John Gilbert

The Ethereum Foundation’s ERC-4337 account abstraction went live on Ethereum’s mainnet on March 1. While some expressed excitement for the news and the potential for smart contract wallets, the leading smart contract wallet providers reminded everyone that they already exist.



So what’s different? And what in the world is a smart contract wallet again?



Key takeaways:&nbsp;



<ul>
<li>Smart contract wallets provide a means of self custodying crypto assets.</li>



<li>They enable bundled transactions, customizable recovery options, the ability to pay gas fees in a different token, greater privacy in identity management and more.</li>



<li>Not all smart contract wallets remove the EOA from the equation.&nbsp;</li>
</ul>



<ul>
<li>There lacks a universal standard to account abstraction that can address risk concerns.</li>



<li>ERC-4337 is an account abstraction approach that intends to remove the reliance on centralized relayers and EOAs.</li>



<li>It can potentially provide a universal standard that addresses security concerns but needs further infrastructure.&nbsp;&nbsp;</li>
</ul>



<h2>What are smart contract wallets?</h2>



A smart contract wallet is a device or application that lets users customize the way they would prefer to manage their digital assets.&nbsp;



Account abstraction is how developers make smart contract wallets possible. They abstract all the essential functions of the Externally Owned Account (EOA) and plug them into a smart contract full of new levers and buttons.



In other words, it&#8217;s a choose-your-own-adventure approach to self custody.&nbsp;



<h3>Use Cases</h3>



You can program the smart contract wallet for the use cases that mean most to you — things like social recovery and bundled transactions. Proponents believe that it will onboard millions more to Web3 by revolutionizing the user experience, and critics fear that it introduces additional risks.&nbsp;



<h2>The Ethereum account model explained</h2>



Before we explain how it works and the significance of <a href="https://blockworks.co/news/ethereum-erc4337-account-abstraction-smart-contract">ERC-4337 account abstraction</a>, it&#8217;s worth refreshing our understanding of the Ethereum account model.



Unlike Bitcoin and other cryptocurrencies, Ethereum uses an account model instead of a UTXO (unspent transaction output) model. This allows users to deploy and use self-executing smart contracts that can run applications such as <a href="https://blockworks.co/tag/uniswap" target="_blank" rel="noreferrer noopener">Uniswap</a>.



There are two types of accounts on the Ethereum network: externally owned accounts (EOAs) and smart contract accounts.&nbsp;



<ul>
<li>Both are represented by a unique public address, which is essentially a string of letters and numbers.&nbsp;</li>



<li>Both can be used to send, hold or receive ether.</li>
</ul>



However, EOAs and smart contract accounts differ in how they are controlled and used. EOAs are controlled directly by the user through a private key signing function. This authorizes the account to perform three primary tasks:&nbsp;



<ul>
<li>Validate transactions&nbsp;</li>



<li>Execute transactions&nbsp;</li>



<li>Pay transaction fees&nbsp;</li>
</ul>



In contrast, smart contract accounts are controlled by their embedded logic — a series of if-then statements. But this design makes smart contracts dependent on EOAs. They are still needed to deploy the smart contracts and prompt smart contract actions.&nbsp;



The smart contract’s dependence on EOAs makes it difficult for wallet providers to program new ways for users to validate, execute and pay transaction fees.&nbsp;&nbsp;&nbsp;



<h3>Limitations of this model</h3>



This accounts model limits many wallet providers to only offer users a <a href="https://blockworks.co/news/what-are-seed-phrases">seed phrase</a> in the case that they lose access. The seed phrase though is notoriously vulnerable to users forgetting it or losing it to theft — which discourages users from interacting with the blockchain, and makes it difficult for them to manage their digital assets.



Read More: <a href="https://blockworks.co/news/what-are-seed-phrases">What is a seed phrase and are they necessary?</a>



Another pain point is the number of steps it takes for a user to interact with a smart contract. Since every interaction with a smart contract requires a signature, gas fees can get expensive quickly. This also adds vulnerability for the user, as each transaction increases risks associated with potential network congestion, errors in smart contract code, or other technical issues.



Lastly, the standard EOA model limits the innovation of wallet providers. There are workarounds that use smart contracts that enable more use cases with greater customization, but they come with a new set of risks.&nbsp;



<h2>How does account abstraction work?</h2>



Before ERC-4337, smart contract wallets had two general approaches to account abstraction. They could either use third party relayers with an abstracted EOA or use a layer-2 solution with native account abstraction.&nbsp;



<h3>The EOA and relayer approach</h3>



Smart contract wallets like Safe use an EOA as the basis of a smart contract wallet and a <a href="https://docs.safe.global/learn/gnosis-safe" target="_blank" rel="noreferrer noopener">transaction relay service</a> to bundle and process transactions on behalf of the smart contract account.&nbsp;



Remember, the current EVM logic requires users to deploy a smart contract with their EOA account. So in this approach, safe wallets use an EOA for its initial set up. But once the account is created, users can add a layer of customization to the authorization process.&nbsp;



<h4>Benefits</h4>



For example, with Safe, users can configure several types of transaction confirmation methods, including multi-sig, time-lock, and threshold signatures.&nbsp;



<ul>
<li>A multi-sig confirmation method is a security feature that requires multiple parties to approve a transaction before it can be executed. It adds an extra layer of security to transactions and helps prevent fraudulent activity.</li>
</ul>



<ul>
<li>In a time-lock confirmation method, a transaction is scheduled to execute at a future time and is confirmed automatically when that time is reached, without requiring any additional approval. This approach is useful for scenarios where a group of people want to agree on a transaction in advance, but don&#8217;t want to coordinate their approval at a specific time.</li>
</ul>



<ul>
<li>Threshold signatures is a multi-signature scheme where a transaction can be authorized by a subset of a group of signers, instead of requiring all signers to approve it. This allows for greater flexibility in the approval process and can increase security by reducing the likelihood of all signers being compromised at the same time.</li>
</ul>



This layer of abstraction can also be used to customize account recovery. For example, it lets users add trusted accounts that can help recover the account in case the user loses access. The recovery process involves a time delay and a confirmation from a majority of trusted accounts to prevent unauthorized access.&nbsp;



Since the smart contract is on Ethereum, it still costs gas to execute actions that require multiple transactions. So instead of executing a set of transactions individually, the smart contract can be programmed to send authorized transaction metadata to a transaction relay service that executes them on the user’s behalf.&nbsp;



<h4>Risks</h4>



This allows third parties to cover the gas fees for the user or let them pay the fees with a different token. The challenge though is, not all third party relayers are the same. Some contain unique centralization risks that the average user is not going to understand.&nbsp;&nbsp;



<h3>Layer-2 native account abstraction</h3>



Smart contract wallets like Argent have partnered with ZK-Era to provide account abstraction through a layer-2 solution. This avoids the need for third party relayers and removes the need for a user to set up an EOA.



ZK-Era’s native abstraction uses Zero-knowledge proof rollups to bundle a set of transactions from an Argent smart contract account that are then settled using the ZK-Era smart contract on the Ethereum blockchain.&nbsp;



<h4>Benefits</h4>



Since the accounts are on a layer-2, users don’t need to use an EOA for initial set up and authorization. This adds greater scalability and complexity because smart contracts on layer-2s can process more computations without delegating to a third party like a relayer.&nbsp;



<h4>Risks</h4>



The exact process is too complicated to explain here, but the main concerns are rooted in the security and dependency of the layer-2 smart contract responsible for settling deposits and withdrawals.



<h3>ERC-4337 account abstraction&nbsp;</h3>



ERC-4337 account abstraction offers an approach that doesn’t require third party relayers, layer-2 smart contracts, or a consensus layer change. It lets people manage a smart contract wallet without ever needing to use an EOA in the same way. 



It does this through providing a new standard of transaction messaging. Instead of executing transactions individually or sending the metadata of a set of authorized transactions to a relayer, smart contract wallets can send a series of user operations to a bundler.&nbsp;



So what is a bundler and user operation? And how are they different from a relayer and transaction?&nbsp;



<h4>Benefits and risks&nbsp;</h4>



To get a full breakdown of how this works, keep an eye out for an <a href="https://www.blockworksresearch.com/research?author=westie" target="_blank" rel="noreferrer noopener">upcoming report</a> from Blockworks Research analyst <a href="https://twitter.com/westiecapital" target="_blank" rel="noreferrer noopener">Ryan West</a>.



In short, the model offers the potential for a more decentralized version of what relayers do for smart contract wallets like Safe.&nbsp;



But many on Twitter have pointed out that the current bundler infrastructure is centralized and fragile.&nbsp;



Twitter user @blockomotive <a href="https://twitter.com/blockomotive/status/1631996557280116736" target="_blank" rel="noreferrer noopener">stated</a>, “there’s been other projects and technology offering transaction relaying services for a while.”



“However,” they <a href="https://twitter.com/blockomotive/status/1631996553102491655?s=20" target="_blank" rel="noreferrer noopener">added</a>, “until many bundlers are up and running (which still requires dedicated [infrastructure]), the system remains centralized and fragile. Currently, only a few projects offer API services to run bundlers, increasing the centralization of 4337.”



And @Safe <a href="https://twitter.com/safe/status/1625466577230389248" target="_blank" rel="noreferrer noopener">stated</a> in February 2023:



“We are evaluating an EIP-4337 integration (also based on a module). We will only roll out this integration when we meet our very tough security standards.”



<h2>Final thoughts</h2>



Even though the majority of the smart contract wallet discussion is centered around alternative account recovery systems, there are many more exciting use cases. Smart contract wallets have the potential to customize the way users manage their identity online, vote on governance proposals, delegate user responsibilities of DAO wallet and more.&nbsp;



Read more: <a href="https://blockworks.co/news/what-is-decentralized-identity">What Is Decentralized Identity? The Pillar of Web3</a>



Most account abstraction methods still require some form of dependency — whether it is a relayer, bundler or layer 2 smart contract. Web3 users shouldn’t be expected to understand the difference in risk between the three primary alternatives.



But if the industry adopts a universal standard, users may feel more comfortable using smart contracts wallets — unlocking the smart wallet advocate’s promised new wave of adoption.



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What Are Smart Contract Wallets? A Beginners Guide

Macauley Peterson

The v9 Lambda upgrade to the Cosmos Hub came off without a hitch shortly after 4:00 am ET on Wednesday.



The new software version, which has been in the works for over a year, enables a new kind of app chain to launch, one which doesn’t need to establish its own security through a unique validator set to establish consensus. The network would instead piggyback on the four-year-old <a href="https://blockworks.co/tag/cosmos" target="_blank" rel="noreferrer noopener">Cosmos</a> Hub and its 175 validators.



Cosmos Hub’s decentralized set of <a href="https://hub.cosmos.network/main/validators/overview.html" target="_blank" rel="noreferrer noopener">validators</a> worked in concert to briefly pause the chain and initiate Lambda at a predetermined <a href="https://www.mintscan.io/cosmos/blocks/14470501" target="_blank" rel="noreferrer noopener">block height</a>.



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">Lambda Upgrade is successfully completed ⚛️ Replicated Security is live on the Cosmos Hub!<a href="https://twitter.com/hashtag/Cosmonauts?src=hash&amp;ref_src=twsrc%5Etfw">#Cosmonauts</a> get ready for the next phase&#8230;  It’s time to onboard Consumer Chains! The dawn of the Atom Economic Zone begins today 🔥 <a href="https://t.co/4C2DcH2XC2">pic.twitter.com/4C2DcH2XC2</a>&mdash; Cosmos Hub ⚛️ (@cosmoshub) <a href="https://twitter.com/cosmoshub/status/1635917476331438080?ref_src=twsrc%5Etfw">March 15, 2023</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



Blockworks spoke to Avril Dutheil, who is managing the Neutron project, a smart contract platform which expects to go live in mid-April and make use of the hallmark feature of Lambda: interchain security (ICS), also known as replicated security.



<hr class="wp-block-separator has-alpha-channel-opacity"/>



Blockworks: You’re the first project that’s actually going to be using ICS, is that right?



Avril Dutheil: We’re the first to have signaled our interest in interchain security, we’re the first to receive funding for doing so. We’re likely to be the first to launch on interchain security as well, but that kind of depends on governance.



Blockworks: How would you characterize the interchain security debut in the pantheon of Cosmos upgrades? Cosmos is marked by this very interesting political dynamic, oftentimes very tumultuous.



Avril Dutheil: To a large extent, I think this is actually a good sign. In political systems, we tend to say, democracy is de-census. You don’t have democracy if you don’t actually have conflict. It’s actually a good thing to see dissent to some extent.



In general, it’s been resolved in Cosmos when we get dissent, and it usually leads to stuff getting done in the end. I think the most recent example [was] the <a href="https://blockworks.co/news/cosmos-ecosystem-will-soon-vote-on-atom-2-0-revised-white-paper">Atom 2.0 white paper</a> and vision <a href="https://blockworks.co/news/no-with-veto-cosmos-community-rejects-atom-2-0-white-paper">getting rejected</a>. To me, it was a surprise that the proposal itself, which was just a signaling proposal, got rejected entirely.



But what’s actually more interesting to me now is that <a href="https://www.blockworksresearch.com/research/the-implications-of-atom-2-0" target="_blank" rel="noreferrer noopener">a lot of these ideas</a> are actually getting built, but by specific teams that form around the ideas. So, for example, the governance vision is getting built by the likes of <a href="https://docs.daodao.zone/docs/introduction/welcome-to-dao-dao" target="_blank" rel="noreferrer noopener">Dao Dao</a>, [which] is actually going to be deploying on Neutron as well.



The Allocator [to fund new projects] is following a similar pattern, and the Scheduler [which would manage block space] is also being picked up by another team that has been working on MEV in Cosmos since day one. Basically all the main ideas, perhaps except inflation — the initial large mint of ATOM tokens that was proposed in <a href="https://www.mintscan.io/cosmos/proposals/82" target="_blank" rel="noreferrer noopener">Prop 82</a> — are actually getting built, but in a more piecemeal approach, essentially.



Blockworks: Compared to what the original vision was, do you think [the piecemeal approach] will be better as a result?



Avril Dutheil: For the Allocator, the products and the way they should be built are much more straightforward. And so it’s more of a question of having a good understanding of exactly which market the primitives work in, which is somewhat different from other DeFi primitives because it’s catering more towards inter protocol, DAO-to-DAO or even institutional clientele rather than retail consumers, and so designing the product with this in mind will be important as well as having good engineers that can make it happen in a way that’s very secure.&nbsp;



This is also getting built with smart contracts within the Cosmos Hub economic zone. I also think this is a really good outcome, especially since the initial idea was for the Allocator to be released as a consumer chain that would be secured by replicated security.



The problem, in my opinion, is when it comes to the economic model of ICS, for the short and perhaps medium term, I don’t see ICS scaling to dozens and dozens of chains — because the revenue that it generates will take time to bootstrap, but the cost on validators is pretty much instant.



It’s tough to launch a new consumer chain until the validators roughly achieve breakeven on the previous ones, because otherwise you end up adding pressure onto the bottom of the set, and that can turn into a centralizing force over time.



Mitigating this effect — distributing stake more equitably, distributing the revenue in perhaps different ways to achieve breakeven fast — and then the potential for opting in or out of replicated security are all avenues that are being explored in order to make this economic model more friendly to the bottom of the validator set.&nbsp;



Blockworks: Where do you position Neutron among other longer-running smart contract platforms like <a href="https://blockworks.co/tag/juno" target="_blank" rel="noreferrer noopener">Juno</a> and Evmos?



Avril Dutheil: I think there’s a fundamental difference between the two which is that, traditionally in Cosmos — well, actually any smart contract platform — as an application builder I have to choose which feature set and which market I’m actually going to be operating in. So that means if I’m interested in privacy I’ll probably choose Secret Network because they have this feature, but I’ll also be constrained by the size of their market.&nbsp;



In Cosmos, you can have token transfer functions very easily even as a smart contract application, but interoperability beyond that point — at least until Neutron launches — is not a solved problem. You can’t use interchain accounts because they were designed and built with other Cosmos SDK modules in mind…and interchain queries aren’t a thing that’s available to smart contracts either. When we started building Neutron, they weren’t a thing at all — they were an idea.



[Neutron] flips the script of general smart contract platforms on its head, because when you opt to deploy on Neutron primarily, you’re not choosing to deploy only on Neutron, you know that — because of Neutron’s features which enable your protocol to interact with other chains — you’ll be able to leverage feature sets from their other blockchains.



For example, let&#8217;s say I want to do private voting or sealed auction bids for my DeFi protocol or its governance. I can route the votes or the trades through <a href="https://blockworks.co/tag/secret-network" target="_blank" rel="noreferrer noopener">Secret Network</a> or Penumbra in order to anonymize them or conceal them — meaning that, I can get access to the privacy feature without being deployed on a private chain. I can get access to high speed by onboarding <a href="https://blockworks.co/tag/sei-network" target="_blank" rel="noreferrer noopener">Sei [Network]</a> and having some of my protocol’s logic run on Sei and then route trades that require that feature through Sei. 



So there will be a market on Neutron, but there are also markets on Juno, on Secret Network, <a href="https://blockworks.co/tag/osmosis" target="_blank" rel="noreferrer noopener">Osmosis</a> and the others.



And rather than being siloed onto one of these markets and knowing that it’s going to be difficult and will require tremendous engineering work to be able to onboard these other markets, you know that comes right out of the box.



Blockworks: Would there be impediments to upgrading Juno along these same lines?



Avril Dutheil: It’s much easier to make changes to a blockchain before it’s live. That being said, eventually I believe these functions will also be present on other chains. The thing though is that there’s a lot of engineering work required to make it work…We had to code the solutions in a way that is to a large extent not compatible with another Cosmos SDK chain, so even adapting it would require quite a bit of time in terms of engineering.



Blockworks: The design philosophy sounds a bit like <a href="https://blockworks.co/tag/axelar">Axelar</a>. Is that a fair comparison?&nbsp;



Avril Dutheil: I think there’s a bit of that, for sure. I do believe we’re working towards the same direction. The main difference between Axelar and Neutron is the technological stack that we built our interoperability on. For Axelar they built their own bridge system which is dedicated to Axelar. It is flexible enough to bootstrap interoperability between numerous chains with very diverse ecosystems. In our case, we mostly rely on <a href="https://blockworks.co/tag/IBC">IBC</a> [Inter-blockchain Communication]…because we think that it is likely going to be the long-term winner in terms of the actual protocol that is used to make blockchains communicate.&nbsp;



The main advantage of IBC is that it does not introduce any additional trust assumptions. If you trust the blockchains that you’re interacting with, you can trust IBC because the relayers — the third parties that are actually making it work — don’t have the power to change anything as long as you have the <a href="https://www.blockworksresearch.com/glossary#light-client-node" target="_blank" rel="noreferrer noopener">light clients</a> on both sides.



And so that’s a very interesting design philosophy and it’s also point-to-point, rather than having one chain that connects everything else together which would then act as a centralized point of failure. With IBC you can actually have a much more diverse network topography.



There are limitations to IBC — the main one being that, while IBC runs fine in Cosmos SDK blockchains, in most other environments running light clients inside a virtual machine takes a lot of gas and computation to verify all of the proofs. And so currently it’s difficult to make it widely adopted.&nbsp;



Blockworks: Are you optimistic that the impediment to having IBC working with Ethereum are going to be resolved?



Avril Dutheil: I wouldn’t be surprised if we see that this year, or conservatively next year — I’m sure it will be in production, yes.



The interesting thing of IBC is it specifies very little, meaning you can build very diverse applications on top of it. It’s very flexible beyond just ordering and the structure of the very basic messages and how you connect two chains. Beyond this, the sky&#8217;s the limit in terms of the applications you can build on it.



When IBC expands to these other chains, then suddenly our infrastructure, in the same manner, expands to these other chains, meaning that it will most likely be possible in the future to control accounts on Ethereum from a smart contract on Neutron, and I don’t believe it will require too much engineering to actually make that happen, once IBC is there.



The interview has been edited for clarity and brevity.



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Q&A: Neutron Project Manager Talks Cosmos Interchain Security Upgrade

Bessie Liu

The European Parliament has voted to pass the Data Act, a legislative proposal that will challenge the immutability of smart contracts.



500 lawmakers voted in favor of the proposal, 23 against, and 110 chose to abstain.



This new <a href="https://www.europarl.europa.eu/doceo/document/A-9-2023-0031_EN.html" target="_blank" rel="noreferrer noopener">bill</a> has drawn criticism from the decentralized finance (DeFi) community, with Curve Finance, a prominent decentralized exchange (DEX), <a href="https://twitter.com/CurveFinance/status/1635615657487134722?s=20" target="_blank" rel="noreferrer noopener">noting</a> that it would be “impossible to comply” with the new legislation.



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">&gt; Smart contract developers may need to design reset possibilities to allow termination or interruption of transactions. &gt; The European Parliament adopted legislation under the Data Act on Tuesday, with 500 votes in favor and 23 against. Fire them all. Impossible to comply here <a href="https://t.co/FV8lJdcrqX">https://t.co/FV8lJdcrqX</a>&mdash; Curve Finance (@CurveFinance) <a href="https://twitter.com/CurveFinance/status/1635615657487134722?ref_src=twsrc%5Etfw">March 14, 2023</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



One of the major concerns surrounding the new bill is the requirement for smart contracts to be designed so that it can ensure the “protection of confidentiality of trade secrets,” and the requirement that smart contracts “could be reset or instructed to stop or interrupted.”



Thibault Schrepel, an associate professor at the VU University Amsterdam, noted in a <a href="https://twitter.com/ProfSchrepel/status/1635556417930252288" target="_blank" rel="noreferrer noopener">tweet</a> that this new bill “endangers smart contracts to an extent that no one can predict.”



&#8220;Article 30 does not provide clarity as to who should be able to ‘terminate the continued execution of transactions,’&#8221; Schrepel tweeted. “Is it the creator of the smart contract? Public authorities? Courts?”



Compliant with this legislation, would be complicated at best, according to Michael Lewellen, Head of Solutions Architecture at the Blockchain security and smart contracts expert OpenZeppelin. &#8220;Including a kill switch undermines immutability guarantees and introduces a point of failure, since someone needs to govern the use of such a kill switch,&#8221; Lewellen told Blockworks, pointing to protocols such as decentralized exchange Uniswap, which, like Curve, does not have this ability.



At a <a href="https://multimedia.europarl.europa.eu/en/webstreaming/press-conference-by-pilar-del-castillo-ver-rapporteur-and-thierry-breton-commissioner-for-internal-m_20230314-1700-SPECIAL-PRESSER" target="_blank" rel="noreferrer noopener">press conference</a>, Thierry Breton, the commissioner for the Internal Market for the European Union, noted that “we need to harmonize basic requirements for the smart contracts and this will ensure interoperability and legal certainty.”



“This will enable the reliable deployment of this — so-called — smart contract,” Breton said.



Pilar del Castillo Vera, a member of the European Parliament, agreed with this sentiment, adding “we still have to debate this.”&nbsp;



The proposal will now move to the <a href="https://www.europarl.europa.eu/olp/en/interinstitutional-negotiations" target="_blank" rel="noreferrer noopener">trilogues</a> phase where the EU Council and the EU Commission will debate the details. The first meeting is set to take place on March 28.



Updated March 14, 2023 at 5:42 pm ET: Addition of a comment.



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EU Politicians Pass Policy on Smart Contracts Deemed ‘Impossible to Comply’ With

Smart contract wallets are gaining momentum in the cryptocurrency space, and Instadapp is the latest to join the trend with the launch of its new wallet, Avocado.



There are many steps when it comes to interacting with a decentralized application today, often involving high gas prices and complicated processes.



The introduction of smart contract wallets, or account abstraction wallets, simplifies this processes and the costs involved, making decentralized finance (DeFi) more accessible to casual users.



<h2>What is account abstraction?</h2>



The concept of account abstraction wallets is that every wallet individually is a smart contract. The concept itself is not new and has been <a href="https://blockworks.co/news/ethereum-erc4337-account-abstraction-smart-contract">in the works for over nine years</a>.



The majority of existing wallets on Ethereum today are externally owned accounts (EOAs). This includes popular wallets such as Metamask and imToken.



To access EOAs, individuals require a private key, which often consists of a combination of random words. Once a private key is lost, the account, and all the funds associated with the account, are also lost forever.&nbsp;



An alternative to EOAs today is custodial wallets — accounts owned by centralized entities, such as exchanges.



There’s an old adage in crypto: “Not your keys, not your coins.” Following the collapse of FTX, the risks of custodial wallet accounts have become glaringly obvious.



An account abstraction wallets resolves both these issues — they are non-custodial, and yet completely managed by the individual who owns it. This means that the owner of the wallet can choose from an array of security features.



<h2>Avocado smart contract wallet explained</h2>



Beyond having a built-in account abstraction utility, the Avocado smart contract wallet has some other interesting features.



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">1/ Instadapp just launched Avocado: Blockchain aggregator with a next-gen wallet. It&#39;s the coolest thing I&#39;ve seen in a long time. Here&#39;s how it works &amp; why it&#39;s a big deal: 🥑&mdash; Ignas | DeFi Research (@DefiIgnas) <a href="https://twitter.com/DefiIgnas/status/1633626328330289152?ref_src=twsrc%5Etfw">March 9, 2023</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



The wallet is connected to what they are calling the Avocado network, a deterministic smart contract which has its own Remote Procedure Call (RPC) node. This node allows the network to read on-chain data and send transactions to different blockchains.



This means that once a wallet is connected to the Avocado network, the network will automatically create a wallet address that is linked to your external wallet, and any tokens on any supported chain can be sent and received through your network wallet.



Gas fees, instead of being paid by the user in a chain&#8217;s native currency, such as ETH, are paid through USDC — which can be added from any chain and paid on any chain. The smart contract handles the conversion in the background, meaning that there is no need to maintain multiple gas balances on different chains in order to execute transactions.



Blockworks research analyst Matt Fiebach notes that, in a nutshell, Instadapp’s latest smart contract wallet will abstract away the cumbersome process of interacting with DeFi.



“Simpler workflows for using decentralized applications will be integral to the industry&#8217;s adoption and success and this is a significant step in the right direction,” Fiebach said. “Additionally, the gas scalar could create significant value for $INST if Avacodo achieves integrations and use.”



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Instadapp’s Avocado Smart Contract Wallet to Make DeFi Less Cumbersome

Casey Wagner

<div id="highlights-block_6307baeefea3f" class="highlights">
 <ul>
 <li>Coin Center’s Peter Van Valkenburg, said OFAC’s decision to sanction Tornado Cash and 45 related Ethereum addresses exceeds its authority</li>
 <li>Code is not the same type of “property” Congress allows OFAC to sanction, Coin Center argued, and will to take the battle to court, if needed</li>
 </ul>
 
</div>



In a new report, non-profit blockchain advocacy group Coin Center argues that the recently-sanctioned Tornado Cash smart contracts are not entities the Office of Foreign Asset Control can blacklist.&nbsp;



Peter van Valkenburg, Coin Center’s director of research, claims in Coin Center’s latest <a href="https://coincenter.substack.com/p/how-does-tornado-cash-actually-work" target="_blank" rel="noreferrer noopener">report</a> that OFAC’s move to sanction Tornado Cash and 45 related Ethereum addresses exceeds its authority, as granted by Congress in the <a href="https://uscode.house.gov/view.xhtml?path=/prelim@title50/chapter35&amp;edition=prelim" target="_blank" rel="noreferrer noopener">International Emergency Economic Powers Act</a> (IEEPA). 



“IEEPA empowers OFAC to sanction ‘property in which some foreign country or national has an interest,’” Van Valkenburg wrote in the report published Thursday. “Does the Tornado Cash listing fit within these powers, or is it statutory overreach?



<blockquote class="wp-block-quote">“We believe it is clearly overreach,” van Valkenburg wrote.</blockquote>



Van Valkenburg and Coin Center argue that Tornado Cash is a software tool used by far more than just foreign countries and nationals. It is decentralized code, with scant few contracts OFAC singles out for sanction that actually can be updated by any human, and these are not used to control, mix or move user funds, Van Valkenburg added.&nbsp;



“None of the core contracts that provide privacy tools to users can be upgraded, changed, or altered,” Van Valkenburg said. “The privacy that users get from these contracts is guaranteed with math and software that is as immutable as the Ethereum blockchain itself.” 



The IEEPA allows OFAC to block “transactions” involving property in which a foreign country or national has interest, Van Valkenburg said, but this terminology does not apply to Tornado Cash activities.&nbsp;



“The individual choice to move one’s tokens from a personal address to a Tornado Cash address is no more a ‘transaction’ with another person than moving one’s valuables from a drawer in one’s home to a safe in one’s home,” Van Valkenburg argues. “At no point does any third party have any control or power during the movement.”&nbsp;



The question of if or how OFAC can place sanctions against a code has been <a href="https://cms.blockworks.co/decentralized-or-not-officials-say-tornado-cash-responsible-for-illicit-activity/" target="_blank" rel="noreferrer noopener">central</a> to the discussion around Tornado Cash in recent weeks.&nbsp;



The Treasury Department argues that there are people who can alter Tornado Cash’s code, and it is their responsibility to ensure that illicit activity does not occur.&nbsp;



“Despite public assurances otherwise, Tornado Cash has repeatedly failed to impose effective controls designed to stop it from laundering funds for malicious cyber actors on a regular basis and without basic measures to address its risks,” Brian Nelson, under secretary of the Treasury for terrorism and financial intelligence, said on Aug. 8 when the sanctions were <a href="https://home.treasury.gov/news/press-releases/jy0916" target="_blank" rel="noreferrer noopener">announced</a>. “Treasury will continue to aggressively pursue actions against mixers that launder virtual currency for criminals and those who assist them.”



Since its launch in Aug. 2019, Tornado Cash has received over $7.6 billion worth of ether, “a sizable portion of which have come from illicit or high-risk sources,” a recent Chainalysis <a href="https://blog.chainalysis.com/reports/tornado-cash-ofac-designation-sanctions/">report</a> noted. Of this figure, about 18% of funds came from sanctioned entities, but, the report notes, almost all the funds were received before the entities were added to the sanctions list. 



Less than 11% of funds received by the recently-sanctioned crypto mixing service Tornado Cash were stolen from other cryptocurrency exchanges and protocols, according to Chainalysis.



Coin Center, which has been a vocal opponent of OFAC’s decision to sanction Tornado Cash since the decision was announced earlier this month, has released a series of reports detailing how the mixing service works and what falls within OFAC’s powers.



The advocacy group said on Aug. 15 that it would be exploring taking OFAC to court over the Tornado Cash matter. 



The report comes shortly after Dutch financial crimes agency FIOD <a href="https://cms.blockworks.co/netherlands-arrests-suspected-tornado-cash-dev-days-after-us-sanctions/" target="_blank" rel="noreferrer noopener">arrested</a> a 29-year-old Tornado Cash developer in Amsterdam following OFAC’s sanctions announcement.



A Dutch judge ruled Wednesday that Alexey Pertsev may be held in jail without bail for up to 90 days while awaiting a public hearing.



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Coin Center Condemns Tornado Cash Sanctions

Ben Strack

<div id="highlights-block_625efbaff8465" class="highlights">
 <ul>
 <li>By storing carbon credits as digital tokens, they can be more easily tracked and traded</li>
 <li>Companies using blockchains and smart contracts to advance climate change initiatives to become “industry norm,” according to Chainlink Labs</li>
 </ul>
 
</div>



Blockchain technology will play a key role in combating climate change by managing clean energy solutions and enabling enhanced automation, a report by Chainlink Labs and Tecnalia says.



<a href="https://chainlinklabs.com/" target="_blank" rel="noreferrer noopener">Chainlink Labs</a>, which offers open-source blockchain interoperability solutions, and European research institute <a href="https://www.tecnalia.com/en/" target="_blank" rel="noreferrer noopener">Tecnalia</a> posited in a <a href="https://chain.link/resources/managing-climate-change-energy-industry" target="_blank" rel="noreferrer noopener">report</a> Tuesday that the energy industry can make clean energy investments more efficient by leveraging blockchain technologies.  



By tapping blockchains, the power business can better digitize and value clean energy investments, according to the report. That would likely lead to additional capital deployed to green investment opportunities, more transparency and stronger accountability when it comes to meeting climate-friendly commitments, the two companies found.&nbsp;



The report labels “hybrid smart contracts” as the new backend framework necessary for building clean energy solutions. The framework uses blockchains to track and settle multi-party processes and smart contracts to define the rules for involved parties.



It also uses oracles — or interoperability solutions for blockchains built on smart contracts — to integrate data and non-blockchain infrastructure into the contracts.



More than 140 research projects and startups had begun studying, testing and deploying blockchain-based solutions as of 2019 to improve energy industry processes, the report says.



“As more and more companies recognize how blockchains, smart contracts and oracles can advance climate change initiatives, we’ll begin to see a trend that will only grow with time until it becomes an industry norm,” a Chainlink Labs spokesperson told Blockworks.&nbsp;



Among the use cases outlined in the report are tokenized carbon credits, which companies buy to offset emissions. By storing carbon credits as digital tokens, the thinking goes, the tokens can be more easily tracked and traded, and oracles can then issue and audit them.



Oracles can use satellite and remote sensing data to measure the carbon sequestration in a certain region to verify a project’s stated carbon offset before issuing a credit.



Hybrid smart contract system Hyphen, for example, uses Chainlink oracles to bring verified greenhouse gas data on-chain and prove stated corporate climate commitments.



“We can now supply validated real-world measurements to dynamic carbon assets,” Hyphen CEO Miles Austin said in a statement. “This gives confidence to investors, capital markets, banks [and] regulators.”



Like the tokenization of carbon credits, climate bonds and green bonds — fixed income instruments that raise money for environmental projects — can also be tokenized on blockchains.



Ethereum-based climate risk solutions platform <a href="https://c212.net/c/link/?t=0&amp;l=en&amp;o=3508495-1&amp;h=1682524004&amp;u=https%3A%2F%2Fwww.arbolmarket.com%2Fenergy&amp;a=Arbol" target="_blank" rel="noreferrer noopener">Arbol</a> uses smart contracts to help energy businesses hedge power demand and revenue fluctuations around changing temperatures.



Individuals could also be incentivized to reduce emissions through rewards programs, according to the report. Consumers could be compensated with crypto or NFTs in exchange for meeting the requirements of a smart contract designed to minimize their carbon footprint.



Going forward, clean energy industry leaders must assign researchers to focus on the benefits of blockchain technology and how they can leverage smart contract and oracle technologies before competitors, the Chainlink Labs representative said.



“What they discover will motivate them to act,” the spokesperson added. “And that momentum on an industry-wide level will help facilitate the inflection point we need to realize a more sustainable future.”



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Blockchain Tech Is Key to Combating Climate Change, Report Says

<div id="highlights-block_62399984f5576" class="highlights">
 <ul>
 <li>The fund’s top holdings are Cardano and Solana</li>
 <li>Grayscale’s investors are “not looking to pick winners,” CEO Michael Sonnenshein says</li>
 </ul>
 
</div>



Grayscale Investments has launched a fund that allows investors to bet on Ethereum’s largest competitors in the smart contract space.



The Grayscale Smart Contract Platform ex Ethereum Fund is a market capitalization-weighted portfolio that tracks the CoinDesk Smart Contract Platform Select Ex ETH Index.



Smart contracts are programs run on blockchains that automatically carry out their coded functions when certain conditions are met. They allow users to move funds, create decentralized finance (DeFi) applications and represent the ownership of non-fungible tokens (NFTs).



The fund’s top holdings, as of March 16, were Cardano (ADA) and Solana (SOL), each at roughly 24%. Avalanche (AVAX) and Polkadot (DOT) account for about 17% and 16%, respectively, of the portfolio. The fund also allocates to Polygon (MATIC), Algorand (ALGO) and Stellar (XLM).



Grayscale CEO Michael Sonnenshein called the smart contract platform ecosystem an “emerging area” within crypto.



<blockquote class="wp-block-quote">“Our investors continue to seek diversification within their crypto holdings,” he told Blockworks. “They’re not looking to pick winners and prefer seamless access through a diversified product structure.”</blockquote>



Though many investors allocated to Ethereum amid its growth over the past year, there is demand for other smart contract platforms too, according to CoinDesk Indices Managing Director Jodie Gunzberg.



Ethereum’s market capitalization is about $350 billion. Its price, as of 8 am ET on Tuesday, was about $3,020, according to <a href="https://cms.blockworks.co/prices/" target="_blank" rel="noreferrer noopener">data compiled by Blockworks</a> — up 68.6% from a year ago. 



ADA and SOL have market caps currently hovering around $30 billion.



Currently, at $0.95, ADA’s price is down 19.7% in the past year. SOL’s price has risen 542% from a year ago to $91.90.



The new fund is open for daily subscription by eligible individuals and institutional accredited investors and has a 2.5% annual fee.



Grayscale now has 18 investment products, three of which are diversified offerings. As the world’s largest digital currency asset manager, Grayscale managed nearly $40 billion in assets as of March 18.



Sonnenshein said Grayscale is constantly evaluating new protocols to include in the firm’s product family to meet demand.



In January, the company <a href="https://cms.blockworks.co/grayscale-considers-25-new-digital-assets/" target="_blank" rel="noreferrer noopener">added 25 assets</a> to a list of investments it is considering making available to investors. The announcement follows the firm’s <a href="https://cms.blockworks.co/grayscale-launches-first-etf/" target="_blank" rel="noreferrer noopener">launch of its first ETF</a>, the Grayscale Future of Finance ETF (GFOF), last month. The fund, which carries an expense ratio of 70 basis points, has $14 million in assets.



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