DeFi Wallet Deep Dive: Current Landscape, Challenges, and Future Outlook

1. Introduction

In the era of vigorous development of the digital economy, blockchain technology, as an emerging distributed ledger technology, is profoundly changing the landscape of the financial sector. Decentralized Finance (DeFi), as an important application direction of blockchain technology in the financial field, has attracted widespread attention and participation globally due to its open, transparent, and trustless characteristics. DeFi Wallet, as the core entry point of the DeFi ecosystem, not only provides users with storage and management functions for digital assets, but also becomes a key bridge connecting users with various DeFi applications.

With the rapid growth of the DeFi market, the importance of the DeFi Wallet is becoming increasingly prominent. According to statistics, as of 2024, the total value locked (TVL) in the global DeFi market has reached billions of dollars, and the number of users participating in DeFi has also shown explosive growth. In this vast market, the DeFi Wallet plays an indispensable role, allowing users to participate in various DeFi activities such as borrowing, trading, and liquidity mining, realizing asset appreciation and diversified management.

However, the development of the DeFi Wallet also faces many challenges and issues. For example, security risks are the primary challenges facing the DeFi Wallet, including poor private key management, phishing attacks, smart contract vulnerabilities, etc., which may result in the loss of user assets. In addition, user experience is also an important factor affecting the popularity of the DeFi Wallet, with complex operation processes and lack of friendly interface design, which makes many ordinary users hesitant to use the DeFi Wallet. At the same time, there are many types of DeFi Wallets on the market, each with different functions and features, which often confuse users in their selection and use.

2. Overview of DeFi Wallet

2.1 Basic Concepts and Definitions

DeFi Wallet, which stands for Decentralized Finance Wallet, is a type of digital wallet based on blockchain technology, primarily used for storing, managing, and trading decentralized finance (DeFi) assets. It allows users to directly interact with various decentralized applications (DApps) without relying on traditional financial institutions or third-party intermediaries. The biggest feature of DeFi Wallet compared to traditional wallets lies in its decentralized nature. Traditional wallets, whether bank accounts or centralized digital currency wallets, often have users’ assets custodied by third-party institutions, resulting in weaker control by users over their assets. In contrast, DeFi Wallet operates in a non-custodial manner, where users have full control over their private keys, assets are stored on the blockchain, transactions are automatically executed through smart contracts, eliminating the need to trust third parties, significantly enhancing asset security and user autonomy.

2.2 Features and Characteristics

2.2.1 Core Function Introduction

• Asset Storage and Management: The most basic function of DeFi Wallet is to store various digital assets, including mainstream cryptocurrencies such as Bitcoin, Ethereum, and various tokens based on standards such as ERC-20 and BEP-20. Users can easily view asset balances, transaction records, and other information to effectively manage their assets. For example, MetaMask wallet supports storing various tokens within the Ethereum ecosystem, allowing users to clearly see the quantities and values of different tokens they hold on the wallet interface.
• Trading function: Users can trade cryptocurrencies on decentralized exchanges (DEX) through the DeFi Wallet, realizing asset exchange and trading. Unlike centralized exchanges, DEX trades are based on smart contracts on the blockchain, making the trading process more transparent, fair, and free from concerns about exchange running away and other risks. Taking Uniswap as an example, it is a decentralized exchange based on Ethereum, and users can connect to Uniswap with DeFi wallets like MetaMask to trade various tokens.
• Lending and Staking: DeFi Wallet provides users with an entry point to participate in lending and staking activities. Users can deposit their assets into lending platforms to earn interest income; they can also borrow other assets by staking their own assets to meet their funding needs. For example, Aave is a well-known decentralized lending platform. When users connect Aave with the DeFi wallet, they can deposit their digital assets into the platform to earn interest, or stake their assets to borrow stablecoins or other assets.
• Participating in liquidity mining: Many DeFi projects offer liquidity mining services, where users provide assets to liquidity pools to facilitate trading and earn project tokens as rewards. DeFi Wallet enables users to easily participate in liquidity mining. For example, on the Curve Finance platform, users can use DeFi Wallet to deposit stablecoins and other assets into liquidity pools, participate in liquidity mining, and receive a share of trading fees and platform token rewards.

2.2.2 Unique Technical Features

• Encryption Algorithm Security: The DeFi Wallet uses advanced encryption algorithms such as Elliptic Curve Cryptography (ECC) to encrypt users’ private keys, transaction information, etc. Elliptic Curve Cryptography algorithm has high security and computational efficiency, effectively preventing private key cracking and ensuring the security of user assets. The private key is the unique credential to access user assets. By protecting the private key with high-strength encryption algorithms, hackers find it difficult to steal user assets.
• Private Key Management Mode: In terms of private key management, DeFi Wallets typically adopt a mode where users store their own private keys, which are stored on the user’s local device, such as hardware wallets, mobile wallet apps, or browser plugins. In this mode, users have complete control over their private keys, avoiding the risks associated with third-party control of private keys. Additionally, to prevent private key loss, DeFi Wallets generally provide mnemonic phrase functionality. When creating a wallet, users generate a set of mnemonic words, which can be used to recover the private key and wallet. Mnemonic phrases typically consist of 12-24 words, and users need to securely store them to prevent leakage.
• Smart Contract Interaction: DeFi Wallet can interact with various smart contracts to achieve a wide range of financial functions. Smart contracts are self-executing contracts whose terms are written in code and deployed on the blockchain. Users send transaction instructions to smart contracts through DeFi Wallet, and smart contracts automatically execute corresponding operations based on preset conditions, such as asset transfers, interest calculations for borrowing, liquidity mining rewards distribution, etc. This interaction method makes financial transactions more efficient and transparent, reduces human intervention, and lowers trust costs. For example, on the Compound lending platform, the transfer of funds between borrowers and lenders, interest calculations, and other operations are all automatically completed by smart contracts, and users can complete the borrowing process by interacting with smart contracts through DeFi Wallet.

3. Current Development Status of DeFi Wallet

3.1 Market Size and Growth Trends

In recent years, the DeFi Wallet market has shown a rapid growth trend. According to data from the well-known blockchain data platform DeFi Llama, from 2020 to 2024, the total value locked (TVL) in DeFi soared from about 10 billion US dollars to over 200 billion US dollars. The number of DeFi Wallet users and the scale of assets closely related to it also experienced significant growth. Taking 2023 as an example, the number of active users of DeFi Wallet reached around 50 million, an increase of about 50% from the previous year.

Figure 1: Growth of DeFi Wallet Market Size (TVL) from 2020 to 2024 (in billion US dollars)

This growth trend is mainly attributed to several factors. On the one hand, with the continuous maturity and popularization of blockchain technology, more and more investors are beginning to understand and accept the concepts of cryptocurrencies and Decentralized Finance (DeFi), leading to a corresponding increase in demand for DeFi Wallets. Many traditional financial investors are entering the cryptocurrency field and require DeFi Wallets to manage and trade digital assets. On the other hand, the continuous enrichment and improvement of the DeFi ecosystem have attracted a large number of users to participate in various DeFi projects. For example, the rise of decentralized exchanges (DEXs), lending platforms, liquidity mining applications, etc., provide users with more investment and profit opportunities, all of which rely on DeFi Wallets as entry points and operational tools. Trading on decentralized exchanges like Uniswap requires users to connect and conduct asset transactions using DeFi Wallets; borrowing and lending operations on platforms like Aave also require completing asset deposits and withdrawals through DeFi Wallets. Additionally, there is a continuous emergence of more powerful and user-friendly DeFi Wallet products in the market, further driving the growth of the market. Some DeFi Wallets are starting to support more types of digital assets, providing more convenient trading interfaces and safer private key management methods, attracting more users to use them.

3.2 Mainstream DeFi Wallet Case Analysis

3.2.1 MetaMask

MetaMask is a popular Ethereum wallet that serves as not only a simple digital asset storage tool, but also a key bridge connecting users to the decentralized finance (DeFi) ecosystem of Ethereum. It has a wide range of core functions. In terms of asset storage, it supports storage of Ethereum as well as thousands of tokens based on the Ethereum ERC-20 standard, allowing users to easily view the balances and transaction records of various assets. In terms of transaction functions, users can use MetaMask to quickly and conveniently transfer and trade on the Ethereum network, and can also connect to many decentralized exchanges such as Uniswap and SushiSwap for token exchange. Additionally, it integrates deeply with smart contract interaction, allowing users to easily interact with smart contracts of various DeFi applications and participate in activities such as lending and liquidity mining. For example, on the Compound lending platform, users can deposit and borrow assets and earn corresponding interest income after logging in with MetaMask.

MetaMask’s user base is extremely wide, covering everyone from ordinary cryptocurrency enthusiasts to professional DeFi developers and investors. Whether it’s newcomers to the crypto space, who can create wallets and purchase Ethereum easily through MetaMask’s simple interface, or experienced developers using it for developing and testing decentralized applications, MetaMask can meet their needs. As of 2024, MetaMask has already surpassed 30 million users and holds a significant market share in the DeFi Wallet market, accounting for about 35%, making it a well-deserved market leader.

In the DeFi ecosystem, MetaMask plays a pivotal role. It lowers the barrier for users to participate in DeFi, enabling ordinary users to engage in various DeFi activities without the need for in-depth understanding of complex blockchain technology. Many DeFi projects are designed to default to MetaMask wallet login, making MetaMask the preferred entry point for users to enter the DeFi world. In some popular NFT markets, such as OpenSea, users can directly log in and trade and collect digital artworks using MetaMask, greatly promoting the prosperity of the NFT market. At the same time, MetaMask’s openness and scalability also provide strong support for the innovation and development of the DeFi ecosystem, driving progress across the industry.

3.2.2 Trust Wallet

Trust Wallet is a mobile multi-chain wallet owned by Binance, which occupies an important position in the market with its convenient operation and rich features. In terms of functionality, it supports multiple mainstream blockchains, including Ethereum, Bitcoin, Binance Smart Chain (BSC), and thousands of cryptocurrencies and tokens based on these blockchains for storage and trading. Its built-in decentralized exchange (DEX) function allows users to directly exchange cryptocurrencies within the wallet, without the need to transfer assets to other trading platforms, greatly improving the convenience and security of transactions. For example, users can directly exchange Ethereum for Binance Coin (BNB) in Trust Wallet, or participate in trading on decentralized exchanges based on Binance Smart Chain like PancakeSwap. In addition, Trust Wallet also provides a DApp browser, allowing users to access various decentralized applications such as DeFi lending platforms, NFT markets, expanding the use cases of digital assets.

Trust Wallet’s development strategy mainly revolves around user experience optimization and ecosystem expansion. In terms of user experience, it has a simple and intuitive interface design, allowing even novice users with little knowledge of cryptocurrencies to quickly get started and easily complete operations such as wallet creation and asset transfers. In terms of ecosystem expansion, leveraging Binance’s strong influence and resources in the cryptocurrency field, Trust Wallet has deeply cooperated with many projects within the Binance ecosystem, providing users with more services and benefits. Through integration with Binance Exchange, users can conveniently recharge, withdraw, and trade assets; users participating in Binance Launchpad projects can also manage and trade project tokens conveniently through Trust Wallet.

In the mobile market, Trust Wallet has a significant competitive advantage. With the popularity of smartphones, the demand for mobile wallets is increasing, and Trust Wallet is meeting this trend perfectly. It supports both iOS and Android platforms, allowing users to manage their digital assets anytime, anywhere through their phones. Its security performance is also widely recognized, with private keys stored on users’ local devices, using multi-layer encryption technology to protect users’ assets, and providing mnemonic backup functionality to prevent asset loss due to device loss or damage. At the same time, Trust Wallet continues to introduce new features and services, such as supporting more blockchains and currencies, optimizing transaction speeds, etc., to maintain its leading position in the mobile DeFi Wallet market.

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3.2.3 Other Representative Wallets

Exodus is a multi-currency wallet that is available on both desktop and mobile, loved by users for its elegant user interface and powerful features. It supports storage and management of over 100 cryptocurrencies, including mainstream currencies such as Bitcoin, Ethereum, and Litecoin. One of the features of Exodus is the built-in powerful exchange function, allowing users to exchange different cryptocurrencies directly within the wallet without leaving it, providing real-time market prices and low fee transactions. It also supports hardware wallets such as Ledger and Trezor, further enhancing asset security, suitable for users with high asset security requirements who also desire relatively convenient operations. In terms of market performance, Exodus has a considerable user base, particularly well-received in Europe and the United States. Although its market share is relatively small compared to MetaMask and Trust Wallet, it has high visibility and loyalty among specific user groups.

In addition to Exodus, Atomic Wallet, MyEtherWallet, and others also have a certain influence in the DeFi Wallet market. Atomic Wallet is a decentralized multi-currency wallet that supports over 500 types of cryptocurrencies. Its openness allows users to design their own DApps through API, and the built-in trading engine facilitates direct exchange of different currencies within the wallet. MyEtherWallet focuses on the management of Ethereum and its tokens, providing users with secure and flexible wallet services. Users can choose between a local or online version to meet different usage needs. These wallets, each with unique features and positioning, have gained a foothold in the DeFi Wallet market, collectively driving the diversified development of the industry.

4. Technical Principles and Architecture

4.1 Blockchain Technology Basics

Blockchain technology is the underlying technical support of the DeFi Wallet, and its core principle is based on decentralization, distributed ledger, and consensus mechanism. Blockchain is essentially a distributed database maintained by many nodes, and data is linked in chronological order in the form of blocks to form a chain structure. Each block contains transaction data for a certain period of time and the hash value of the previous block. The blocks are closely linked together through hash values, forming an immutable ledger record.

Taking the Bitcoin blockchain as an example, there are a large number of nodes in the Bitcoin network, which are distributed globally. Each node stores the complete Bitcoin ledger data. When a new transaction occurs, this transaction information is collected and packaged into a new block. The generation of a new block requires the use of the Proof of Work (PoW) consensus mechanism, meaning that nodes need to perform a significant amount of computation to find a hash value that meets specific conditions; this process is known as “mining.” The node that first finds the hash value meeting the conditions will gain the right to record the new block and broadcast it to the entire network. After verifying the legitimacy of the new block, other nodes will add it to their own ledger. This decentralized distributed ledger and consensus mechanism make the blockchain highly secure and reliable. No single node can tamper with the ledger data because altering the data would require control of more than half of the nodes, which is almost impossible to achieve in practice.

In the DeFi Wallet, the application of blockchain technology is mainly manifested in the following aspects. First, users’ digital assets are stored on the blockchain, and the ownership and transaction records of assets are recorded and verified through the distributed ledger of the blockchain, ensuring the security and traceability of assets. When users conduct asset transactions, the transaction information is broadcast to the blockchain network, verified and agreed upon by nodes, and recorded on the blockchain, becoming an immutable transaction record. Secondly, the smart contract function of the blockchain provides DeFi Wallet with a rich variety of financial application scenarios, such as automatic trading, lending, liquidity mining, etc. These applications are automatically executed on the blockchain through smart contracts, without the participation of third-party intermediaries, improving transaction efficiency and transparency.

4.2 Smart Contract Application

Smart contracts are one of the core technologies of the DeFi Wallet. It is a type of contract based on blockchain that automatically executes the contract in code form, defining the terms and conditions of the contract. The code of the smart contract is deployed on the blockchain, and once the conditions are met, the contract will automatically execute the corresponding operation without human intervention. The main features of smart contracts include decentralization, immutability, and automatic execution.

In the DeFi Wallet, smart contracts have a wide range of applications. In terms of automated trading, taking decentralized exchanges (DEX) as an example, such as Uniswap, which is based on the Ethereum blockchain, utilizes smart contracts to implement the Automated Market Maker (AMM) model. In the smart contracts of Uniswap, rules such as asset reserves for trading pairs, price calculations, transaction fees, etc., are defined. When users initiate transactions in the DeFi Wallet, such as exchanging Ethereum for a certain ERC-20 token, the smart contract will automatically calculate the transaction price, execute the asset exchange based on preset rules, and record the transaction results on the blockchain. This automated trading method eliminates the need for traditional exchange order books and matching mechanisms, making the trading process more efficient, transparent, and reducing transaction costs.

In the field of lending, decentralized lending platforms such as Aave use smart contracts to automate lending operations. When users connect to the Aave platform in the DeFi Wallet, smart contracts evaluate their assets to determine their borrowing limits. When users deposit assets as collateral to borrow other assets, smart contracts automatically lock the collateral assets and calculate the borrowing interest based on market rates. When repaying, users only need to return the loan and interest to the address specified by the smart contract, which will automatically unlock the collateral assets to complete the lending process. The entire process requires no manual intervention, and lending information is completely open and transparent, allowing users to check their lending status and interest at any time.

In terms of liquidity mining, many Decentralized Finance projects incentivize users to provide assets to liquidity pools through smart contracts. Taking Curve Finance as an example, users deposit stablecoins and other assets into Curve’s liquidity pool using a DeFi Wallet. The smart contract will issue liquidity tokens (LP Token) to users based on the amount and proportion of assets they provide. At the same time, the smart contract will automatically distribute profits to users based on the trading fee income of the liquidity pool and the distribution rules of project tokens. Users can check their profits at any time using the DeFi Wallet, and redeem assets and profits when needed.

4.3 Wallet Security Mechanism

4.3.1 Private Key and Mnemonic Management

The private key is the key credential to access and control user digital assets. In the DeFi Wallet, the private key is usually generated by encryption algorithms, and is a random string of digits and letters, generally 64-bit hexadecimal characters long. For example, a typical private key may look like “5KYYDeos39z3FPrtuX2QmmeGnNP9std7yyr2SC1j299sBCnQWjs”. The generation process of the private key is completely random, ensuring its uniqueness and unpredictability through high-strength encryption algorithms, making the probability of different users having the same private key almost zero.

The storage method of private keys is crucial, directly related to the security of user assets. In the DeFi Wallet, private keys are generally stored on the user’s local device, such as hardware wallets, mobile wallet apps, or browser plugins. Hardware wallets, such as Ledger Nano S and Trezor, use physical isolation to store private keys, storing them in the secure chip of the hardware device. The hardware device only signs transactions with user authorization, greatly enhancing the security of the private keys. Mobile wallet apps and browser plugins store private keys locally using encryption technology, and users need to set a password to protect access to the private keys.

To prevent the loss of private keys, DeFi Wallets typically provide a mnemonic function. A mnemonic is a phrase consisting of 12-24 words, which is another form of representation of the private key. The private key can be recovered from the mnemonic through a specific algorithm. For example, when creating a wallet, MetaMask generates a set of 12 words as a mnemonic. Users need to write down these words in order and keep them safe. When users need to recover the wallet on a new device or retrieve a lost private key, they only need to enter the correct mnemonic words. The wallet application can then regenerate the private key to restore access to the user’s assets.

The secure management of private keys and mnemonic phrases is the top priority for users to protect their digital assets. Users must remember their private keys and mnemonic phrases and must never disclose them to others, as once the private key or mnemonic phrase is leaked, others can easily access and transfer the user’s assets. At the same time, users should also avoid storing private keys and mnemonic phrases in electronic form on connected devices to prevent theft by hackers. The best way is to transcribe the mnemonic phrase on paper and store it in a secure place, such as a safe or encrypted file cabinet.

4.3.2 Encryption Algorithms and Security Protocols

The DeFi Wallet uses a variety of advanced encryption algorithms to ensure the security of user assets and transactions. Among them, the Elliptic Curve Cryptography (ECC) is one of the most widely used encryption algorithms. The Elliptic Curve Cryptography algorithm is based on the elliptic curve discrete logarithm problem, which has high security and computational efficiency. In the DeFi Wallet, the Elliptic Curve Cryptography algorithm is mainly used to generate and verify digital signatures. When a user initiates a transaction, the wallet uses the private key to sign the transaction information and generate a digital signature. This digital signature is broadcast to the blockchain network along with the transaction information. When other nodes verify the transaction, they use the user’s public key to verify the digital signature to ensure that the transaction is initiated by a legitimate user and that the transaction information has not been tampered with during transmission.

In addition to the elliptic curve encryption algorithm, the DeFi Wallet also uses hash algorithms to ensure the integrity and tamper resistance of data. Hash algorithms can transform data of any length into a fixed-length hash value, and have one-way and collision resistance. In blockchain, each block contains the hash value of the previous block, linking each block together through hash values to form an immutable chain structure. If someone tries to tamper with the data of a block, the hash value of that block will change, causing the hash values of all subsequent blocks to change as well. This change can be easily detected by other nodes in the blockchain network, ensuring the integrity and reliability of blockchain data.

In terms of security protocols, DeFi Wallet typically uses the TLS (Transport Layer Security) protocol to ensure the security of data transmission. The TLS protocol is a cryptography-based security protocol that establishes a secure communication channel between clients and servers to encrypt and verify transmitted data, preventing data from being stolen or tampered with during transmission. When users transact with DeFi Wallet, the wallet communicates with blockchain nodes or decentralized applications through the TLS protocol to ensure the secure transmission of transaction information.

In addition, some DeFi Wallets also use Multi-Signature technology to further enhance the security of assets. Multi-Signature technology allows multiple private keys to sign a transaction, and the transaction can only be confirmed and executed when the preset number of signatures is met. For example, a wallet can be set to require two out of three private keys to sign for a transaction to be valid. This method effectively prevents asset loss caused by the theft of a single private key, increasing the security and flexibility of asset management.

5. Application Scenarios and Ecology

5.1 DeFi Lending and Trading

In the DeFi lending scenario, the DeFi Wallet plays a crucial role. Taking well-known lending platforms such as Aave and Compound as examples, users can easily participate in lending activities by connecting to these platforms using the DeFi Wallet. Users deposit their own digital assets into the platform as collateral, and based on the value of the collateral assets and the platform’s lending rules, they obtain the corresponding loan amount and borrow other digital assets. In this process, the DeFi Wallet is not only responsible for managing the user’s assets but also provides an entry point for interacting with the smart contracts of the lending platform, ensuring the safety and convenience of the lending operations.

Figure 2: DeFi Lending Process Diagram

Flash loan is a special form of borrowing in DeFi, which allows users to borrow a large amount of funds instantly without the need for collateral, and to complete repayment and related operations in the same transaction. For example, in decentralized exchanges like Uniswap, users can use flash loans for arbitrage trading. Users borrow funds from protocols that support flash loans through DeFi Wallet, find price differences between different trading pairs, engage in buying low and selling high operations to earn price difference profits, and then repay the borrowed funds with interest before the end of the transaction. The emergence of flash loans has greatly improved market efficiency and liquidity, but it also places high demands on users’ operational skills and market judgment, and carries certain risks. If the transaction fails, users may face high repayment pressure.

In the field of Decentralized Finance (DeFi) trading, decentralized exchanges (DEX) are the main trading venues, and DeFi Wallet is the key tool connecting users and DEX. DEXs represented by Uniswap, SushiSwap, etc., are based on the Automated Market Maker (AMM) model, enabling trading through smart contracts. Users connect to these DEXs using DeFi Wallet, allowing for direct exchange of digital assets without the need for traditional order books and matching mechanisms. Within DeFi Wallet, users select the asset pairs to trade, input the trading amount, and the wallet will automatically calculate the trading price based on smart contracts, completing the transfer of assets and trade confirmation. This trading method offers a high degree of autonomy and flexibility, with a transparent trading process, eliminating concerns about market manipulation and fund misappropriation that may arise in centralized exchanges.

5.2 Liquidity Mining and Yield Farming

Liquidity mining and yield farming are innovative financial activities in the DeFi space, providing users with opportunities to earn additional income. Simply put, liquidity mining refers to users providing assets to the liquidity pools of decentralized exchanges (DEX) or other DeFi projects to facilitate trading and receive corresponding rewards. These rewards are usually distributed in the form of project tokens or a share of the trading fees. For example, on the Curve Finance platform, when users deposit stablecoins into the liquidity pool, liquidity providers (LP) can earn a certain proportion of the trading fees as income when other users trade stablecoins on the platform. Additionally, Curve Finance also rewards liquidity providers with platform token CRV as an extra incentive. Users holding CRV can participate in platform governance decisions or trade on the market.

Yield farming is a broader concept that encompasses the practice of earning profits by participating in various DeFi projects, including liquidity mining, staking mining, arbitrage trading, and more. Users invest their digital assets in different DeFi projects to earn corresponding profits based on the project’s profit distribution rules and their own contributions. For example, by staking assets on the Compound platform, users can not only earn interest on loans but also potentially receive rewards in the form of governance token COMP issued by the platform. On platforms like Balancer, users provide liquidity by contributing to pools with various assets, participate in liquidity mining, and earn platform token BAL rewards in addition to sharing trading fees.

DeFi Wallet plays an indispensable supporting role in liquidity mining and yield farming. It provides users with a convenient operating interface, allowing users to easily deposit assets into liquidity pools or stake them in corresponding projects through DeFi Wallet. When depositing assets, DeFi Wallet will automatically interact with smart contracts to complete the locking of assets and related operations. Users can also monitor their earnings in real-time through DeFi Wallet, checking the status of liquidity pools, profit distribution records, and other information at any time. When users need to redeem assets or adjust investment strategies, DeFi Wallet can quickly unlock and transfer assets, ensuring users can flexibly manage their assets and earnings. In addition, some DeFi Wallets also offer yield aggregation functions, which can integrate earnings information from multiple DeFi projects, providing users with one-stop yield management services to help them optimize their investment portfolios and increase revenue efficiency.

5.3 Integration Applications with NFT

With the rapid development of the NFT market, the integration of DeFi Wallet and NFT applications has become a new trend, bringing users more innovative experiences and financial opportunities. In terms of NFT transactions, DeFi Wallet provides users with a convenient trading platform. Taking well-known NFT markets such as OpenSea and Rarible as examples, users can easily browse, purchase, sell, and collect various NFTs by connecting to these platforms with DeFi Wallet. Users can view their NFT assets in DeFi Wallet, check detailed information such as name, description, rarity, and conduct trading operations based on market trends and personal needs. When users purchase NFTs, DeFi Wallet automatically completes the transfer of assets and change of ownership, ensuring the security and reliability of transactions. Additionally, DeFi Wallet supports batch trading and cross-platform trading of NFTs, enhancing transaction efficiency and flexibility.

In the NFT staking field, DeFi Wallet also plays an important role. Some DeFi projects allow users to stake NFTs on the platform to earn income. For example, on some NFT lending platforms, users can use their NFTs as collateral to borrow a certain amount of digital assets. Users use DeFi Wallet to stake NFTs on the platform, and the platform will assess the loan amount based on the value of the NFT and disburse the loan to the user’s DeFi Wallet. During the staking period, users still retain ownership of the NFT, but the assets are locked on the platform. After the user repays the loan and interest, DeFi Wallet will assist the user in releasing the NFT’s stake and returning the assets to the user. In addition, some DeFi projects also provide additional reward mechanisms for NFT staking, such as distributing platform tokens or sharing trading fees, to incentivize users to participate in NFT staking activities.

The integration of DeFi Wallet and NFT has also spawned some innovative financial products and services. Some projects have launched synthetic assets based on NFTs, and users can use the DeFi Wallet to participate in the trading and management of these synthetic assets. The value of these synthetic assets is associated with specific NFTs or combinations of NFTs, and users can indirectly invest in the NFT market by buying and selling synthetic assets. Some DeFi projects also leverage the unique properties of NFTs to develop innovative insurance products to protect users’ NFT assets. Users can purchase these insurance products using DeFi Wallet, and can receive corresponding compensation when NFT assets suffer losses or theft.

6. Challenges and Risks Ahead

6.1 Security Risks

6.1.1 Analysis of Hacker Attack Cases

In recent years, DeFi Wallet has been frequently targeted by hackers, causing significant losses to users and projects. Among them, the hacking incident of Ronin Network in 2022 is particularly noteworthy. Ronin Network is a side chain associated with the popular blockchain game Axie Infinity, which allows players to deposit Ethereum or USDC into Ronin for purchasing in-game NFTs and tokens, as well as withdrawing funds from selling game assets. In this attack, hackers exploited the Ronin bridge and through two separate transactions, stole 173,600 ETH and over $25 million worth of stablecoin USDC, with a total value exceeding $600 million, becoming one of the largest hacking incidents in the DeFi sector at that time.

The reason why hackers were able to successfully carry out the attack was mainly due to the vulnerability of the Proof of Authority (PoA) consensus model adopted by Ronin. PoA is based on the reputation validation and approval of transactions by a limited number of validating nodes. At that time, the Ronin chain consisted of 9 validator nodes, and the identification of deposit and withdrawal events required the signatures of 5 of these nodes. The hacker first obtained the signature of Axie DAO by exploiting a backdoor in one of the RPC nodes operated by Axie DAO, and then, with the successful control of 4 Ronin validator nodes by Sky Mavis, ultimately achieved the theft of assets.

Chart 3: Ronin Network hacking incident loss situation (in 10,000 US dollars)

This incident fully exposed the vulnerabilities and risks in terms of security of the DeFi Wallet. Smart contract vulnerabilities are one of the main security risks faced by the DeFi Wallet. During the coding and deployment of smart contracts, there may be logical errors, vulnerabilities, or security flaws. Once these issues are discovered and exploited by hackers, it may lead to asset theft. In the Ronin Network attack, the hacker exploited the smart contract vulnerability, forged withdrawal signatures, and successfully stole a large amount of assets. Poor management of private keys is also a significant risk. Private keys are crucial for controlling digital assets, and once they are leaked or lost, the user’s assets are at risk of theft. In some cases, users may inadvertently leak their private keys due to improper operations, device attacks, and other reasons, providing opportunities for hackers.

6.1.2 Private Key Loss and Recovery Challenges

The private key is the core of the DeFi Wallet, it is the only credential to access and control the user’s digital assets. Once the private key is lost, the user will not be able to access their assets, leading to permanent loss of assets. The consequences of losing the private key are extremely serious, as the decentralized nature of blockchain means that no centralized institution can help users retrieve the private key or reset the password. Unlike traditional financial accounts, banks and other institutions can help users retrieve passwords or reset accounts through identity verification and other means, but in the DeFi field, the private key is the only proof of asset control, losing the private key is like losing the key to a physical wallet, and the assets in the wallet will be unusable.

Currently, there are many issues with the private key recovery mechanism. Although many DeFi Wallets provide mnemonic seed functions, allowing users to recover private keys through mnemonics, the security of mnemonics is equally crucial. If the mnemonic seed is leaked, others can also recover the private key through the mnemonic seed, thus stealing user assets. Some users may store the mnemonic seed in an insecure place due to poor safekeeping, or leak the mnemonic seed in a network environment, leading to asset theft. Even with the mnemonic seed, there may be risks in the process of recovering the private key. If users mishandle the private key recovery process, or use insecure devices and software, it may also lead to private key theft. Some malicious software may disguise themselves as private key recovery tools, enticing users to enter mnemonics, thereby stealing user assets. For users without backup mnemonics, once the private key is lost, there are hardly any effective recovery methods, and asset losses will be irretrievable. Therefore, the challenge of private key loss and recovery is an important security issue that urgently needs to be addressed in the development of DeFi Wallets.

6.2 Regulatory Uncertainty

6.2.1 Differences in Regulatory Policies of Various Countries

Different countries and regions have significant differences in their regulatory attitudes and policies towards DeFi Wallet. In the United States, the regulatory policies on cryptocurrency are complex and constantly evolving. Regulatory agencies such as the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) have overlapping and blurry regulatory responsibilities for cryptocurrencies. For DeFi Wallet, some states in the United States consider it as a money transmitter, requiring strict compliance with Anti-Money Laundering (AML) and Know Your Customer (KYC) regulations, while other states may take a relatively lenient approach. In April 2024, the U.S. Department of Justice suddenly decided to prosecute wallet developers on charges of unlicensed money transmission, which has drawn widespread industry attention and reflects the uncertainty of cryptocurrency regulation in the United States.

In Europe, the regulatory policies of various countries also vary. The UK has taken a relatively proactive regulatory stance on cryptocurrencies, with the Financial Conduct Authority (FCA) regulating crypto asset service providers, requiring them to comply with anti-money laundering and anti-terrorist financing regulations. In Germany, although cryptocurrencies such as Bitcoin are recognized as ‘private funds,’ the regulation of related services like DeFi Wallet is gradually strengthening. At the EU level, the implementation of the Markets in Crypto-Assets Regulation (MiCA) is being promoted, aiming to provide a unified regulatory framework for crypto assets, which will have a significant impact on the operation of DeFi Wallet within the EU.

In the Asian region, Japan is one of the earliest countries to legalize cryptocurrencies, with a relatively sound regulatory system for cryptocurrency trading and wallet services. It requires cryptocurrency exchanges and wallet providers to register and comply with strict security and compliance requirements. In China, due to speculative activities in cryptocurrency trading, which disrupt economic and financial order, breed illegal activities such as gambling, illegal fundraising, fraud, pyramid schemes, and money laundering, seriously endangering the property security of the people, virtual currency-related business activities have been comprehensively banned since 2017, including trading, issuance, and service provision for virtual currencies. DeFi Wallet operates illegally in China.

6.2.2 The dilemma faced by compliance and development

The DeFi Wallet faces many challenges and difficulties in its compliance development process. First, due to the lack of unified global regulatory standards, when operating in different countries and regions, the DeFi Wallet needs to meet different regulatory requirements, which increases operational costs and complexity. For a DeFi Wallet project to provide services globally, it needs to invest a substantial amount of manpower, resources, and financial resources to research and comply with regulatory laws in various countries and regions, which is almost unbearable for many small projects. Regulatory policies in different countries and regions may conflict, putting DeFi Wallet in a dilemma when operating in compliance. In some countries, DeFi Wallet may be required to undergo strict KYC verification, while in other countries, this practice may be seen as infringing on user privacy and not in line with local laws and cultural practices.

Secondly, the decentralized nature of the DeFi Wallet conflicts with traditional regulatory models. Traditional regulatory models typically rely on centralized institutions for regulation, such as banks, financial regulatory authorities, etc., while the DeFi Wallet is based on decentralized blockchain technology, without a clear central authority or responsible person, making it difficult for regulatory agencies to effectively regulate it. In DeFi lending platforms, the identity information and transaction records of both borrowers and lenders are automatically executed and recorded on the blockchain through smart contracts, making it difficult for regulatory agencies to access this information and to regulate and control lending activities. Additionally, the DeFi Wallet may also face issues of regulatory lag. Due to the rapid development of blockchain technology and DeFi, new applications and models are constantly emerging, while the formulation of regulatory policies often requires a certain amount of time and process, leading to the possibility that regulatory policies may not be able to keep up with the technological and market developments in a timely manner, resulting in some DeFi Wallet projects being in a regulatory gray area in the early stages of development, which may foster illegal financial activities.

6.3 User Experience Issues

6.3.1 Operation Complexity

The main reason for the complexity of DeFi Wallet operations is that it involves blockchain technology and complex financial concepts. For ordinary users, understanding the principles of blockchain, the management of private keys and mnemonic phrases, and the interaction of smart contracts are quite challenging. Private keys and mnemonic phrases are crucial for accessing and controlling digital assets, but they are usually composed of a complex string of characters or words that users need to securely store and ensure accuracy when using, otherwise it may result in asset loss. When creating a wallet, users need to generate and remember mnemonic phrases, while paying attention to the order and confidentiality of the phrases, which can be a significant challenge for non-technical users.

Figure 4: User feedback survey on the complexity of DeFi Wallet operations (unit: %)

The cumbersome operation process is also an important factor affecting user experience. When performing certain operations such as transfers, participating in liquidity mining, etc., users need to go through multiple steps, including connecting wallets, selecting operation types, inputting relevant parameters, confirming transactions, etc. Each step requires careful operation, otherwise it may lead to transaction failure or asset loss. When participating in liquidity mining, users need to deposit assets into the liquidity pool first, then wait for profit distribution, and when redeeming assets, they also need to go through a series of operations. The whole process is complex and can easily confuse and burden users. This complexity of operations poses a significant obstacle to user usage, causing many users to hesitate to use DeFi Wallet. Especially for those ordinary users without technical background and financial knowledge, the complex operation process and concepts make it difficult for them to use DeFi Wallet easily, thereby limiting the popularity and promotion of DeFi Wallet.

6.3.2 Lack of user-friendly interface

The current interface design of DeFi Wallet has many shortcomings. Many DeFi Wallet interfaces are not reasonably laid out, with chaotic information display, making it difficult for users to quickly find the functions and information they need. In some DeFi Wallets, the layout of function modules such as asset lists, transaction records, and settings options has not been carefully designed, requiring users to spend a lot of time and effort to find specific information. The interface’s interaction design is also not user-friendly, and the operation is not convenient. In some DeFi Wallets, when conducting transfer operations, users need to manually enter complex address information, and there is no effective address verification and prompting function, which can easily lead to user input errors and asset losses.

Figure 5: User Feedback on the User-Friendliness of the DeFi Wallet Interface (Unit: %)

The insufficient interface design has a negative impact on user experience. An unfriendly interface design will increase users’ learning costs and usage difficulties, reduce user satisfaction and loyalty. If users frequently encounter inconveniences and difficulties in finding information when using the DeFi Wallet, they are likely to choose to abandon using the wallet and look for other more user-friendly alternatives. This is a disadvantage for the development of the DeFi Wallet, especially in the increasingly competitive market, insufficient user-friendly interface may lead to user loss, affecting the project’s development and market share expansion. Therefore, improving the interface design of the DeFi Wallet and enhancing user-friendliness are important directions to enhance user experience and promote the development of the DeFi Wallet.

7. Future Development Trends

7.1 Technological Innovation Direction

7.1.1 Multi-chain Fusion and Cross-chain Interoperability

With the development of blockchain technology, different blockchain networks such as Ethereum, Binance Smart Chain (BSC), Polkadot, etc., continue to emerge, and each blockchain has its unique advantages and use cases. However, these blockchains are isolated from each other, making it difficult for assets and data to flow freely between different chains, limiting the potential development of decentralized finance (DeFi). Therefore, achieving multi-chain integration and cross-chain interoperability has become an important direction for future technological innovation of DeFi Wallet.

To achieve multi-chain integration, the DeFi Wallet needs to support multiple blockchain protocols, allowing asset storage, trading, and management on different chains. This requires the wallet to have strong compatibility and scalability, adapting to the technical characteristics and rules of different blockchains. Some new DeFi Wallets have begun to support multi-chain functions, allowing users to manage assets on multiple chains such as Ethereum and Binance Smart Chain in one wallet without switching between different wallets, greatly improving the convenience of asset management.

Interoperability is the key to enabling the interaction of assets and information between different blockchains. Currently, there are some cross-chain technologies and protocols in development, such as sidechain technology, relay chain technology, and hash locking technology. Sidechain technology allows the creation of parallel blockchains outside the main chain, enabling asset transfer between the main chain and sidechain through a two-way anchoring mechanism; relay chain technology connects different blockchains through a dedicated relay chain to achieve cross-chain communication and asset transfer; hash locking technology utilizes the characteristics of hash functions to achieve atomic swaps between different blockchains, ensuring the atomicity and security of transactions.

Taking Polkadot as an example, it is a typical cross-chain project that connects multiple parallel chains through relay chains, achieving interoperability between different parallel chains. The integration of DeFi Wallet with the Polkadot ecosystem will provide users with a wider range of asset choices and a richer DeFi application scenarios. Users can transfer assets between different parallel chains on Polkadot, participate in DeFi projects on different chains, and achieve diversified allocation and appreciation of assets through DeFi Wallet. This multi-chain integration and cross-chain interoperability will break down the barriers between blockchains, promote the interconnection of the DeFi ecosystem, and bring users a more efficient, convenient, and diverse financial service experience, with broad development prospects.

7.1.2 Privacy Protection Technology Upgrade

In the field of Decentralized Finance, user privacy protection is crucial. With the increasing popularity of DeFi applications, users generate a large amount of personal information and transaction data when conducting transactions, borrowing, providing liquidity mining, etc., and the security and privacy of this data face many risks. Therefore, the upgrade of privacy protection technology is an inevitable trend for the future development of DeFi Wallet.

Currently, the DeFi Wallet mainly uses encryption algorithms to protect users’ private keys and transaction information, preventing data theft and tampering. However, with the advancement of technology and the continuous upgrading of hacking techniques, traditional encryption technology may not meet the growing privacy protection needs. Therefore, in the future, DeFi Wallet will introduce more advanced privacy protection technologies, such as zero-knowledge proofs, homomorphic encryption, etc.

Zero-knowledge proof is a cryptographic technology that allows a prover to prove to a verifier that a statement is true without revealing any information other than the fact that the statement is true. In the DeFi Wallet, zero-knowledge proof can be used to protect the privacy of user transactions. When users make transactions, they can use zero-knowledge proof to prove to the blockchain network that they have sufficient funds for the transaction without revealing their account balance and transaction details, thus protecting user privacy. Homomorphic encryption is a special form of encryption that allows specific operations to be performed on ciphertext, with the result being the same as if the same operations were performed on plaintext and then encrypted. In the DeFi Wallet, homomorphic encryption can be used to implement privacy-preserving smart contracts. During the execution of smart contracts, sensitive user data is processed with homomorphic encryption, ensuring that the data privacy during contract execution is protected while also ensuring the normal operation of the contract.

Some emerging DeFi projects have begun to explore and apply these privacy protection technologies. Zcash is a cryptocurrency that uses zero-knowledge proof technology, and its privacy features provide better protection for users’ transaction information. The integration of DeFi Wallet with privacy protection projects like Zcash will provide users with a safer and more private DeFi service. With the continuous improvement of privacy protection technologies, DeFi Wallet will be able to better protect users’ privacy, enhance user trust in DeFi applications, and promote the healthy development of the DeFi market.

7.2 Market Expansion and User Growth

7.2.1 Participation of Institutional Investors

With the gradual maturity and development of the DeFi market, institutional investors’ attention to the DeFi Wallet is constantly increasing, and their level of participation is also deepening. Institutional investors have strong financial strength, professional investment teams, and strict risk management systems. Their entry will have a multifaceted impact on the DeFi Wallet market.

The participation of institutional investors will bring a large amount of funds to the DeFi Wallet market, promoting further expansion of the market size. Traditional financial institutions such as banks, hedge funds, etc., are beginning to enter the DeFi field, allocating some funds to DeFi projects for asset management and trading through the DeFi Wallet. The funds of these institutional investors are usually substantial, and their investment behavior will have a significant impact on the market, attracting more funds into the DeFi market and promoting market prosperity. The entry of institutional investors will enhance the professionalism and standardization of the DeFi Wallet market. Compared to ordinary investors, institutional investors pay more attention to risk management and compliance. They conduct rigorous due diligence and risk assessment on projects during the investment process. This will prompt DeFi Wallet projects to strengthen their risk management and compliance, improve the quality and security of the projects, and drive the entire market towards a more standardized and mature direction.

The participation of institutional investors will bring more opportunities for innovation and cooperation. Institutional investors usually have rich financial experience and extensive resources. They can collaborate with the DeFi Wallet project to jointly develop new financial products and services, expand the application scenarios of DeFi. Some financial institutions may cooperate with DeFi Wallet to launch DeFi-based wealth management products, lending services, etc., providing users with more diversified financial choices. At the same time, the participation of institutional investors will also promote the integration of DeFi with traditional finance, accelerating innovation and transformation in the financial industry.

From the perspective of development trends, the future participation of institutional investors in the DeFi Wallet market will continue to increase. With the gradual clarification of the regulatory environment and the continuous maturation of DeFi technology, more institutional investors will have the confidence to enter the DeFi field. Some large financial institutions may increase their investment in DeFi projects, and even directly participate in the development and operation of DeFi Wallet. The participation of institutional investors will also become more diversified. In addition to direct investment, they may also participate deeply in the DeFi market through methods such as establishing funds and participating in governance.

7.2.2 Opportunities in Emerging Markets

Emerging markets have a huge demand and development potential for Decentralized Finance Wallets. In many emerging market countries, the financial infrastructure is relatively weak, the coverage of traditional financial services is limited, and a large number of people cannot enjoy convenient and efficient financial services. DeFi Wallet, based on blockchain technology, with features such as decentralization, no need to trust third parties, and global accessibility, can provide new financial solutions for users in these emerging markets.

In some African and Southeast Asian countries, many people do not have bank accounts and are unable to engage in traditional financial transactions such as savings, loans, and remittances. The emergence of DeFi Wallet provides them with a viable option. Users only need to have a smartphone and internet connection to create a DeFi Wallet, store digital assets, and perform cross-border remittances, lending, and other operations. This convenient financial services model can help users in emerging markets better manage their finances, improve their living standards, and promote economic development. The economic growth in emerging markets is rapid, and residents’ demand for wealth management and investment is increasing. However, the traditional financial market has high investment thresholds and limited investment product types, which cannot meet the needs of the majority of residents. DeFi Wallet provides users in emerging markets with more investment choices and lower investment thresholds. Users can participate in various DeFi projects through DeFi Wallet, such as liquidity mining, decentralized exchange trading, etc., to realize asset appreciation.

To seize the opportunities in emerging markets, the DeFi Wallet project needs to optimize and innovate based on the characteristics of these markets. In terms of user experience, it should provide a simple and easy-to-understand interface to cater to users in emerging markets with limited understanding of blockchain technology and DeFi concepts. Regarding language support, it should offer various local language versions for user convenience. In terms of partnerships, collaboration with local businesses and communities is essential to understand local market demands and provide services that meet the needs of local users. Collaboration with local mobile payment companies is necessary to facilitate the exchange between digital assets and local fiat currencies. Working with local community organizations to conduct financial literacy campaigns will enhance user awareness and acceptance of DeFi. With the increasing demand for DeFi Wallet in emerging markets, the user base and market share of DeFi Wallet are expected to continue expanding, becoming a significant driving force in the development of the DeFi market.

7.3 Compliance Development Path

7.3.1 Cooperation with Regulatory Agencies

The cooperation between DeFi Wallet and regulatory agencies is of great significance for its compliant development. Regulatory agencies play a key role in maintaining market order and protecting investor rights in the financial market, and as an emerging financial service tool, it is a necessary condition for DeFi Wallet to achieve sustainable development by establishing good cooperative relationships with regulatory agencies.

In terms of Anti-Money Laundering (AML) and Know Your Customer (KYC), DeFi Wallet can collaborate with regulatory agencies to establish a comprehensive user authentication and transaction monitoring mechanism. By partnering with regulatory-approved identity verification service providers, DeFi Wallet can conduct strict identity verification on users to ensure the authenticity and legitimacy of their identities. At the same time, utilizing the traceability of blockchain technology, DeFi Wallet can monitor users’ transaction behaviors in real-time, promptly identify and report suspicious transactions, and prevent money laundering, terrorist financing, and other illegal activities. In some countries, regulatory agencies require financial institutions to perform KYC authentication on users. DeFi Wallet can work with local regulatory agencies to implement KYC processes in accordance with regulatory requirements, ensuring its own compliance operation.

In terms of compliance with securities regulations, for DeFi Wallet involving securities-like digital assets, cooperating with regulatory agencies can clarify the nature of assets and regulatory requirements, avoiding compliance risks caused by unclear regulations. Regulatory agencies can formulate corresponding regulatory policies and guidance based on the business model and asset types of DeFi Wallet, and DeFi Wallet operates and manages in compliance with these regulations. In some countries, regulatory agencies consider certain digital assets as securities, requiring relevant DeFi Wallet to comply with securities regulations, such as provisions on information disclosure and investor protection. By collaborating with regulatory agencies, DeFi Wallet can better understand and comply with these regulations, safeguarding the legitimate rights and interests of investors.

Cooperating with regulatory agencies can also provide policy consultation and guidance for the DeFi Wallet, helping it to timely understand regulatory dynamics, adjust business strategies, and avoid risks caused by policy changes. Regulatory agencies can communicate and exchange with the DeFi Wallet project through means such as issuing regulatory guidelines and hosting seminars, providing suggestions and directions for its compliant development. At the same time, the DeFi Wallet project can also feedback to regulatory agencies the problems and difficulties encountered in the industry’s development, promoting the improvement and optimization of regulatory policies, and achieving a positive interaction between regulatory agencies and the DeFi Wallet.

Establishment of Industry Self-Regulatory Mechanism 7.3.2

Establishing industry self-regulatory mechanisms is an important measure to promote the compliant development of the DeFi Wallet. Industry self-regulatory mechanisms can enhance self-discipline and management within the industry by setting industry standards and norms, improving the overall quality and security of DeFi Wallet projects, and promoting the healthy development of the entire industry.

In terms of setting industry standards, industry associations or self-regulatory organizations can organize experts and companies within the industry to jointly develop technical standards, security standards, operational standards, etc. for DeFi Wallet. In terms of technical standards, it is necessary to clarify the blockchain compatibility of DeFi Wallet, smart contract development specifications, etc.; in terms of security standards, requirements for private key management, encryption algorithms, security audits, etc. should be stipulated; in terms of operational standards, guidelines for user services, risk management, information disclosure, etc. should be formulated. The development of these standards can provide clear guidance for DeFi Wallet projects, promote interoperability and compatibility between projects, and improve the overall level of the industry.

In strengthening self-regulation and management within the industry, industry self-regulatory organizations can establish oversight mechanisms to conduct regular inspections and evaluations of the DeFi Wallet project. For projects that do not meet industry standards and norms, self-regulatory organizations can take measures such as warnings, fines, suspension of business, etc., to urge them to make corrections. At the same time, self-regulatory organizations can also establish a complaint handling mechanism, accept supervision from users and society, promptly handle user complaints and reports, and protect the legitimate rights and interests of users. If a user discovers security vulnerabilities or violations in a certain DeFi Wallet project, they can file a complaint with the self-regulatory organization, which will conduct an investigation and take appropriate actions to maintain the industry’s good reputation.

Establishing industry self-discipline mechanisms can also promote information sharing and communication within the DeFi Wallet industry, strengthen cooperation and collaboration among enterprises. By organizing industry conferences, seminars, and other activities, industry self-discipline organizations can provide a communication platform for enterprises to share the latest industry trends, technological innovations, and compliance experiences, jointly address the challenges and issues faced in industry development. At the same time, enterprises can also develop new technologies and products through cooperation, expand the market, and achieve mutual benefits and win-win results.

Conclusion

When choosing a DeFi Wallet project for investment, it is important to conduct a comprehensive due diligence. Examine the background and experience of the project team to ensure they have solid technical expertise and extensive industry experience to address various technical and market challenges; pay attention to the security audit of the project, choose a wallet that has been audited by professional security agencies to mitigate security risks such as smart contract vulnerabilities; evaluate the project’s market competitiveness, analyze its strengths and weaknesses in terms of functionality, user experience, market share, etc., and choose a project with competitive advantages and growth potential.