Modular Account Abstract 2023 Year in Review: Milestones, Data & Trends

Words: Konrad Kopp

Translation: Vernacular Blockchain

2023 is the year of "Account Abstraction Innovators." ERC-4337 generated initial enthusiasm, launching a developer community (4337 Mafia), but its impact went far beyond the standard itself. New Wallet have emerged (e.g., Soul Wallet and Clave), important Smart Contract account functionality has been improved (session Secret Key, new recovery mechanisms, and access Secret Key), and related verticals have found ways to leverage smart accounts to drive other key UX infrastructure improvements (e.g., intent-based transactions).

An emerging vertical that is seeing a lot of innovation on top of 4337 is at the center of all of this development, and that's modular account abstraction. Modular account abstraction promises a world where smart accounts can be easily extended, customized, portable, and secure. We're very excited about what's going on in this space in 2024. To kick off the year, we'd like to take a look back at last year's key milestones and outline our predictions for 2024.

1, before 2023

The idea of modularizing smart accounts has been around for a while, and by 2023, the most significant (and to the best of us know) modular account is Safe. Its architecture allows the actuator module to be called back inside the account, as well as a guard/hook module and a fallback handler. Some examples of modules built for Safe include the Zodiac module built by GnosisDAO. Other participants in account abstraction have previously explored some aspects of modularity, such as Argent, but as far as we know, they have not yet transitioned to using this paradigm in production.

2, the beginning

In late 2022, as we neared the completion of an audit of ERC-4337, the idea of using Diamond Proxies' modular ERC-4337 account arose. At the ETHDenver conference in February 2023, Rhinestone built the first prototype of such an account, which has the following features:

1. Modularity

2. Native compatibility with ERC-4337

3. Based on Diamond Proxies and was selected as one of the finalists for the Hacker Marathon.

This sparked a lot of discussions, community effort, prototypes, and products.

3. Technical Milestones/Proposals

One of the first important steps taken after the ETHDenver conference event was the launch of ERC-6900 (April 18, 2023). The goal of this proposal is to normalize modular smart accounts and draw inspiration from our earlier prototype at ETHDenver. This officially kicked off an open discussion around the use of Diamond Proxies, especially delegatecall, to enable the modularization of smart accounts. Immediately after, ZeroDev launched their Kernel on April 25, which remains the most simplified and scalable smart account. Subsequently, on September 27th, B1C0nomy launched their own modular smart account, which made it natively compatible with 4337 by forking Safe and allowing for modular verification logic. In addition, Thirdweb announced dynamic accounts at the end of the summer.

However, modular accounts aren't the only part of the puzzle. The promise of modular account abstraction is that any developer can build a smart account feature that any smart account user can install and use. Bringing a third-party developer into an account poses a significant security risk. To address this particular issue and create a platform for module distribution and discovery, we launched a module registry (July), which was quickly followed by ERC-7484 (August 14). Safe{Protocol}'s White Paper was then released on August 15 and aims to address this exact problem in the Safe ecosystem.

Module development in 2023 revolves around basic account features. This includes the development of novel account recovery systems, such as Safe's recovery center, improved use of pass-through Secret Key as a signature mechanism, and a multi-chain module that improves account synchronization across multiple networks. In addition to these basic account features, we're starting to see more insightful modules that provide users with greater security, privacy, and convenient access to Decentralized Finance directly from their accounts (more predictions later). To give developers the tools they need to easily build custom account features using this modular architecture, Rhinestone launched ModuleKit (August 25th), the first developer framework for module development.

In November, B1C0nomy and Rhinestone partnered to announce the first "Module Store", which is scheduled to launch in the first quarter of 2024. This module store allows dapp and wallet developers to discover modules built by others and integrate them into their apps to improve the user experience or create new product experiences.

In December 2023, ZeroDev, B1C0nomy, Rhinestone, and OKX partnered to launch a more simplified, modular smart account standard: ERC-7579. This ERC is designed to achieve the minimum interoperability required by module developers and applications, while allowing account vendors to innovate, which is severely limited by ERC-6900.

4. Relevant data

1. Modular accounts are deployed

Although the modular account abstraction ecosystem is only starting to gain traction in 2023, the vast majority of production accounts are already modular. Kernel and B1C0nomy accounts account for more than 80% of the 4337 native accounts, while Safe is the market leader when it comes to smart account adoption. Kernel has deployed nearly 1 million accounts, while B1C0nomy has deployed more than 600,000 (reference). In 2023, Safe continued its dominance, deploying more than 4.1 million accounts, up 355% year-over-year. Many of these accounts are deployed on behalf of Worldcoin, which reached 2.7 million verified accounts earlier this year.

2. Take advantage of the Modular Smart Account app

In the 4337 ecosystem, CyberConnect and FanTV (a decentralization media startup) are the largest applications by number of accounts and user operations, with 550,000 and 470,000 unique accounts, respectively. The ZTX hoodie sale campaign generated more than 200,000 accounts, while Grindery, a Telegram smart Wallet, created more than 200,000 accounts. All of these apps utilize token incentives to convert users, which makes it difficult to comment on early product market suitability (the impact this has on user engagement can be seen in the next section). These products primarily leverage smart accounts to create a seamless onboarding experience, which is not unique to modular account abstractions.

One area where modular smart accounts offer a more innovative application experience is Decentralized Finance enabled by account automation, which has become the platform of choice for intent-based trading infrastructure and product builders. For example, Composible CoW leverages Safe's modular architecture to create similar-intent transactions for users. Rage Trade and CapX provide seamless Decentralized Finance operations with specially designed session secret keys. However, these products are still in the early experimental stages and have not yet taken full advantage of the Smart Account module.

3. User Statistics

By far a major drawback of the ERC-4337 ecosystem as a whole has been the very low retention rate of users, as shown in the chart below (from BundleBear). Since the vast majority of ERC-4337 accounts are modular, so is the modular account abstraction ecosystem. As mentioned above, one of the main reasons is likely to be the use of token incentives to drive initial user adoption of connected products.

5, Forecast for 2024

We think the two keywords for 2024 will be adoption and interoperability.

1. Adoption

In 2023, we're seeing the majority of smart account adoption through embedded wallets or, as some suggest embedded signers. The vast majority of smart accounts controlled by these signers are modular, and we believe this trend will continue in 2024. The rise of the new Embedded Signer SDK and improvements to existing SDKs will push developers to continue to compete to provide new features to their developers, and we believe the Smart Account module will play a key role in differentiating the different participants.

The adoption of existing modules, such as passSecret Key validators or various recovery and session Secret Key types, will continue to grow. Developers will also experiment with more unique modules, such as Decentralized Finance automated executors, that will help them offer unique product experiences that compete with or exceed traditional centralized finance. Modules can play a key role in introducing any given user's bot on-chain and greatly drop Decentralized Finance the knowledge threshold for adoption.

We are also seeing the adoption of modules in the areas of security and privacy. Spending limits and configurable Multisig (for example, additional signers are required if interacting with a new contract) provide simple security enhancements, but more advanced vulnerability detection modules can be used in conjunction with offline services. Modules that make use of privacy technologies will emerge to provide users with a means to obfuscate their identities and increase their privacy. This can be to ensure that the account recovery process does not expose user information, or to provide novel mechanisms for covert peer-to-peer interactions.

2. Interoperability

In 2023, we've seen a lot of different players blaze new trails in terms of modular account abstraction, leading to a lot of fragmentation. While we believe innovation will continue, we also believe that in 2024, interoperability will play a greater role, making modules more accessible to applications and users, and making it easier for developers to distribute their modules to any user, regardless of the account they use for implementation.

We believe that interoperability can happen in three ways:

1. At the account Contract Layer level

2. At the level of account creation and

3. At the module level.

ERC-7579 is the top candidate for the first aspect, with ZeroDev, B1C0nomy, and OKX (which together currently account for more than 80% of all 4337-compliant smart accounts) planning to adopt it in Q1, with more account builders to follow. The second aspect is designed to make it easier to create and reuse embedded signers across multiple applications driven by the same SDK, perhaps across multiple SDKs.

In 2023, we've seen an example of a standard that aims to achieve this, ERC-7555, and there have been several discussions on WalletUncon during DevConnect dedicated to solving this problem.

Finally, we believe that 2024 will be an important year for module interoperability, both at the high level proposed by ERC-7579 and at more module-specific levels, such as normalization such as how session secret keys work.