The crypto industry has made impressive strides in technology over the last few years, but when it comes to crypto custody, progress seems to have stagnated. Despite significant investments and innovations like Wallets as a Service and smart wallets, today’s crypto custody solutions are still lagging behind, stuck in 2021, unable to offer the simplicity and reliability needed for mass adoption.
While traditional finance (TradFi) offers convenient, user-friendly ways to manage finances—like resetting passwords or disputing unauthorized charges—the crypto world remains largely unforgiving. Managing private keys, interacting with Decentralized Finance (DeFi) protocols, and securing transactions requires technical knowledge that most users don’t have. As a result, many potential users are deterred from engaging with crypto beyond basic buying and holding.
In this article, we’ll dive into the current state of crypto custody, its shortcomings, and the direction the industry needs to take to match the expectations of a modern financial ecosystem.
The Convenience of TradFi vs. the Complexity of Crypto
Traditional finance has long offered features that allow users to engage confidently with their money. Whether it’s the ability to reset a password or easily freeze a card, TradFi provides peace of mind that simply doesn’t exist in the crypto ecosystem. The absence of comparable safeguards in crypto is one of the main reasons why adoption remains sluggish, even as blockchain technology continues to evolve.
In the crypto space, managing private keys remains a complex, high-stakes task. Losing your private key means losing access to your funds—a terrifying thought for many. While vendors like Web3Auth or solutions like Argent have worked to simplify things with multi-party compute and smart wallets, there is still a long way to go.
Gnosis Safe: Untapped Potential in Crypto Custody
A leading example of a promising but underutilized custody solution is Gnosis Safe, now rebranded as Safe. This platform allows users to manage funds securely, often requiring multiple signers to approve transactions, thus reducing the risk associated with relying on a single private key. Safe is a powerhouse in crypto custody, with over $100 billion in assets stored across thousands of Safes. Despite this, the full potential of Safe remains unrealized.
More than 5,000 Safes are created each month on Ethereum’s mainnet, yet most users still default to using Externally Owned Accounts (EOAs)—accounts secured by a private key—when interacting with DeFi. Whether they’re buying NFTs, swapping tokens, or repaying loans, users often create Safes and then continue to use their EOAs, putting themselves at unnecessary risk. The data speaks volumes: excluding raw ETH transfers, up to 99.9% of token transfers happen through a Safe creator’s EOA, not their Safe.
This reliance on EOAs, which are far riskier than smart contract wallets, reflects an industry still clinging to outdated practices, much like in 2021.
The Role of Wrapped Ether (WETH) and the Underutilization of DeFi
Another telling indicator of the limited utility in the current crypto custody landscape is the use of raw ETH versus Wrapped Ether (WETH) in DeFi. Despite the advantages of WETH for interacting with DeFi protocols, less than 3% of Ethereum’s supply is wrapped. Most activity on the blockchain is still peer-to-peer, with only a fraction of addresses actually interacting with DeFi. This shows that even though the infrastructure is there, users are not fully engaging with it due to complexities in managing their assets securely.
Interestingly, Safe creators are more likely to use raw ETH through their Safes than the EOAs that created them. This trend has resulted in $2 billion worth of monthly ETH transfers through Safes, which is a positive sign of gradual improvement. However, the broader adoption of Safe for DeFi interactions is still lacking.
Wallet Innovation and the Path Forward
Since 2021, there have been real efforts to improve crypto custody, particularly with wallet providers like Metamask, Coinbase Wallet, and Rabby introducing features aimed at preventing user losses. These wallets now offer transaction simulation, approval management, and security warnings for risky contracts. However, these solutions still depend on users managing private keys—an approach that remains complex and often intimidating for the average user.
The future of crypto wallets likely lies in account abstraction, which seeks to simplify how transactions are managed and how accounts interact with DeFi. Proposals like EIP-4337 (focused on abstracting how transactions are created) and EIP-3074 (granting accounts more flexibility through smart contracts) could significantly change how users engage with crypto custody. While these projects hold promise, they require significant changes to Ethereum’s architecture and may take time to reach widespread adoption.
Practical UX Solutions: The Key to Mass Adoption
For crypto custody to truly evolve, the focus must shift toward creating practical UX solutions that can be implemented without requiring every app or wallet to reinvent the wheel. Users need a seamless experience that balances security with ease of use. While complex, one-size-fits-all solutions may not be the answer, incremental improvements that reduce the technical burden on users could drive the next wave of adoption.
The industry has already made progress in this direction. Layer 2 solutions are reducing the cost of using DeFi, while mobile-native wallets are becoming more user-friendly. More wallets are experimenting with social recovery mechanisms to allow users to regain access to their funds without relying solely on a private key.
Conclusion: Crypto Custody Must Evolve
Crypto custody is at a crossroads. While the technology has advanced, the user experience has not kept pace, leaving most people stuck in outdated, riskier methods of managing their assets. To move forward, the industry needs to focus on bridging the gap between utility and security, offering solutions that make engaging with crypto as easy as using traditional financial systems.
The mission to create a decentralized, robust, and permissionless financial system is alive, but for it to succeed, crypto custody must evolve to meet the expectations of today’s users. With the right focus on UX innovation, practical solutions can emerge, finally allowing crypto adoption to break free from the past and deliver on its full potential.
