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# SmartCustody for Ethereum with Account Abstraction

###### Tags: `article / updated 2025`

This proposal offers a methodology for adopting Blockchain Commons' SmartCustody principles to improve the resilience, modularity, and security of Ethereum wallets through the use of **Account Abstraction (ERC-4337)** and other Ethereum-native features.

## Problem Statement

Ethereum accounts are traditionally controlled by a single private key. They come in two types:

* **EOAs (Externally Owned Accounts)** use key pairs: the address is derived from a public key, and the private key controls access. EOAs are still the most common.
* **Contract Accounts** are controlled by smart contracts, which can include logic for authorization, recovery, and delegation. They are indistinguishable in address format from EOAs.

The traditional model presents critical security challenges:

* A **Single Point of Failure** (loss of the private key).
* A **Single Point of Compromise** (if the key is stolen, all assets and access are lost).
* Lack of separation between roles: signing into apps, holding NFTs, executing contract logic, and controlling assets often share a single key.

These are textbook examples of **Ambient Authority**: where access permissions are overly broad and undifferentiated. While Ethereum has introduced *Account Abstraction* (AA) to move beyond these limitations, most wallets and dApps have not yet embraced meaningful separation of keys or proof purposes.

This proposal defines a framework for **partitioned authority and recoverable key management**, enabling modular design, permissioned roles, and robust recovery for Ethereum wallets. It also recognizes the value of **pragmatic interoperability with legacy Ethereum wallets**, proposing an initial survey to identify existing capabilities and adoption blockers.

## Account Abstraction: Enabling Secure Partitioning

**ERC-4337** enables users to operate smart contract wallets with customizable logic for verification and execution. This is a foundational shift:

* It supports **multiple signers** with different roles.
* It allows programmable recovery, rotation, and revocation.
* It moves Ethereum away from rigid EOA dependency.

SmartCustody builds on these foundations by proposing a structured framework of **Proof Purposes**:

1. **Single Sign-On** (Web3 login auth)
2. **Asset Holding** (ETH & ERC-20 transfers)
3. **NFT Management** (ERC-721/1155 operations)
4. **Smart Contract Control** (deployment and execution)
5. **Social or Emergency Recovery** (optional)

Each purpose should be assigned to a distinct key pair or signer slot, with smart contract logic validating their scope.

> This creates enforceable separation, better resilience, and more predictable failure modes.

## Wallet Design

Modern Ethereum wallets must:

* Support **multi-signer ERC-4337 wallets**.
* Maintain metadata for each key (e.g., proof purpose, creation date, shard index).
* Integrate **key derivation hierarchies**, using `xpub`/`xprv` principles.
* Allow **airgapped** seed/key provisioning using QR-encoded Uniform Resources.
* Support **offline signing** and **minimal online attack surface**.

Where possible, wallets should:

* Never store the master seed directly.
* Allow provisioning of key material via QR codes using **Blockchain Commons' Uniform Resources**.
* Support **SSKR** (Sharded Secret Key Reconstruction) for seed protection.

## WalletConnect Design

WalletConnect already separates the app interface from signing logic. This is a perfect channel to:

* Introduce **xpub-derived keys** per dApp or per session.
* Use **proof-purpose scoped authorization**, enforced by AA wallet logic.
* Interface with **recovery flows** managed via CSR (Collaborative Seed Recovery).

We propose:

* Support for **WalletConnect + ERC-4337 bundler relaying**.
* Key registration via airgapped scanning (SeedTool + WalletConnect).
* Compatibility testing with WalletConnect 3 for Ethereum-native multi-account UX.

## Development Path

We propose the following staged roadmap:

1. **Conduct Ethereum Wallet Survey**

* Evaluate legacy and current Ethereum wallets for interoperability potential
* Record supported features, signing models, and recovery methods
* Identify opportunities for backward-compatible proof purpose integration
* Host at least two developer-focused meetings to present findings and collect feedback, following the model of our successful FROST coordination process

2. **Define Proof Purpose Templates**

* For SSO, NFTs, Assets, Contracts
* Draft JSON/YAML schema with clear role definitions and usage boundaries

3. **Develop a prototype ERC-4337 SmartCustody wallet**

* Polygon as testbed
* Uses purpose-specific key slots

4. **Enhance SeedTool**

* Integrate WalletConnect 2
* Provision xpub/xprv with proof-purpose metadata

5. **Enable NFT support**

* Test ERC-721/1155 with purpose-restricted signer slots

6. **Collaborate on WalletConnect 3 integration**

* Multi-session, multi-proof-purpose compatibility

7. **Integrate Smart Recovery**

* CSR servers store SSKR Envelopes for lost-device recovery
* Build WalletConnect-compatible recovery UX

## SmartCustody Recovery Stack

**Blockchain Commons tools for Ethereum AA wallets:**

* **SSKR**: Secure, resilient sharding of seed material
* **Envelope**: Cryptographic document container supporting encryption, elision, and multi-asset bundles
* **CSR**: Server-based collaborative seed recovery using encrypted shards
* **GSTP**: Secure transport protocol over insecure channels (e.g., QR, BLE)

## Potential Challenges

1. **Backwards Compatibility**

* May need a fallback signer (0th child) for legacy contract interaction.
2. **ERC-721/1155 UX**

* Require support for separate payment vs. holder addresses.
3. **Key Derivation Standards**

* BIP32/BIP44 + SLIP44 support on Ethereum is limited; hardened paths must be used cautiously.
4. **Non-Ethereum Curve Support**

* BIP32 methods are incompatible with ed25519; possible limitation for L2s or cross-chain wallets.

## Future Development

Ethereum's smart account ecosystem is growing rapidly. With SmartCustody:

* Developers gain templates and libraries for safer key management.
* Users get structured recovery paths and protection from ambient authority.
* Wallet developers get tools for enforceable modular security.

**Our next steps:**

* Extend Wallet Interchange Format to Ethereum
* Publish Proof Purpose schemas
* Offer open-source SmartCustody wallet templates
* Host Ethereum-focused Silicon Salons for AA wallet builders and signer ecosystem stakeholders

## Conclusion

SmartCustody brings years of Bitcoin resilience research to Ethereum's new account paradigm. Through proof-purpose partitioning, enforceable modular authority, robust seed recovery, and coordinated developer adoption, we can help the Ethereum ecosystem build wallets that are resilient, interoperable, and secure by design.

====

# 📚 Key Readings on ERC-4337 Smart Account Adoption & Retention (2024–2025)

Below is a curated list of recent reports and analyses that examine the adoption, usage patterns, and infrastructure maturity of ERC-4337 smart accounts. These resources are critical for understanding the systemic challenges Ethereum faces with account abstraction—and for positioning Blockchain Commons’ work within that context.

### 1. Safe & BundleBear – _“Onchain Retention for Smart Accounts”_ (March 2024)
https://safe.global/blog/onchain-retention-for-smart-accounts

An in-depth analysis showing that ERC-4337 smart accounts suffer from very low retention. Accounts older than five weeks often drop to just 1% weekly activity. Average smart accounts execute only five user operations. Highlights the urgent need for better onboarding and user recovery flows.

### 2. 2077 Research – _“ERC-4337 Two Years After Launch: Expansion and Challenges of Account Abstraction”_ (March 2025)
https://www.eblockmedia.com/news/articleView.html?idxno=15617

A comprehensive two-year review of ERC-4337 adoption. Reports 24+ million smart accounts created but low average usage per account. The report flags interoperability issues and the lack of standardized tooling for recovery, backup, and signer management.

### 3. Publish0x – _“ERC-4337 in 2024 Review”_ (January 2025)
https://www.publish0x.com/etherspot/erc-4337-in-2024-review-openzk-s-l2-launch-arcana-s-chain-ab-xevwyzp

BundleBear’s year-end summary: over 103 million user operations in 2024, but only 4.3 million accounts performed more than one operation. Reinforces the pattern of high churn and low re-engagement for smart account wallets.

### 4. The BlockBeats – _“200 Million Gasless Transactions in One Month, Is Account Abstraction a Success?”_ (April 2025)
https://www.theblockbeats.info/en/news/57418

Highlights a surge in gasless transactions via paymasters, hitting 200 million in a month. Despite the volume, user retention remains low. The article questions whether account abstraction’s usability gains translate into long-term ecosystem engagement.

### 5. Bitcoinke – _“State of Wallets 2025”_ (May 2025)
https://bitcoinke.io/2025/05/state-of-wallets-2025/

Covers the growing presence of ERC-4337 wallets, which have begun to outpace EOAs monthly. However, it flags that many smart accounts are created for incentives and are quickly abandoned. Points to a pressing need for meaningful recovery and user value post-onboarding.

### 6. Alchemy – _“Smart Accounts Adoption Accelerated in Q4 2023”_ (January 2024)
https://www.alchemy.com/blog/smart-accounts-adoption-accelerated-in-q4-2023

Reports nearly one million new ERC-4337 smart accounts created in Q4 2023. Still, the average account sees only five user operations, reinforcing the theme of shallow usage. Highlights bundler challenges and incomplete tooling.

### 7. Cointelegraph – _“New Figures Show Hardly Anyone Is Using ERC-4337 Smart Accounts”_ (November 2023)
https://cointelegraph.com/news/hardly-anyone-using-ethereum-smart-accounts

A critical early overview of ERC-4337’s rollout. Notes the heavy dominance of EOAs, slow dApp support, and lack of compelling recovery UX as primary blockers to smart account growth.

### 8. Crypto Pulpit – _“The Slow Adoption of ERC-4337 Accounts”_ (November 2023)
https://cryptopulpit.com/the-slow-adoption-of-erc-4337-accounts/

Emphasizes low activity across ERC-4337 accounts, bundler profitability concerns, and gaps in recovery models. Useful for understanding the developer-side friction.

### 9. Gelato – _“Gelato’s Guide to Account Abstraction: from ERC-4337 to EIP-7702”_ (April 2025)
https://www.gelato.network/blog/gelato-s-guide-to-account-abstraction-from-erc-4337-to-eip-7702

Analyzes the shortcomings of ERC-4337 and introduces EIP-7702 as a potential improvement path. Frames 4337 as a valuable stepping stone but limited by complexity and dApp incompatibility.

### 10. Codezeros – _“Web3 Wallet Development in 2025: Why You Should Consider Account Abstraction”_ (March 2025)
https://www.codezeros.com/web3-wallet-development-in-2025-why-you-should-consider-account-abstraction

Optimistic outlook on the future of AA wallets. Projects ERC-4337’s successor technologies (like EIP-7702) as catalysts for smart account dominance by 2027. Suggests the need for better UX and recovery tooling now to prepare for broader adoption.

===

## Exploratory Brief: Addressing ERC-4337’s Retention Crisis with Resilient Recovery & Signer Infrastructure

**From**: Christopher Allen, Principal Architect, Blockchain Commons
**To**: Ethereum Foundation / Wallet & Account Abstraction Teams
**Date**: July 2025
**Funding Goal**: Pilot collaboration to address critical gaps in Ethereum smart account lifecycle—retention, signer provisioning, and recovery—with open, modular tooling

---

## Introduction

ERC-4337 was launched to unlock powerful new wallet capabilities—gas abstraction, programmable permissions, and smart recovery—but after two years, the ecosystem is facing a quiet crisis:

📉 **Retention is dangerously low.**
Recent studies show that:

- Fewer than **7% of ERC-4337 smart accounts** remain active after five weeks (Safe & BundleBear, 2024–2025)
- Most accounts execute only **five user operations**, often during initial dApp onboarding
- Airdrop-driven wallet creation results in high churn and **abandoned signer state**

This suggests a growing divide between **ERC-4337’s theoretical capabilities** and **real-world wallet lifecycle UX**—particularly around secure provisioning, role management, and recovery.

**Blockchain Commons**, a *not-for-profit public benefit organization*, has spent the past five years designing open-source tools and specifications for **resilient key management, signer metadata, and interoperable recovery**—primarily in UTXO-based ecosystems like Bitcoin and Zcash.

We now propose to bring that experience into the Ethereum smart account context—*not as a retrofit*, but as a collaborative investigation into the failures ERC-4337 data has surfaced.

---

## What We’re Responding To

> “Account abstraction lowers the entry barrier—but doesn’t solve for re-engagement, safety, or long-term control.”
> — _ERC-4337 Year 2 Review, 2077 Research_

The problem isn’t just technical. It’s lifecycle-level:

- 🔐 **Weak signer provisioning**: Smart accounts are often generated on the fly, with little or no structured metadata, backup instructions, or trust modeling.
- 🚫 **No standard recovery format**: Social recovery is theoretically supported, but toolchains for shard distribution, metadata protection, or threshold recovery are largely unimplemented.
- 🔄 **No structured signer metadata**: dApps don’t record how or why a smart account was created, and wallets rarely encode roles or scopes for key material.
- 💥 **Lifecycle fragmentation**: Most accounts are created, used once, and forgotten—making continuity, reactivation, and recovery extremely difficult.

These are the same failure modes we've solved in other contexts—with production-tested formats for **proof-purpose separation**, **airgapped provisioning**, and **multi-party recovery**.

---

## What We Propose to Explore

We’re not proposing a new wallet. Instead, we offer a focused collaboration to test and adapt modular tools that may help resolve known lifecycle gaps in Ethereum smart accounts.

We propose to explore the following areas with Ethereum-native developers:

### 1. **Signer Metadata with Envelope**
Can [Envelope](https://github.com/BlockchainCommons/Envelope)—our structured cryptographic container—help encode:

- Signer roles (e.g., login, NFT control, gas delegation)?
- Backup instructions?
- Derivation paths and audit trails?

This would support portable signer context without dictating smart account architecture.

### 2. **Recovery UX with SSKR and CSR**
Could [SSKR](https://github.com/BlockchainCommons/Research/blob/master/papers/bcr-sskr.md) (Sharded Secret Key Reconstruction) and CSR (Collaborative Seed Recovery) offer:

- Threshold-based shard distribution with dApp-controlled UX?
- Optional use of decentralized storage (CSR servers)?
- A path to Ethereum-native social recovery that avoids trusted custodians?

### 3. **Provisioning via Uniform Resources (UR)**
Could [URs](https://github.com/BlockchainCommons/Research/blob/master/papers/bcr-ur.md) (animated QRs) support:

- Offline signer provisioning via WalletConnect or QR flows?
- Shard delivery, xpub transfer, or metadata migration in airgapped flows?
- Integration into mobile dApp onboarding?

UR is already used in 13+ Bitcoin and Zcash wallets for PSBT signing and seed import/export.

### 4. **Proof Purpose Mapping**
Can we test **role-scoped key separation** (proof purposes) within ERC-4337 wallets?

- Separate keys for login auth, asset control, smart contract deployment
- Better modularity and recovery semantics
- UX guardrails against ambient authority

This mirrors best practices we’ve deployed in UTXO wallets—and could serve as a foundation for Ethereum-native lifecycle discipline.

---

## Phase 1 Proposal (3–6 Months)

### 🧪 Pilot Collaborations
With 1–2 Ethereum wallet teams (e.g., Safe, Zerodev, Biconomy), we’ll prototype:

- Envelope-signed signer metadata records
- SSKR backup flows for smart account signer material
- WalletConnect-compatible UR flows for secure signer provisioning

### 📊 Smart Account Recovery Audit
A short report analyzing how Ethereum wallets handle:

- Key backup and recovery
- Role metadata and signer scope
- Failure modes (e.g., deleted app, lost device, stale signer)

This will include interviews with wallet developers and user-facing teams.

### 🧑‍🤝‍🧑 Ethereum Silicon Salon
We’ll convene a working group to discuss:

- Recovery UX fragmentation
- Open tooling opportunities
- Minimum viable standards for signer metadata, recovery hints, and cross-wallet restoration

Blockchain Commons has previously coordinated open standards salons for FROST and cryptographic hardware.

### 📂 Open Source Deliverables
- Reference Envelope schemas for signer metadata and backup scope
- WalletConnect-compatible UR provisioning stubs
- SSKR + CSR demo integrations
- Interchange-format draft for smart account signer data
- Public findings on ERC-4337 retention and recovery gaps

---

## Why Blockchain Commons?

We are not offering a wallet. We’re offering **battle-tested, audited tooling** for decentralized signer safety:

| Capability | Our Tool | Production Usage |
|----------------------------|-----------------------------------|------------------------------|
| Threshold recovery | SSKR | Foundation Devices, SeedTool |
| Metadata encoding | Envelope | Zcash Wallet Interchange |
| Offline provisioning | UR / QR stack | 13+ wallets across UTXO |
| Shard storage (optional) | CSR | In pilot (Zcash) |

We’re a **not-for-profit benefit organization**, operating transparently, independently, and focused on public-good tooling for resilient, user-controlled security. All of our tools are open source and MIT-licensed.

We’ve convened successful **cross-vendor cryptographic coordination** efforts, and we are well-positioned to support Ethereum’s smart account evolution—not by replacing what's working, but by helping fix what’s silently failing.

---

## Funding Request

We are requesting Ethereum Foundation support to:

- Fund core engineering for adapting Envelope, SSKR, and UR to Ethereum-specific flows
- Facilitate developer pilots and collaborative workshops
- Deliver documentation and schemas for Ethereum-native recovery standards
- Publish a public-good report mapping signer lifecycle design gaps

We’re open to co-creating milestones, co-authoring public outputs, and aligning this work with broader Ethereum security and UX initiatives.

---

## Closing Thought

ERC-4337 has proven that modular wallets *can* work. What remains unsolved is how to make them **resilient, recoverable, and user-owned** across their full lifecycle. That’s where we specialize.

We welcome the opportunity to collaborate—through code, conversation, and co-design.

**Christopher Allen**
Principal Architect, Blockchain Commons
📧 [e-mail]
🌐 https://www.blockchaincommons.com
📂 https://developer.blockchaincommons.com