we are fortunate to see how the wallet market moves. We’re seeing a few key trends and an overall acceleration, mostly around the adoption and sophistication of wallets.

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Wallet launches are accelerating, not decelerating

We are constantly surprised by the amount of cool new wallets launching. From Family to Uniswap to Dawn wallet, teams aren’t backing down from an increasingly competitive space, bringing their own innovation to create a magical wallet experience.

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Existing wallets are becoming more sophisticated

Mobile wallets are adding browser extensions and vice versa (e.g. Zerion). Other wallets are adding full-page versions (e.g. Metamask portfolio). Wallets are thinking about embedded options (e.g. Argent X), and much more.

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In short order, we also expect wallets to expand beyond display and transact functionality. With companies such as Daylight offering skills on a wallet, and XMTP and WalletConnect offering comms solutions, wallets are becoming financial devices on steroids. 

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Wallets are getting superpowers with account abstraction, multi-chain support, and L2 support

Given the competition is so intense, wallets have to expand their offering. They are introducing support for L2s that make it easier to transact, expanding to multiple chains, adding account abstraction layers to enable more sophisticated interactions and much more.

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Smarter wallets mean things can be further abstracted. With USDC payments and L2 support, sophisticated transactions appear simple, accelerating multiple use-cases for wallets.

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The embedded wallet space is getting crowded, fast

This is perhaps the most exciting part. There is massive competition in the wallet-as-a-service space. This matters for a lot of reasons, but one key one is turning every app and exchange into a wallet. With companies such as Portal, Coinbase WaaS, Turnkey, and others, developers now have robust ways to add a wallet tab in their app.

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This means that in two years, as you open existing apps on your phone, they will already have an embedded wallet in them. It is a natural transition for any financial app today, as well as games, social networks, and more. It’s the true banking-as-a-service offering.

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I get it, but isn’t the hurdle to adoption high?

Absolutely, and saying the hurdle is high is an understatement (yes, I know I’m the one who wrote this). But then again, the incentives to move to wallet-based auth are so strong, it might just happen.

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Let’s state the obvious - it is nearly impossible to replace our habit of logging in with an email and password, let alone with social accounts. Even in places that implement more sophisticated technologies such as webAuthn and Passkeys, email/password still exists. But with wallets, we might just make it work. 

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Wallets are essentially financial devices in your pocket. As mentioned above, they can be used for authentication, identity, storage, payment, and much more. And that in turn means more and more companies will want to adopt them. It is inevitable that everything out there turns into a financial device over time, and wallets, especially non-custodial ones, are the cleanest, and lowest bar way for companies to do so. 

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But how is this related to wallet-based login?

Glad you asked! In short, it’s the next logical outcome after apps and sites turn into wallets, and just like the above, it comes back to incentives.

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We believe we are witnessing the start of an extremely powerful flywheel of a new authentication method: 

As apps like Robinhood, Steam, CashApp, and others turn into wallets (and this is already happening), their incentive will be clear - to serve as identity providers for sites and apps. If you’re Robinhood offering a wallet, you might as well be the identity provider for any financial-related site on the web. If you’re a game portal, you’ll want to do the same with games, playing to ensure multi-game NFTs are stored in your wallet, vs a generic one.

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Next steps

This is just the beginning - as the flywheel becomes stronger, more innovation will happen in the space, with more sophisticated functionality coming online. This trend will soon become too powerful to stop, and we can’t wait for everyone to experience a future in which you interact with sites and apps using a wallet, not your email.

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If you liked this article, we recommend deep diving into a few more:

• The Wallet-based login revolution
• web3 - the shared rails for everything