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More than 1 million smart accounts have been deployed, Alchemy says

source-logo  blockworks.co 05 January 2024 19:33, UTC

An estimated 53% of the total smart accounts deployed were created in Q4 of 2023, a report by Web3 development platform Alchemy shows.

Of the total 1.8 million deployments since the launch of ERC-4337 at Walletcoin in March 2023, over 960,000 of these smart accounts were created in the past three months.

Will Hennessy, Alchemy’s account abstraction lead, notes that these numbers exceeded initial expectations.

“The Ethereum Foundation just deployed ERC-4337 contracts in March 2023, so this early adoption is faster than expected. It shows how hungry app developers are to solve [user experience] problems like gas sponsorship,” Hennessy said.

Smart contract accounts, unlike traditional wallet accounts in Web3, enable users to create ‘user operations’ instead of simply executing transactions. This means users can customize how they manage their on-chain assets.

Unlike traditional wallets, smart accounts enable users to bundle multiple transactions into a single operation. The result is greatly improved efficiency in terms of both time and cost. This will be especially useful in a number of different scenarios, including trading and gaming.

The standard also revolutionizes transaction fee management by allowing ‘sponsored transactions’ — where another entity, such as a decentralized app or wallet provider, can cover the gas fees on behalf of the user. It also allows the use of ERC-20 tokens for gas fees. This is a departure from current methodology, where fees are paid exclusively in the network’s native currency (ether, in the case of Ethereum).

ERC-4337 enhances security and convenience with features like multi-signature transactions and simplified account recovery. This promises to make on-chain interactions more akin to traditional banking experiences, but with the added security benefits inherent to blockchain. This advancement is seen as a pivotal step towards making Web3 more user-friendly.

User operations are bundled by ‘bundlers’ as ‘meta-transactions’ or ‘meta-data transactions’ to a third-party relayer that sends the transaction to the blockchain.

Read more: What Are Smart Contract Wallets? A Beginner’s Guide

Alchemy’s report shows that over 540,000 of these user operations were executed in Q4 last year. This marks a significant increase of 194% when compared to the previous quarter.

In particular, apps including telegram bot Grindery, video streaming platform FanTV, and Web3 social app Cyberconnect were behind the growth in user operations — making up 66% of the growth.

Grinderly’s popularity is likely to be driven by token incentives, the report suggests. Subsequently, it has also increased smart account adoption on layer-2 scaling solution Polygon, which currently dominates the space, with a 92% market share in monthly active accounts on its network in December.

Token incentives are likely not enough to keep users interested in smart accounts, as information from BundleBear shows that weekly retention rates remain relatively low, down to less than 1% after five weeks of opening an account. Though this is the case, Hennessy remains optimistic.

“Last year was an infrastructure phase for account abstraction. The technology was brand new and it took time for teams like Alchemy to build reliable infrastructure. Now the infra[structure] is ready, and with the launch of Account Kit last October, app developers can build AA apps quickly,” he said. “We expect to see development accelerate this year.”

He adds that although user retention may not be high, it is through account abstraction that they were able to try different decentralized apps in the first place.

“Current retention is primarily determined by how useful the application is. They’re working on new features to continually engage users,” he said.

Paymasters remain popular

Another unique aspect of ERC-4337 is the introduction of paymasters, a tool that enables users to pay gas fees in ERC-20 tokens rather than just ETH or enables users to ask a third party to subsidize these gas fees completely.

An estimated $1.16 million in gas fees have so far been covered by paymasters, data from Bundlebear shows.

Alchemy, which itself offers paymaster services, noted that more than 97% of user operations had used a paymaster to pay for transaction fees in the fourth quarter of last year. This indicates that flexibility around transaction fee payment remains a popular demand from users.

“Account abstraction makes it easy for anyone to start using a Web3 app. By lowering the barrier to entry with social login and gas sponsorship, apps are able to onboard more users including those who might have lower intent,” Hennessy said.