The key lies in the challenges faced by crypto wallet software. Whether apps or browser extensions, crypto wallets often struggle with monetization. Since users have direct control over their crypto assets, hidden fees are not an option. Additionally, the market is saturated with wallet options, leading to low user retention and easy switching between different wallets.

Currently, secure and effective wallet apps lack the sophistication needed to justify a recurring subscription fee for users.

The Realities of Self-Custody

Self-custody in crypto comes with its own set of misconceptions. Originally marketed as a cost-free way to manage digital assets—much like holding physical cash—the reality is quite different. In practice, self-custody is more akin to storing gold in a vault: users must invest in and maintain this “vault,” which in crypto terms means procuring and safeguarding a high-quality wallet.

While the costs of managing crypto are lower compared to securing physical gold, they still exist. Furthermore, people generally prefer paying for tangible goods. A hardware wallet, being a physical item, has an inherent value that makes it easier to justify its purchase price. However, the recurring revenue model remains a challenge, which is where value-added services become crucial.

Monetizing Through Value-Added Services

Value-added services enhance the core functionality of a wallet. These features—such as buying crypto, exchanging between different cryptos, bridging assets across blockchains, or staking—are crucial for generating revenue. They offer users a secure and streamlined experience, reducing potential security risks.

Wallet providers often earn through transaction fees, such as slippage or foreign exchange fees, and occasionally through miner extractable value (MEV). This fee structure compensates providers for maintaining security and usability. However, relying solely on these services may not be enough to drive substantial growth or satisfy investor expectations.

The Role of Crypto Cards in Driving Revenue

Crypto cards represent a strategic solution to these monetization challenges. They enable users to spend their crypto assets directly in local stores, fulfilling dual roles: facilitating crypto loading and expenditure. These cards generate revenue for issuers through transaction fees and interchange fees.

The adoption of crypto cards is soaring. For instance, Visa reported $2.5 billion in payments via its crypto-linked cards during the first fiscal quarter of 2022. This growth isn’t necessarily due to crypto cards aligning perfectly with crypto’s core principles but rather their alignment with established financial product norms. They are compliant with regulations, straightforward for users, and offer a seamless spending experience.

While crypto cards do not execute transactions on the blockchain or convert currency on-chain, they bridge the gap between digital and traditional currencies. They adhere to regulatory practices designed to prevent money laundering and terrorist financing, making them a practical, if imperfect, solution.

In summary, crypto cards address the limitations of current wallet software and provide a viable path for integrating digital assets into everyday transactions. Their practicality and adherence to regulatory standards make them a valuable tool for users and issuers alike.

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