How to Learn About and Get Involved with DeFi Communities
June 29, 2021
There are several types of Ethereum wallets, and each is designed for a specific purpose. “Hot” crypto wallets, such as MetaMask (browser-based) and the Coinbase Wallet mobile app (not to be confused with the Coinbase.com app), are always connected to the web, allowing users to make transactions quickly and easily. “Cold” hardware wallets, like Ledger and Trezor, are only connected to the internet when in use. While cold wallets offer improved security because their private keys are never exposed to the web, they are a little less user-friendly. Smart contract wallets, or “smart wallets,” aren’t new to the scene and aren’t supported by all exchanges and dapps, yet they are starting to capture more attention thanks to their unique combination of security, flexibility, and convenience over the more conventional wallet solutions.
A smart wallet is an Ethereum wallet managed by a smart contract instead of a private key. This enables users to enjoy advanced features such as multi-sig transactions, daily transfer limits, emergency account freezing, and more secure account recovery.
Funds in smart wallets are accessed and controlled through smart contract code, which allows almost unlimited functionality, gives users more control over their assets, and spurs greater confidence in DeFi.
The Ethereum platform supports two types of accounts: Externally Owned Accounts (EOAs), which are accessed using a private key or seed phrase, and Contract Accounts, which are controlled by smart contract code.
Most Ethereum wallets manage EOA accounts and, therefore, have limited functionality. Smart wallets, however, take advantage of Contract Account functionality—they manage funds via coded instructions that establish who can access them, under what conditions, and more.
Thanks to the versatility of smart contracts, in addition to breaking user reliance on private keys, smart wallets offer advantageous new features and provide a user experience similar to traditional financial (TradFi) service apps. Some features provided by different smart wallets include:
In addition to focusing on features typical consumers need, some smart wallets also integrate functionality aimed at more sophisticated users.
DeFiSaver’s smart wallet enables bundled transactions via “pre-made recipes.” Users can also create their own recipes to move funds within and between DeFi protocols efficiently.
DeFiSaver also offers Vault Automation—automated liquidation monitoring of Maker Vaults. When switched on, if the Collateral Ratio (CR) of the Vault falls below a user-defined threshold, part of the Vault’s collateral is instantly swapped for Dai, which is used to pay back the Dai generated to increase the Vault’s CR to a specified level.
By providing unique features and more familiar functionality, smart wallets enable streamlined access to decentralized protocols and apps, thereby helping to onboard a new generation of global DeFi users.
To increase your knowledge of DeFi services, smart contracts, and crypto wallets, discover the many other posts in the MakerDAO blog.