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Okay so self-custodial wallets, simple, secure and privacy focused; oh wait let’s scratch the ~~simple~~ out, they are certainly not simple, just yet. If you’re unaware about self-custodial wallets then here’s a great [explainer article](https://www.makeuseof.com/what-are-self-custody-wallets/).

Undeniably, wallets have become the backbone of the crypto industry, and besides your usual day to day regulation changes, over engineered tech, and a billion new tokens and chains, UX has become a key differentiator between what stays and what doesn’t. Don’t believe us, then take a look for yourself-
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 ![reviews.png](https://ds-storage.sgp1.cdn.digitaloceanspaces.com/blocktheory/website/strapi/uploads/e3762d1b4be34ea408ec3411165c9920.png)
 
######  Few of the many reviews which some of the biggest self-custodial wallet apps have on Google PlayStore

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##🗺️ The self-custodial wallet landscape in 2023
To better understand the UX challenges, we’ve tried to score some of the most popular self-custodial wallets in the key user journeys wrt ease of usage and here’s what we found


![graphs.png](https://ds-storage.sgp1.cdn.digitaloceanspaces.com/blocktheory/website/strapi/uploads/4f1336c85fca4d56645a1655bf41f601.png)
###### We’ve scored these apps relative to each other based on our experience using them as well as by gauging the majority ratings in the playstore feedbacks.
<br />
As is clearly visible, each of these apps is focusing on solving specific sections but none of them have made the entire journey seamless, yet.

Another interesting stat is to observe the average ratings of legacy wallets (metamask, phantom, coinbase, trust & exodus) vs the newer ones. This is important because the legacy wallets had the [first mover advantage](https://academy.binance.com/en/glossary/first-mover-advantage) and onboarded a huge number of users whilst making things just work but neglecting the overall experience (exception trustwallet & coinbase). These products have influenced the design of most wallets and targeted people who already understood the complexities of crypto. 

>The user was given significant power and responsibility with little to no context.

<div id="best_wallet"></div>
### G2- Best Cryptocurrency Wallets

This website aims to capture a large map of over 147 crypto wallets and rates them on 2 factors
1. Quality of Support
2. Ease of Use

Well this suggests that the average crypto user considers a good experience only when both criteria are met of a satisfying support desk as well as an easy to use platform.

To be fair, as products grow larger, offering support on a case to case basis becomes significantly more difficult thus decreasing the overall satisfaction levels. But this is just one study and it doesn’t paint the overall picture.

![comapre.png](https://ds-storage.sgp1.cdn.digitaloceanspaces.com/blocktheory/website/strapi/uploads/362cbcdb147a9beda9add2f62c3bb28a.png)
###### We picked some of the most popular ones and here's how they fared. An important note is that this is not an exhaustive scoring system and relies on user feedback so it is not absolute.

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###Google Playstore & Chrome Webstore

The majority audience tends to leave feedback directly at the market places, so we took the same apps and tried to create a normalised distribution to see if it correlates with the G2 study

This is an interesting outcome and here’s why Trust wallet beats all the others by a huge mile. Trust has managed to get **4.4⭐️ from over 1.5M users!** Compared to Metamask & Exodus which have gotten 4.6⭐️(220k users) & 4.5⭐️(98k users) making it one of the highest rated self-custodial wallets out there. 

![Playstore.png](https://ds-storage.sgp1.cdn.digitaloceanspaces.com/blocktheory/website/strapi/uploads/3afd991b4e0fe3fd2927a2e009197b1d.png)
######  If you’re interested to know the exact procedure of how this was calculated, [checkout this](https://chat.openai.com/share/f2fc5131-3f0a-494c-a038-648b517f233f)

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What did trust do that went right? That’s something that needs to be unpacked in a separate article altogether but in short here’s the answer

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![Reviews TRUST.png](https://ds-storage.sgp1.cdn.digitaloceanspaces.com/blocktheory/website/strapi/uploads/24afa811d959f5e4a52705648aa0f69a.png)
###### User reviews of Trust Wallet on Google Playstore

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###Let’s summarise the self-custodial wallet landscape in 2023
1. There are approximately **over 240** listed self custodial wallets in the Android and Chrome market place in 2023
2. Most wallets have built extensively to make transactions smoother but very few have cracked the creation step of the user-journey. Sign-up flows to create and import wallets are currently riddled with challenges for users.
3. It is clear that for a product to be mass-adopted it needs to make sure that it balances the equation of ease of usage along with a good support system on the user end.
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## 🏦 Learning from the evolution of banking in web2

The idea of DeFi was built on solving problems faced in the TradFi systems. Although these systems themselves have weathered many more difficult challenges and have found some creative solutions. Hence referencing these could give us a potential breakthrough or help us identify mistakes we’re repeating here.

Digital banking was revolutionary as it made physical banking obsolete followed by [neo-banking](https://www.forbes.com/advisor/in/banking/what-is-a-neobank/) which is currently attempting to one up digital banking. If you are unfamiliar with these terms then here’s a great article which covers the [evolution of digital banking](https://profinch.com/evolution-of-digital-banking-system/).

###Deloitte's study on the digital banking momentum

A very interesting [study conducted by Deloitte](https://www2.deloitte.com/us/en/insights/industry/financial-services/digitalization-in-banking.html) surveyed people from a very diverse age range and here’s what they found-

1. Younger consumers prefer both physical and digital channels, but are less satisfied with their primary banks and more likely to switch. 
2. They also seek innovative services offered by neo-banks, including automated spending insights, P2P payments, and "get gas" and "get food" buttons that find and pay for the nearest gas station and restaurant.
3. Banks should consider positioning mobile apps as the central platform for their consumers’ various banking needs instead of their branches. Acting as the hub of interconnected experiences, these apps can help integrate the banks’ otherwise siloed channels and become a go-to tool for consumers.

###Revolutionary Payment Infrastructures
Another great reference point is to see how web2 products tackled large scale problems to scale some payment models, which are no short of revolutionary:

**UPI & Alipay**

1. India’s UPI (Unified Payments Interface) and has acquired over 300M monthly active users in less than 7 years. This is a major achievement as the rural-urban penetration of this technology has been almost at par. At it’s core it relied on simplicity. 1 QR code per person/business and 1 scanner to connect these two entities.
2. Similar to UPI, Alipay is a much older platform with over 1.3B users and it relies on similar strategies of onboarding consumers and producers on 1 aggregated platform with its robust tech having a simple intuitive end user interface

🎯 The takeaway is how products can cut down their reliance on their user to understand the technicalities and jargon of payments and to focus more on making it intuitive and human

**Apple pay**

1. Apple launched it’s payment platform back in 2014 backed by its already huge network of devices
2. Building essentially a wallet app that housed all your cards, it instantly made every single iPhone user a digital payment interface without any additional effort.

🎯 The takeaway is how a product can seamlessly integrate into the current infrastructure for maximum adoption without much effort from the user’s end

The banking industry experiences frequent disruption due to complacency and a lack of empathy towards its users. Neo-banks have successfully empathized with consumers and offered modern technologies and conveniences, leading to continued customer inflow. This pattern is now also observed in the crypto markets.

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## 👀 Looking at custodial wallets and their patterns
Custodial wallets promise the perks of crypto along with the ease of usage of web2 banking. The only caveat they have access to your keys and any points of failure within the system would take your money down too, like in the case of the FTX crash.

What used to make custodial wallets such a hot avenue for crypto traders is no longer the case as self-custodial wallets are catching up in terms of usability but there are still features (like wallet recovery, device cross-compatibility) which need to be migrated into the self-custodial ecosystem to make them as popular as these centralised ones.

> 43% of Trust Wallet users use centralized exchanges to store their crypto holdings, while the remaining 57% self-custody most of their assets on Trust Wallet.

🎯 Product builders must make significant improvements in account abstraction, easier wallet recovery and sign-in, and on-ramp flows to make self-custodial wallets the default choice. Issues of transaction speeds and high failure rates need to be fixed to compete with big custodial players.

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## 🤔 Right so why hasn’t someone already figured it out?

Well to be honest, this isn’t as simple as it seems and a lot of products out there are now more aware about this situation and are trying out various approaches to make it big. Some of the biggest breakthroughs will be in the direction of account abstraction with tech like MPC making wallet recovery flows simple and reducing the chances of locked crypto.

###Going the Apple Way…
Apple knew that to appeal to the widest possible audience it would need to keep its product line super simple and that could even mean axing some obvious features at the stake of make the core features more intuitive. For example-

Whilst android users boasted about widgets and customisation from the beginning, iPhones continuously outperformed them as they usually were the no-brainer pick if a phone was to be recommended right from a 8 to an 80 year old.

This meant that apple knew how to empathise with the most diverse audience and it has continued to do so even now.

>The impact of a self-custodial wallet being done right will be no smaller than Apple launching the first iPhone in 2009, causing significant downstream effects into how crypto wallets will be designed and which portions of UX will be prioritised.


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In this digital age, where cryptocurrencies and decentralized finance (DeFi) are gaining momentum, self-custodial wallets play a pivotal role in empowering individuals to have complete control over their digital assets.

Let’s talk about UX in Self Custodial Wallets

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## Overview

As 2023 comes to its final quarter, we thought it would be an amazing idea to summarise some of the best Web3 reports out there on the latest happenings. Right from cryptocurrencies DeFi to the most hyped upcoming use cases, we've tried to list them all in short, digestible bullets.

We'll cover the market perspective, including the big crashes of '22 and the performances of cryptocurrencies. Trends on the Ethereum merge, and its impact, institutional investors' preferences, V.C. behaviour patterns for 2023, layer-2 scaling solutions, and NFTs are all included.

Next up, we’ll also cover global regulations and specific updates from countries like the US, UK, Hong Kong, and the EU. Lastly, we further explore the biggest developments in 2023, including new application-specific blockchains, rollups, corporate involvement in web3, game-fi, developer activity, and regulatory news.

In order to better understand how 2023 fared for crypto, it is key to understand how it was setup in 2022 because Web3 heavily relies on momentum.

<div id="market"></div>

## So, how was 2023 setup from a general market perspective for Web3?

- In short, not very good
- 3 big market crashes ([Terra](https://uk.finance.yahoo.com/news/how-crypto-fell-2022-eight-charts-story-of-cruel-crash-060058350.html?guccounter=1#:~:text=Brian%20McGleenon,Terra%27s%20UST%20stablecoin) in May '22, [FTX](https://uk.finance.yahoo.com/news/how-crypto-fell-2022-eight-charts-story-of-cruel-crash-060058350.html?guccounter=1#:~:text=The%20fifth%20domino%20%E2%81%A0%E2%80%93%20FTX) & [BlockFi](https://uk.finance.yahoo.com/news/how-crypto-fell-2022-eight-charts-story-of-cruel-crash-060058350.html?guccounter=1#:~:text=Sixth%20domino%20to%20fall%20%E2%81%A0%E2%80%93%20Blockfi) in Nov' 22) occurred, which impacted the overall market-cap of crypto to fall by 64% in 2022 vs 2021
- While this dropped the liquidity from $2.2Tn → $0.8Tn, the overall industry performed in-line with NASDAQ and other global indices when compared via the Sharpe Ratio of risk-adjusted returns, this was good news.
- A key trend predicted was that institutional investors would select digital assets based on factors like sustainable tokenomics, ecosystem maturity, and relative market liquidity, thus giving the edge to O.G.s like Bitcoin and Ethereum and while this was mostly true, investors also rallied on stablecoins USDT, USDC & BUSD to seek refuge from the bear run.

>Interestingly, bluechip tokens (BTC, ETH) had outperformed US bonds and stocks significantly even during the crypto winter

- Stablecoins shed $27.3 billion despite their increased dominance; USDT saw a decline in market cap of 16% ($12B). Conversely, USDC & BUSD each saw similar growth of ~$2B.
- Layer-2 scaling solutions were set to be the next big thing that would disrupt the market in 2023 with their promise of low fees and faster transactions, therefore making Ethereum the go-to base chain for new products.
- The successful Ethereum merge drastically reduced energy usage in Ethereum transactions by over 99%, addressing environmental concerns related to blockchain technologies.

![a16z web3 report.png](https://ds-storage.sgp1.cdn.digitaloceanspaces.com/blocktheory/website/strapi/uploads/a31802f1c37f28c3488e2655eae8900a.png)
###### Here’s a great infographic to understand the significance of why the merge was such a big deal! / Image: a16z web3 report 

- The NFTs industry underwent a healthy correction mainly due to the skeptical atmosphere, but the overall industry was hopeful of cracking newer use cases in 2023
- Lastly, a key thing is the overall regulations that law-makers across the globe imposed on the industry in 2022 and the planned developments in 2023
    - In **10 of 20** G20 countries, representing over 50% of the world's GDP, cryptocurrencies are fully legal. Regulation is under consideration in all G20 countries.
    - Consumer protection rules are lagging. **Only one-third of the countries reviewed have rules in place to protect consumers.**
    - Of the 45 countries analyzed, **over 90% have active central bank digital currency (CBDC) projects** in addition to cryptocurrency regulations.
    - **Country Specific Regulation Updates**
        
        - US had a bipartisan approach, with congress divided on its views on cryptocurrencies. While it has people on extreme ends of the spectrum, an overall board has been set up that is actively creating regulatory frameworks on how new companies are established and how they can be kept in-check.
        - U.K.'s House of Commons, in Oct '22, voted to give H.M. Treasury (HMT) the power to make crypto-assets a regulated financial instrument
        - Hong Kong continues to lead global research and testing of a potential wholesale Central Bank Digital Currency (CBDC). In September 2022, the HKMA announced it would start paving the way for a possible implementation of the e-HKD through a 3-rail approach.
    - E.U.'s MiCA (Markets in Crypto-Assets Regulation) was all set to enter into force in 2024 based on its clearance in the European parliament in early 2023

>Overall, 2022 was a hallmark year for the industry as it pushed us into an extremely bearish market.

2023, therefore, was set up to become one of the toughest crypto winters for new entrants to survive while also giving enough room for tech to scale and let the corrected market recover itself.

And with that, onto 2023.
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## Quarter-wise Highlights of 2023

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### Q1 ‘23

- The CAGR of key metrics like Marketcap, General Interest, Developer Activity, and Number of Projects have all steadily increased despite the setbacks.
- Q1 had an extremely strong starting with almost 50% ($0.4Tn) of the lost market cap recovering.
- The Play-To-Earn (P2E) sector also saw a rather strong recovery, with 3 of 5 top tokens – WEMIX (+286%), IMX (+196%), and MANA (+98%) outperforming BTC.
- Besides building blockchains solely as ledgers for financial records, new application-specific blockchains have taken center-stage, like zksync, cosmos, optimism and polygon, which are laser-focused on specific use cases.
- 2 noteworthy product launches happened at the end of Q1 in the zero-knowledge (zk) space, namely zkSync Era & Polygon zkEVM; more on this in Q2
- BTC outperformed all other asset classes (Crude oil, Gold, NASDAQ, TLTs, Major Currencies) by a huge margin
- [Lido ](https://blocktheory.com/decoded/liquid-staking-derivatives/)Finance leads the Ether Staking DeFi Space with nearly a third of all transactions on its platform, followed by Coinbase and Kraken.
- Liquid Staking($4.2B) had the highest QoQ % Change (+210.9%) and overtook lending to become the 3rd largest DeFi category after DEX's ($11.7B) and Oracles(~$5B)


>Spot trading in DEXs grew by 18%, thus making DEXs grow faster than CEXs by almost 2x

<div id="q2"></div>

### Q2 ‘23

- Rollups were the latest advancement and the talk of the town in Q2. These claim to be pre-packaged services primarily built on layer-2 solutions which assist in offloading transactions from layer-1 and make them lightning quick and almost gasless.
- As of now 7% of Ethereum’s fees are being paid via L2 rollups and this percentage will soon skyrocket as demand increases.

>Zero Knowledge or ZK is the latest tech proposed which will enable chains to process more transactions per second and the tech advancements in this field are supposedly improving at Moore’s Law like pace (growing at 2x every 2 years)

- zkSync Era's TVL nearly 7Xed between Q1 & Q2, showing the amazing promise in zk tech.
- In the stablecoin space, USDT has regained its #1 position with a 66% market share. BUSD continues to drop to < 3%.
- Overall, in Q2, crypto companies globally raised $2.3 billion in venture capital across 371 investment rounds, representing a 14.7% decrease in QoQ deal value and a 16.3% decrease in the number of deals. Investors are far more picky and want to engage with serious players, given the jolting market correction.
- Other key tech advancements were in the fields of key management and making the DeFi experience more natural. Noteworthy topics were related to protodank-sharding, [account abstraction](https://blocktheory.com/decoded/account-abstraction-use-cases/), [multi-party computation](https://blocktheory.com/decoded/multi-party-computation/) and inter blockchain protocols.
- In the DeFi space, Liquid Staking Derivatives (LSDFi's) made headlines as they leveraged on the growing interest in Liquid Staking

We have decoded some of these new Tech & DeFi concepts in visually engaging stories in our series [Decoded]((https://blocktheory.com/decoded/)), do give it a try!

- An extremely thorough survey conducted by the team at Consensys & YouGov in Q2 revealed quite some interesting stats about the perception of Web3 in the global landscape; here are the key highlights.
    - **Strong Crypto Awareness** - Over 92% of the 15k surveyors demonstrated awareness of crypto
    - **Crypto Ownership** - Over 20% of participants owned some form of crypto, and over 57% believed it was an eco-friendly tech
    - **Entry Barriers** - Volatility + Fear of Scams was the highest barrier, closely followed by the complexity of the ecosystem and understanding its purpose and use cases.
    - Nigeria (65%) and Argentina (56%) show the highest motivation to own cryptocurrencies as a means to store value, given the instability of their local currencies; India (43%) considers it as an investment for the future.
- A major development was when the SEC in the U.S. filed Lawsuits against the industry OGs Coinbase and Binance on account of selling unregistered securities. More updates on this in Q3.
- Another big development was when the world's largest asset-managing fund house, BlackRock, announced that it was filing for a spot Bitcoin ETF, suddenly shifting the market sentiment into a bullish trend with a lot of traditional managers now wanting to jump on the bandwagon. More updates on this in Q3.

<div id="q3"></div>

### Q3 ‘23

- Web3 games have generated 23x more transactions than DeFi and can become one of the most important entry points for new users; Q3 saw Web3 gaming projects secure $600 million, pushing 2023 total investments to $2.3 billion.
- Both developer activity and the number of smart contracts that are being verified on the chain have been on the increase, which is an extremely good indicator of new product launches, growth, and general interest.

![a16z web3 report 2.png](https://ds-storage.sgp1.cdn.digitaloceanspaces.com/blocktheory/website/strapi/uploads/9d57b64c71375e5a6a4e4a866bbe2be9.png)
###### A visual representation of the active number of verified smart contracts / Image: [The state of crypto by a16z crypto](https://a16zcrypto.com/posts/article/state-of-crypto-report-2023/)

- Another serious metric to measure the industry is the number of academic publications in the industry, and we've seen a rise in this, too, as more and more academia seem to be publishing papers on subject matters and tech advancements
- The average number of daily Unique Active Wallets (dUAW) interacting with decentralized applications surged 15% from Q2 2023, reaching an average of 2.2 million dUAW.
- Companies building in the broad Web3 categories have dominated V.C. deal counts, while companies specifically in the Trading category raised the total capital. Interest in A.I. demanded the creation of a new sector, focusing on the overlap between A.I. and crypto.
- While US-based crypto startups accounted for more than 35% of all deals completed and raised more than 34% of the capital invested by V.C. firms, the U.S. is now notably losing share on both deals and capital to countries like the United Arab Emirates, Singapore, and the U.K., all of which have more progressive crypto regulatory frameworks.



>With more than $699 million lost across 184 security incidents, Q3 has been 2023's most eventful quarter security-wise. 
>
- For reference, Q1 saw a total of $320 million lost and Q2 $313 million, meaning Q3's losses eclipse those throughout all of H1 2023.
- North Korea's state-affiliated Lazarus Group is one of the key actors currently exploiting the security space. Private key compromises were the next highest contributing factor.
- As for the allegations charged by the SEC on Binance and Coinbase, the request made to freeze's Binance's U.S. assets was rejected by the court and the latest update is that [Coinbase will respond to the SEC on Oct 24th](https://www.binance.com/en/feed/post/1258248) having filed a motion to dismiss their case.
- A social media rumor claiming that the SEC had approved BlackRock's ETFs rallied Bitcoin and other blue-chips instantly, and when BlackRock denied this news, nearly $100M of short trading positions were liquidated in 24 hours. Despite this, the global crypto market cap currently stands at $1.06 trillion (as of Oct 16th), reflecting an increase of 0.89% in the past 24 hours, which is great news for the market as a whole.

And that's about it! You're now upto speed with all the biggest noteworthy updates of the year!

<div id="conc"></div>

## End note

Though 2023 was slow and bearish for the greater part, a major outcome was the disappearance of all the gimmicky products that had plagued the industry. With investors being on the edge and keeping a tight check on their purse strings, only serious builders now have the runway to sustain.

A much-needed correction coupled with a global recession has currently put the surface of Web3 on a standstill (of course, lots of ongoing micro-movements remain)

Interestingly, a large part of 2022's market cap loss has been successfully recovered, which can't be said the same for tradfi spaces as the undercurrents are still buzzing with cutting-edge developments, and the potential of the future of the web rests amongst these builders.

### References

[2023 Crypto Market Outlook](https://www.coinbase.com/institutional/research-insights/research/market-intelligence/2023-crypto-market-outlook)

[2023 State of Crypto Report: Introducing the State of Crypto Index - a16z crypto](https://a16zcrypto.com/posts/article/state-of-crypto-report-2023/)

[Web3 Development Report (Q4 2022)](https://www.alchemy.com/blog/web3-developer-report-q4-2022)

[Cryptocurrency Regulation Tracker](https://www.atlanticcouncil.org/programs/geoeconomics-center/cryptoregulationtracker/)

[Web3 and crypto global survey 2023 | Consensys web3 report](https://consensys.io/insight-report/web3-and-crypto-global-survey-2023)

[Q2 2023 Crypto Report | PitchBook](https://pitchbook.com/news/reports/q2-2023-crypto-report)

[2022 Annual Crypto Industry Report | CoinGecko](https://www.coingecko.com/research/publications/2022-annual-crypto-report)

[2023 Q1 Crypto Industry Report | CoinGecko](https://www.coingecko.com/research/publications/2023-q1-crypto-report)

[2023 Q2 Crypto Industry Report | CoinGecko](https://www.coingecko.com/research/publications/2023-q2-crypto-report)

[Crypto & Blockchain Venture Capital](https://www.galaxy.com/insights/research/crypto-and-blockchain-venture-capital-q3-2023/)

[State of the Dapp Industry Q3 2023](https://dappradar.com/blog/state-of-the-dapp-industry-q3-2023)

[Hack3d: The Web3 Security Quarterly Report - Q3 2023 - Blog - Web3 Security Leaderboard](https://www.certik.com/resources/blog/1dloJV023Tm4ajXiluRctb-hack3d-the-web3-security-quarterly-report-q3-2023)


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