Author: Joyce, BlockBeats

What wallets are available on Solana? For most cryptocurrency community users, the first ones that come to mind are Phantom and Backpack. In this bull market, after Phantom, another phenomenal product, Backpack, emerged in the wallet race on Solana. However, despite both being in the narrow market of wallets, Backpack and Phantom did not engage in a "fight to the death," both taking advantage of the bull market and achieving good development.

In addition to these two well-known wallets, there are still other wallets in the Solana ecosystem that are alive, and new players are entering the field. The emergence of Backpack proves that even under the halo of Phantom, a phenomenal wallet can stand out. However, Backpack's unique resource advantage raises the question of how much space is left for new players in the Solana ecosystem during this period of narrative fatigue. Solana has shone brightly in this round, with a significant increase in trading volume and a large number of new users entering. In this "new user traffic conversion" phase, how can latecomers get a piece of the pie?

Reviewing the path to success of the leading wallets

Before looking to the future, let's talk about the "starting point" of the two leading wallet projects. The advantages of Phantom and Backpack are irreplicable and have already accumulated challenging economies of scale.

Seizing the opportunity and establishing a first-mover advantage

Phantom was launched in 2021, at which time MetaMask had already established itself in the wallet market. However, with the arrival of the bull market, a large number of new users flooded into the cryptocurrency community, leading to the emergence of many new wallets attempting to challenge MetaMask by creating differentiated experiences such as "new user-friendly."

However, a differentiated experience can only bring some temporary attention to a wallet, and very few of these wallets survived. A16z founder Arianna Simpson described the fiercely competitive wallet market as a "graveyard." In this context, Phantom first gained attention with its elegant and smooth user experience, and most importantly, Phantom chose Solana as its initial battlefield. Jesse Walden, co-founder of Variant and also an investor in Phantom, said, "It can be said that Phantom's growth is closely related to Solana. The Solana ecosystem is very easy to get started with. There is a symbiotic relationship between Solana and Phantom, and they provide each other with motivation."

With Solana's rise in 2021, Phantom was able to quickly accumulate scale and become one of the standout wallet projects. In 2022, Phantom once again seized the NFT craze and strategically partnered with the NFT marketplace Magic Eden, allowing Phantom users to directly list NFTs within the wallet.

Since then, Phantom's leading position has been unshakable. Even in the bear market of 2023, Phantom still occupies an important position in the Solana trading market, with over 170 million transactions. During this period, Phantom also made significant strategic advances by entering Polygon and Ethereum. In the midst of the Bitcoin ecosystem's fervor, Phantom also closely followed and inherited the Bitcoin network. At the end of last year, the Bitcoin inscription market and wallet provider Unisat announced support for the integration of the Phantom wallet.

Fast forward to this year, Solana has once again returned to the center of the cryptocurrency community, and Phantom has also performed impressively. One month ago, Phantom became the third most downloaded free application in the App Store's utility category, following only Google Chrome and Google Search.

Backed by CEX, creating a closed-loop ecosystem

In September 2022, Coral, the developer of the Solana development framework Anchor, announced the completion of a $20 million financing round, led by FTX Ventures and Jump Crypto, with participation from Multicoin Capital, Anagram, K5 Global, and other strategic investors. The company launched an interactive wallet product that provides a native encrypted experience through "executable NFTs (xNFT)," namely Backpack.

However, Backpack's development came to a halt with the FTX scandal, until in October last year, Backpack announced the launch of its own trading platform, Backpack Exchange, which was granted a VASP license by the Dubai Virtual Asset Regulatory Authority.

At the outset, Backpack clearly released its airdrop expectations. In February of this year, Backpack announced on its official Twitter account that the 24-hour trading volume of Backpack Exchange exceeded $1 billion. At the same time, the 24-hour trading volume of SOL/USDC on Backpack Exchange exceeded that of Binance, reaching $800 million. This also brought a large number of users to the Backpack wallet.

In addition to being backed by CEX resources, Backpack's feature lies in its design specifically for xNFTs, a token standard on the Solana blockchain representing ownership of executable tokenized code. Based on this, Backpack can integrate the functions of a traditional wallet with the ability to support and run decentralized applications (dApps) within the wallet itself. These applications further promote the exchange platform, allowing the Backpack wallet to…

In addition, Backpack is currently the only wallet on Solana that supports user-customized RPC nodes. Users can purchase RPCs and add them to Backpack, which is considered to be a crucial step in leading the way for transactions on Solana.

Where are the new opportunities for Solana wallets?

What are the different directions that new wallet projects can choose? Currently, other players can only explore directions that leading projects are unwilling to try, such as focusing on embedded scenarios, serving enterprise users, and other vertical directions to narrow the user base and survive in these small markets.

Embedded scenarios

In addition to DEX trading, another important use case for wallets is dApps, but the opportunities in this scenario are gradually being squeezed. Many decentralized applications are beginning to lean towards vertically integrating wallet functionality. For example, the recent rise of Friend.Tech and its branches has integrated an embedded wallet using the Privy infrastructure to eliminate the requirement for new users to memorize phrases.

Analyst MICHAELLWY believes that this trend will shift the wallet paradigm from "one wallet for all dApps" to "one wallet for each dApp." Users may no longer manage assets through a single application but may have multiple addresses and balances for various dApps, challenging the theory of a "fat wallet" and implying a more decentralized wallet ecosystem.

However, as in the traditional internet market, truly valuable latecomer projects often end up being acquired by leading projects with economies of scale. One month ago, Phantom acquired Bitski, a wallet-as-a-service platform supported by well-known investors such as a16z and Galaxy Digital. The Bitski team, including its co-founders, will join Phantom and expand its team of over 80 people. As part of the acquisition of Bitski, Phantom plans to introduce embedded wallets to Solana to provide an easy entry experience similar to web2.

Developer-oriented

If you search for "Solana wallet recommendations," the wallet project that is often mentioned after Phantom and Backpack is Solflare. This is a wallet product created by the team at the end of 2020, and Solflare is a Solana wallet that was launched even earlier than Phantom. One of the advantages that has allowed Solflare to operate until now is its emphasis on community governance and developer orientation.

Solflare's open-source platform allows users to actively participate in the development and improvement of the wallet, such as protocol upgrades and feature additions. Compared to other wallets, Solflare emphasizes decentralization and community governance, making it an attractive choice for users who value transparency.

In February of this year, Solflare encountered a surge in traffic during the JUP airdrop, with 30% of Solflare users experiencing a decrease in performance during the usage process. Solflare founder Vidor published a lengthy article explaining the specific process of this issue and the improvement measures to be taken in the future. This response won the favor and recognition of the Solflare community.

Enterprise Applications

On June 10th, Squads, a multi-signature protocol based on Solana, completed a $10 million Series A financing round, led by Electric Capital, with participation from Coinbase Ventures, Placeholder VC, RockawayX, L1 Digital, and Helius co-founder and CEO Mert Mumtaz, as well as Odyssey Ventures founder. This financing will be used to launch its retail wallet application Fuse. This is a new wallet designed to provide security and programmability for users in the Solana ecosystem. Squads founder Stepan Simkin stated in an interview that Fuse is not intended to compete with existing wallets such as Phantom or Backpack, but rather focuses on providing advanced security features for smart accounts, such as two-factor authentication, recovery keys, and spending limits.

Unlike many projects that choose to be "new user-friendly," Fuse is designed specifically for security-conscious users who already use hardware wallets like Ledger, aiming to provide a more secure wallet experience by leveraging Apple's security model and biometric authentication. Stepan Simkin has a clear product positioning for Fuse, providing very specific use cases, including programmable automated transactions and locking funds in timed vaults, providing users with a "diamond hand."

In terms of revenue models, Fuse differs from other wallets. Its revenue channels include subscription fees and deployment fees for smart accounts, with an account creation fee of 0.05 SOL and a 0.2% commission per transaction (0% for Squads Pro subscribers). The Squads Pro subscription fee is $399 per month, and users can also access advanced features by staking at least 1000 SOL with Squads Validator.

Web2 Friendly

Just last week, Solana-based crypto wallet startup TipLink launched a product called TipLink Wallet Adapter. TipLink's slogan is "the simplest wallet" and it provides services to new Web3 users without the need for a wallet browser extension. The product links to the user's Google account, eliminating the need to set up a complex wallet. TipLink also launched Pro services to help developers distribute cryptocurrencies to hundreds or thousands of users through links.

Through TipLink, asset senders only need to connect to the Solana wallet and create a TipLink by depositing the tokens or NFTs they want to send, then they can copy the TipLink URL or generate a QR code and send it to anyone. The recipient does not need to have a crypto wallet and can even receive tokens by logging in through Gmail. With its newly launched API, TipLink allows developers and companies to store digital assets and create TipLinks for their users.

In February 2023, TipLink completed a $6 million seed round of financing, led by Sequoia Capital and Multicoin Capital, with participation from Solana Ventures, Circle Ventures, Paxos, and other companies, including angel investors such as Vinny Lingham and Sarah Guo.

Beyond Wallets, the "Traffic Entry" Dividend Continues

In summary, there is not much space left for new players in the Solana wallet market. The positions of Phantom and Backpack are difficult to shake. However, the popularity of Solana is evident, and do latecomers really have no chance to share the cake of a large number of new users entering? In the concluding section, we will discuss the two commonly mentioned labels of "user-friendly" and "fast transaction speed" in Solana wallets.

In theory, in the case of a large number of new users entering Web3, the direction of "user-friendly" would be more favorable to new wallet players. However, the reality is different. Even if a wallet has a smooth and user-friendly interface, it is difficult to succeed if it has a lower barrier to entry than Phantom. After all, the speed of wallet development may not be as fast as the speed of KOL's spontaneous dissemination. During the meme craze on Solana, there have been countless "Phantom tutorials" on YouTube.

Even TipLink, which highlights "low barrier to entry," is tied to the characteristic of "enterprise applications," considering the needs of developers in usage scenarios, which has narrowed down the usage scenario significantly.

But this does not mean that "user-friendly" has disappeared. The Solana ecosystem meme coin issuance platform pump.fun has attracted a large number of users in just a few months, with total revenue exceeding $40 million. Just the other day, pump.fun's 24-hour revenue reached $1.31 million, second only to Ethereum's $3.61 million.

In terms of transaction speed, in the already convenient and low-fee trading Solana ecosystem, faster "transaction speed" is important, but from a user's psychological perspective, there is a greater need for faster "discovery of favorable trades."

Following this logic, it is easy to understand that during the rise of the two most dazzling Solana ecosystem meme coins, BOME and SLERF, the Solana ecosystem's tg bot has received a huge dividend. The main revenue channel for wallets, and the only revenue channel for bots, is the transaction volume commission. However, the commission for bots is generally higher than that for wallets. For example, the BONK bot charges a 1% fee per transaction, and some high-winning rate bots have higher commission rates, while Phantom's rate is 0.875%. During the meme craze, the total 24-hour earnings of various bots exceeded $5.33 million, and the downtime of BOTs may even affect the coin price.

Returning to the main topic, the profit opportunities in the wallet market lie in controlling the transaction channel. From this perspective, as long as new users continue to enter, there will always be incremental opportunities in the wallet market. In addition to the unchangeable first-mover advantage and resource advantages, Phantom's important nodes are inseparable from its grasp of the demand for NFT asset trading, while Backpack has attracted a large number of initial startup users through its airdrop expectations. The outstanding performance of pump.fun and various trading bots comes from a precise understanding of user needs under the meme craze. The revenue channels of these projects are based on transactions, but transactions are just one aspect, and the transaction scenario and narrative cycle are propositions that all entrants need to consider.

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