Backed with $3M, Soul Wallet aims to bring self-hosted crypto wallets to the next billion

Image credit: Soul Wallet’s founder Jiajun Zeng in the middle. Photo: Soul Wallet

If you own a non-custodial crypto wallet like MetaMask, you know the headache of keeping your 16-word seed phrase safe. It is the responsibility that comes with having full control over one’s digital assets.

A third-party wallet, such as one hosted by an exchange, on the other hand, stores private keys on behalf of users and provides a better user experience. The risk is the lack of transparency about how user funds are managed, which can lead to events like the FTX meltdown.

Some believe a new technical change in the Ethereum ecosystem is about to solve the dilemma between asset control and user experience. At the center of the movement is the ERC-4337 standard introduced by the Ethereum Foundation, the non-profit research affiliate of Ethereum, the world’s second largest cryptocurrency that boasts a vibrant developer community.

Jiajun Zeng, a former product manager at TikTok’s parent company ByteDance and Chinese giant Meituan, was among the first to take advantage of the new standard. His startup Soul Wallet just raised $3 million in a seed funding round to offer an online Ethereum wallet built on top of ERC-4337.

Comparing existing crypto wallets and wallets powered by the new tech upgrade is akin to “comparing Nokia to iPhones,” Zeng said in an interview with TechCrunch.

“After the FTX implosion, people are refocusing on how to achieve a better user experience on a self-hosted wallet,” observed Zeng.

At EthDenver, a major Ethereum developer conference that attracted over 30,000 attendees to the Colorado capital in early March, the new standard generated a lot of buzz among blockchain application builders.

Through ERC-4337, Ethereum plans to bring smart contract capabilities to wallets (through what is called “account abstraction”, but let’s not get into that sober). In short, developers can program smart contracts, or lines of code that execute predefined agreements, into wallets.

Image: Soul Wallet

Being smart means removing some of the old problems with crypto wallets, such as the reliance on seed sentences. Instead, smart contract-enabled wallets enable users to recover their accounts via social recovery, such as using one’s trusted contacts, another wallet, or even a third-party service. For those using WeChat, there is a similar account recovery process.

Developers can also code other custom features into wallets, such as allowing users to pay gas fees using stablecoins instead of limiting payments to Ethereum.

MetaMask, a popular Ethereum wallet, uses an old cryptographic method called EOA, or Externally Owned Accounts, where if a user loses their private keys, their money is lost forever. Early mover Argent has incorporated some smart features into its wallet, but features are still limited, Zeng said.

The challenge in introducing any new technology standard is scaling. MetaMask has sticky users because it is compatible with many popular decentralized apps. The question is how Soul Wallet and other similar startups can compete to build a significant pool of partners.

Ethereum is promoting smart contract wallets as the future of Ethereum, so dApp developers will feel motivated to switch, reckoned Zeng, an active member of the Ethereum community.

“We’re targeting the next billion crypto adopters rather than trying to win users away” from the likes of MetaMask, Zeng said.

“In developing countries like South America and Africa, people use cryptocurrencies to hedge against currency inflation, so it’s down to how crypto adoption can spread in those regions,” he continued.

“As for developed countries, adoption depends on how dApps and NFTs develop.”

Soul Wallet is currently undergoing internal testing and is scheduled to launch in Q3 or Q4 after a series of rigorous revisions, according to Zeng. The team has a dozen people spanning the US, Japan, Thailand and China.