Interviewer: Lukas Schor, Co-founder of Safe

Interview and article: Wendy, Foresight News

With Coinbase officially launching its smart wallet, competition in the field of wallet intelligence has further intensified.

Transforming all wallets into smart wallets is the unanimous vision of the Ethereum community, including Vitalik, and the work goal of Lukas Schor, co-founder of Safe (formerly Gnosis Safe). Currently, smart wallets only account for 1% of the total number of wallets, but he believes that "within three years, all on-chain wallets will become smart wallets." This intelligent process contains both huge opportunities and potential challenges.

Currently, Safe has more than 8 million smart wallets storing $100 billion in crypto assets. As the guardian of $100 billion in assets, Lukas Schor told Foresight News that their next focus is not on passive custody of assets, but on developing more active DeFi solutions to further appreciate these assets.

Froesight News: Safe has an ambitious goal — although in a recent interview you said you realized that this goal was not ambitious enough — to make all Web3 wallets Smart Accounts by 2030. Why? How has this goal been achieved so far?

Lukas Schor: Yes, this is still our goal, and the reason for this is that we believe that ownership is a human right.

According to the United Nations Declaration of Human Rights, the right to own property is a human right. In the digital realm, this human right is often not fully granted to people because your digital assets, whether data or financial assets, are held by intermediaries. For example, you can only transfer assets between 9 am and 5 pm (when the institution is working), and you cannot revoke access to user data. These problems prevent you from freely controlling your assets, and ownership issues arise.

That’s why we believe self-custody is needed because it’s a path to full ownership of digital assets. Self-custody in crypto is still in its very early stages, where you write 12 words on a piece of paper and hope that piece of paper never gets lost so you can’t access your funds, or hope that someone doesn’t get that piece of paper so they don’t run away with your assets.

Particularly when it comes to data or digital identities, the damage can be significant and, in some cases, completely unrecoverable. The money may be restored and you can make money again, but many times, your identity cannot be restored. So it's critical that we figure out how to give ownership in a safe and convenient way.

To achieve this, Smart Accounts are necessary.

Because writing information on a piece of paper is not the way to give a billion people digital asset ownership. We need smart accounts, with keys and safekeeping areas on your phone, so that your phone becomes the piece of paper that controls your account. The phone that everyone carries with them is actually a hardware wallet. However, mobile phones are not fully utilized at present because the current self-custody method does not allow these phones to truly become cryptographic signers on the chain. Some people still want to have a trusted third party involved in the management of asset ownership, which is one of the reasons why we have partnered with Signum, a Swiss licensed bank, to make them a recovery agent in your wallet. This way you can have full control of your wallet, even if you lose your keys, you can go to Signum bank and ask them to help you restore access.

What the 1 billion future users might need is more help or a more user-friendly system. We can close the gap between the niche users who achieve self-custody and the vast majority of future users. In short, this is why we believe in Smart Accounts.

Foresight News: So how far are we from that goal? Can you give us some data reference?

Lukas Schor: Just looking at the data from Safe, the largest smart account ecosystem at the moment, we have close to 10 million smart accounts, or about 8 million to be more precise, storing about $100 billion in assets.

Safe was initially used for high-value use cases, such as vaults, market makers, etc., and now we are starting to move more to the general public. In the past year or so, there have been about 5 million new users using Smart Accounts. But compared to the overall on-chain self-custody usage, this is still a small part, maybe about 1%. But I think in three years, 100% of users will use Smart Accounts.

We are now at a tipping point where you are seeing pretty significant progress every month. In half a year or a year, everyone will acknowledge that we are heading in this direction, and things like EIP-7702 will really drive the sea change.

Smart wallets: industry upgrades with both opportunities and challenges

Froesight News: Your official website published a blog post in April, which mentioned the opportunities, challenges or risks in smart account applications. But it didn't actually elaborate much on the risks or challenges. In this regard, can you elaborate further?

Lukas Schor: Right now, user accounts on Ethereum, they are what are called "external accounts," and every account on MetaMask is this type of account. They are a type of account within the protocol, while Smart Accounts are at the smart contract layer, which gives them the advantage of being programmable. It allows you to have features like adding recovery or adding keys on your phone, but it also makes it somewhat less standardized. Because in the protocol, every account looks exactly the same, while in a Smart Account, each user may operate completely differently. This can be a challenge because applications like DeFi cannot be compatible with different operating methods for each account.

So we need new solutions to make these features and applications work together and work. In addition, there will be challenges in cross-chain interaction, because each account is a brand new smart contract on each chain, which is not a problem in itself. But if you change your account on chain A, it will not automatically change the account on chain B. So it is not that all the accounts on all chains are integrated into one master account, but that each chain has a separate account, which is also a problem that needs to be solved.

Vitalik Buterin proposed a solution called Keystore Rollup. We are also working with the Scroll team to implement a solution that synchronizes multiple chain accounts and integrates them into one account.

These are challenges, but I think they are solvable and should be beneficial in the long run. Because in the Ethereum ecosystem, the core developers, Vitalik, the researchers, and everyone know that this is the way to go. Every account needs to be a smart account. The question is how do we get there, and that's what people are talking about.

Foresight News: The Ethereum community is generally in agreement with your goal of every user moving to smart accounts, at least from Vitalik's point of view, but he also talked about the problems that this transition may cause, one of which is about privacy, "compared to a 20-byte address, a simple operation like payment requires more information (using smart accounts)." In your opinion, what is the ultimate solution to this problem?

Lukas Schor: I think it’s too early to say [the final solution]. Unfortunately, user privacy is often still considered an afterthought, venture capital is seriously underinvested in this area, and even users themselves don’t pay enough attention to it, and usually it’s too late when they pay attention to it.

But I think it's important to have privacy solutions on Ethereum. Some of these will come from L2 and L3, with privacy integrated into them in some way, and users may end up interacting only with L2, Lisk, and L3. Then they will use zero-knowledge proofs to have these interactions ultimately resolved on L1 so that there is a certain level of cryptographic protection.

Another interesting thing in the development of smart accounts is the stealth address that a group of people are working on. Stealth addresses are an idea to transform Ethereum into a UTXO model similar to Bitcoin (UTXO, full name Unspent Transaction Output), that is, each transaction is actually on a new account. So, every incoming transaction you have has a new account, which means that your incoming transaction is not associated with all other past transactions, but the question is, how do you actually manage these hundreds of accounts? Smart accounts will be a solution to this problem. For example, FluidKey is a project dedicated to this, which abstracts away from users so that they only need to care about one account that they control, like a master account, and you can control these stealth addresses.

Foresight News: There is also a phenomenon in the Ethereum community ecosystem, which is the so-called Vitalik problem. Once Vitalik recognizes that converting all wallets into smart accounts is a clear goal, many competitors will emerge in this field. As of now and in the near future, which project do you think will be Safe's biggest competitor, and how will you compete?

Lukas Schor: This is probably one of the hardest questions I get asked over and over again, and I still don’t have a good answer to it.

The question is, what do we want to achieve? We want to make every account a smart account and solve the problems associated with it. We want to take full advantage of the opportunities that smart accounts bring - this is our motivation.

We believe that within three years, every account will be a smart account. This inherent belief guides us to explore a different path.

However, some people still often ask, "Are Trust Wallet and MetaMask your competitors?" But we prefer to be partners with each other because they will need our help in the future development of smart accounts, and we hope to provide support and integrate with them. For example, one day you register on MetaMask, it should be safe at the bottom layer. However, in the long run, Safe will solve the problem of smart accounts and focus more on the opportunities brought by smart accounts, especially in DeFi and cross-chain interoperability.

So I think in the next three to five years, Safe will be more like an interoperability abstraction layer for Web3. You can also say it's like an operating system in some ways. I think there will be about a hundred projects moving in this direction. Some projects may not have clear intentions or solutions yet, but they all have similar visions, just in different directions. Because of this abstraction layer, this operating system will take into account an intent-based architecture. Now, projects like Uniswap and Connext are also doing the same thing in some way, which involves smart accounts. Later, maybe Biconomy, ZeroDev and MetaMask may also be involved in this regard.

Cross-chain interoperability is also part of this because you want to abstract the network from the users and developers.

In the end, we want to contribute to a key part of this goal with our knowledge, ecosystem. It's not known yet which problems we will solve ourselves, which problems we will solve in collaboration with others, and what will develop in the future, so it's really hard to say who the real competitors are, because five years from now, the situation will be completely different.

Foresight News: One of the main purposes of introducing smart contract wallets is to optimize the entire Web3 entry experience. To what extent do you think this can help attract more Web2 users? Are there any specific examples that can help us better understand this?

Lukas Schor: Yeah, part of that is definitely onboarding. We're already simplifying that, like just using Google login to create an on-chain account. You don't have to set up a new wallet or anything, you can just log in with your existing Google account and then connect it to a self-hosted wallet through user technology. And there could be other ways, like making your email address an on-chain account, your Twitter ID an on-chain account, really merging Web2 and Web3 together, even down to your DNS records.

In this way, your website is also associated with the on-chain account, your mobile phone and other devices can verify your identity through the key, use zero-knowledge proof to conduct on-chain transactions, and have an on-chain account. In addition, we also need to guide people out of the custody solution so that they can truly use DeFi and Web3 to interact.

There is not enough activity in this area at the moment, and a large number of users who hold cryptocurrencies have their assets idle in centralized exchanges such as Coinbase, and these people actually need a better way to use their cryptocurrencies. Smart accounts will also be an interesting bridge for this, because it allows you to get cryptocurrencies from a custodian - such as Signum or Coinbase - and then have an associated on-chain identity, which is like a smart wallet that can be linked back to your custodian account.

You just do it with that wallet, log into an app, mint an NFT. But at that point you've already withdrawn your assets from your custodial account, your exchange, and you can leave your assets in your wallet or move them back to custodial. There's about $100 billion in DeFi right now, but there's a lot more that's just sitting around, unused, because people don't want to self-custody. I think that's very risky. But users don't know how to do it because it's too technically difficult.

These challenges can be solved by smart accounts. The size of the stock market is $100 trillion, and if we want to reach a transaction volume of $1 trillion or $10 trillion, we need a safer and more convenient solution.

Foresight News: What about infrastructure? What kind of changes will this intelligent upgrade bring to the existing infrastructure? What challenges will it pose?

Lukas Schor: Ethereum itself may need to be upgraded, like the EIP-7702 proposal. Every current user account can be turned into a smart account, which will be a major upgrade of Ethereum by the end of this year.

I think in the current market, there are not so many new users entering, but more existing users trying all kinds of new things. So, we need to provide a better way for existing users to upgrade. The EIP-7702 proposal can do this, and it will completely open the door to smart accounts for all current users.

And obviously there's a lot of other infrastructure, developer tools, libraries, all of that stuff that needs to be adapted to this new paradigm as well, but the real moment is when users start using Smart Accounts, and all of that stuff will fall into place over time.

How to further increase the value of hundreds of billions of assets?

Foresight News: Safe now manages around $100 billion in assets, which is a lot of money. So what will you focus on in terms of future expansion?

Lukas Schor: I think the biggest change for Safe (that we hope to see next) is that we don’t want Safe to be just a place to store large amounts of assets, which would be relatively passive. We want Safe to also be a place where these assets are actually used.

So, our focus will shift from TVL and asset storage to interacting with DeFi and adding value to assets. We can make DeFi safer and more convenient by leveraging smart accounts, because we feel that smart accounts have many advantages that can make DeFi easier to use and have better security mechanisms. For example, smart accounts can allow you to put your assets into different DeFi protocols. In the event of a hack, there will also be some better security mechanisms to automatically withdraw your assets, so you don’t have to worry about losing your assets all night. Smart accounts can also provide a better user experience by solving cross-chain interoperability, allowing you to interact with other layers from DeFi at the base layer or put in some other infrastructure operations with one click.

So we're going to shift our focus more from just hosting to facilitating more proactive interactions.

Foresight News: In the wallet space, what do you think is the next big thing? Where is the biggest opportunity? In some previous interviews, you seemed to mention that keystore would have a big opportunity.

Lukas Schor: I think most wallets now are thinking about how to become a full-chain wallet or something like that. They are thinking about how to introduce a user and then let them just interact with the application without having to consider issues like gas fees. Because for chains like Polygon that use non-Ethereum as gas fees, users must prepare the corresponding assets in advance.

Therefore, cross-chain interoperability will become part of the ultimate goal of smart wallets. Wallets like Avocado are doing this, and many projects are trying different approaches.

I'm not sure if Keystore is a business opportunity, but it's a huge challenge that needs to be solved. It will probably be more of a public good solution, with several projects working on it and collaborating on it, but it won't be a money-making opportunity.

Foresight News: Finally, I want to talk about regulation. There have been a lot of discussions about regulation and compliance in the crypto space this year, and many leading projects are facing pressure, including Consensys behind MetaMask in the wallet space, and even Ethereum itself is facing varying degrees of regulatory pressure. As the largest smart account wallet provider, how do you view these regulations? Do you feel the pressure?

Lukas Schor: We are primarily an infrastructure provider for smart wallets and are generally not affected too much by local regulations.

Interestingly, the regulatory issue is also related to the privacy issue you mentioned earlier. Because compliance and privacy protection will be two huge challenges, and the two are actually almost independent of each other, or they will conflict with each other. If we improve privacy, compliance may be more difficult. Because obscuring information is deliberately blocking information that is usually required for compliance. I'm not sure I have a lot of insight on this issue, but I believe that some companies that are more affected are solving these kinds of problems.

In order for regulators to take a more positive view of cryptocurrencies and be more supportive of the crypto industry, we need to provide practical cases that are valuable and meaningful to society.

I think the industry has done a terrible job over the past few months, focusing too much on illegal activities like meme coins and speculation, and the deepest impression of cryptocurrency is still that it is like a casino rather than a tool to truly improve people's lives. This is why regulators are skeptical and draw boundaries.