Usually, there are 3 phases of any wallet, and different projects are solving for each friction point

1. User onboarding - The major friction point —> The seed phase : Many solutions are getting built to solve this (social login, MPC, etc. - the newest one is implementation of EIP 4337)
2. Solving for internal UX of a wallet - The major friction points are —> human unfriendly wallet addresses, gas, multiple auth, session keys, etc. (wallet addresses are replaced with ENS-like handles, rest all problems remain same for non-custodial wallets)
3. Interaction of the wallet with the outside products and services - The major friction point —> authentication (web3Auth like social logins etc is built in this space)

All middleware solutions are aimed to solve for phase 2 and phase 3.

Startups working on Account Abstraction mostly focus on solving 3 main problems.

1. Wallet aggregation by Identity Segregation

• Wallets are the starting point in the web3 world. Wallets are the only place where the user becomes alive and dies in web3 ( this wallet can be any wallet MPC, SCW, EOA, etc) and wallet addresses are their first identity. There are multiple issues with these addresses. e.g. are unreadable, every chain has different addresses, managing addresses across different chains and wallets is difficult.
• Many identity protocols like Rainbow, Coinbase, ENS tried buiding platforms to make addresses human friendly & readable by providing handles. (mike.rainbow mike.coinbase etc). Users need to claim such handles by buying them against tokens. ENS especially received good traction. Currently, 97%+ wallet addresses in the web3 world are not connected or mapped to any identity. So we need a solution where the user need not claim the handle, instead the user's identity or handle gets automatically created along with the new wallet.
• Some middleware projects targeting this problem. They are aggregating wallet addresses across different blockchains and mapping them to a single identity (many to one mapping) for all transactions. Such projects can acquire customers in a B2B way by integrating with existing wallet apps and aggregating each of their users to a single identity. (Cool concept)

1. Creating usability and generating traction via such a single identity across the entire Web3 by doing integrations

   • In 2022, as most top wallet apps figured out that wallet addresses are a major problem and leads to complexity and dropoffs. After Coinbase, Rainbow, developed their handles (.rainbow, .coinbase**)** another major problem was uncovered —> These wallets are not able to make their identity interoperable like .coinbase or .rainbase can not be used on metamask or vice versa. so industry needs a strong middleware layer that sits in between all wallets, exchanges, and applications (services) to make transactions smoother and put that identity to use. by decentralized shared storage.

   • Any middleware user experience of the wallet should look like this (end state for UX simplicity, consider 2 users, Alice and Bob) - Alice is supposed to send Eth to Bob. but Bob doesn’t have an Ethereum wallet, instead Bob only has a Polygon wallet.

   • The current approach is the very complex

     1. Alice needs to go to the bridge aggregator —> 2. Swap tokens —> 3. Take tokens into the new wallet —> 4. Ask Bob for the wallet addresses —> 5. verify his addresses onchain (sometimes check with a pennydrop test) —> 6. Pay gas fees in the native token —> 7. Then finalize and conclude the transaction.

   • Approach with the middleware layer should be simplest. (again consider 2 users, Alice and Bob)

     • Alice and Bob both don't need to worry about any blockchain or its complexity.
     • Alice can just type bob.wallet and click on the “Pay” button —> transactions, gas fees, and cross-chain settlement will automatically happen in the back office abstracting it from Alice
     • Many new wallet apps have now implemented “Chat and Pay” functionality to avoid confusion of sending money to the wrong wallet address.
     • More importantly, if all the wallets of Bob across many different blockchains (like Eth, Polkadot, Cosmos derivative chains, etc) can be mapped to a single handle/alias “bob.wallet”. That would be amazing aggregation.
     • This will be the end state for major transactions where chains, addresses, gas, one click, bridges everything is abstracted and the user can transact from any application to any wallet “chainlessly”. So other than the identity, middleware also needs to solve for gas, and bundling which are major parts of AA, pull requests, recurring payments and cross-chain.
2. Cross- Chain settlement
   • Web3 wallet apps are finding new ways to make a transaction UX seamless, fast while maintaining the security. Most wallets wish to move funds across different chains while providing abstracting to the end user.
   • To bring such seamlessness, any middleware used should not be dependent on any third-party liquidity bridges or aggregators. As most of the transactions will soon be cross-chain, this may become a major source of revenue if solved correctly.
   • One of the best ways for middleware projects is to have their own cross-chain settlement network built on top of the cross chain messaging protocols like LayerZero, Axelar, Wormhole, Connext etc. Having own settlement network also enables one to have ownership over fees, makes it completely gasless, and sends messages across chains