DISCLAIMER: Please be advised that this article is not intended as investment, tax, financial or legal advice. Interested readers should seek out professional advice for their particular situation.
Decentralized Finance (DeFi) is a rapidly growing industry, and a large part of its success relies on DeFi wallets. While DeFi wallets of the past were clunky and slow, massive strides have been made in the past few years and DeFi wallets are getting better and better.
DeFi wallets are at the core of the concept of being your own bank. They allow freedom, accessibility and transparency, all while ensuring the user is still in charge of their own funds. In this article, we walk through what DeFi is, what a DeFi wallet is, and the best DeFi wallets currently available.
In very simple terms, Decentralized Finance or DeFi is an ecosystem of different financial applications that are built on blockchain networks. The Ethereum blockchain has been the most popular to build on so far because of its smart contract capabilities, which we’ll discuss in more detail later.
The main purpose of DeFi is to create an open-source and transparent financial service ecosystem. In theory and in practice, DeFi is available to everyone and operates without any type of central authority. Current DeFi products and services include banking services, decentralized marketplaces, custodial services, investment services, decentralized exchanges, borrowing and lending, and more.
The majority of DeFi applications make use of smart contracts. While a normal contract makes use of legal terminology to specify the details of the relationship between entities entering a contract, a smart contract makes use of computer code. Because the terms are written in computer code, smart contracts also have the ability to enforce the contract terms through computer code. This allows for the automation and reliable execution of many business processes that would normally require manual supervision.
The main purpose of a DeFi wallet is to allow users to store their own funds with no reliance on a third party to hold their assets. Essentially, it leaves you in charge of your funds with the full freedom to do as you please. The only person in charge of your funds is you, which is a pretty revolutionary concept when you consider that banks are ultimately in control of your money.
Unlike centralized wallets, DeFi users do not have to verify their identity or provide any background information. The anonymity of DeFi wallets is appealing to many and means that your identity is never at stake. However, does that mean DeFi wallets are not safe? The answer here might surprise you. DeFi wallets are arguably the safest options on the market. The only catch is that because you are in charge of your wallet, if you lose important login information there is typically no way to recover it.
The majority of DeFi wallets are Ethereum-native, which means that they support Ether, ERC20 tokens and ERC721 tokens. Additionally, most DeFi tokens are supported since they are also built on the Ethereum blockchain.
Most DeFi wallets are web3 wallets and tend to have a number of similar characteristics. The core components of most DeFi wallets include:
With the number of DeFi wallets increasing every day, there are a few things that you need to consider when selecting a wallet. As always, it’s important that you do your due diligence when selecting a wallet. Here are some pointers to get you started.
The first thing to look at is which assets are supported on the platform. Naturally, different wallets support different assets, and it’s pretty important that your wallet is compatible with whatever you wish to store. For example, some DeFi wallets don’t support Bitcoin so will not be suitable for someone who only has Bitcoin.
Secondly, DeFi wallets are essentially your access point to the large DeFi ecosystem, so it’s important that whatever wallet you choose is supported by the product that you are hoping to use. Be sure to do your research here and make sure that what you are looking for is supported.
Another thing to consider is the social presence of the DeFi wallet you are looking to use. Any reputable DeFi wallet will be active on social media and engage with their community. If you aren’t sure about a wallet, check out their social media accounts to see what their engagement is like and how active they are.
Lastly, and most importantly, is your seed phrase. In 99% of situations, if you lose your seed phrase it is impossible to recover your wallet, including any funds that may be in it. As such, it is vital that you remember your seed phrase. It is typically recommended to write your seed phrase down as well as saving it somewhere secure on your phone or computer.
There are many different DeFi wallets that offer a wide range of services. Here are our top picks.
MetaMask is one of the most widely supported DeFi wallets in the DeFi ecosystem. It is primarily used as a browser extension, which means users can easily access DeFi through their internet browser. Additionally, MetaMask is preparing to release a mobile app, which means you will soon be able to manage your virtual assets from anywhere.
Since MetaMask is built on the Ethereum blockchain, it only supports Ethereum-based assets and there is no sign of this changing in the future. That being said, the platform has over one million registered users and is one of the best non-custodial wallets on the market.
By having a mobile-first approach, Argent is extremely friendly for non-technical users and those who are new to the DeFi space. The focus on user experience means the app offers a Venmo-like experience that is simple yet effective. Additionally, there are no fees on Argent and there is no need to deposit ETH to get started.
Argent has another unique feature - you can recover your wallet without your seed phrase and without centralization. Yes, you read that correctly! Argent Guardians allows you to add trusted people and devices to help you recover your wallet. Guardians have limited permissions, their tasks are predefined by smart contracts, and they can be removed at any time. It’s a very innovative approach for wallet recovery in the DeFi space.
You’ve most likely heard of Coinbase before, but the Coinbase Wallet is their DeFi application. It’s one of the friendliest wallets for those looking to dip their toes into DeFi for the first time. It’s easy to transfer funds, buy and store tokens, and interact with other decentralized apps.
The Coinbase Wallet is non-custodial, but your private keys are stored directly on your device, making it easy to recover your wallet if need be. Additionally, it is one of the few DeFi wallets that stores Bitcoin, and it also supports a wide range of tokens.
As you can see, DeFi wallets are vast and varied, and the ecosystem is constantly growing. In the end, this only benefits users as there is something out there for everyone, whether they are completely new to DeFi or have a lot of experience under their belt. As the industry continue to develop, we can only expect that DeFi wallets will continue to get better and better.
DeFi wallets are integral to the long term success of DeFi as a whole. Wallets allow for users to not only manage their assets, but to also interact with other DeFi apps. Non-custodial wallets offer a much needed alternative to traditional banking and centralized finance. Despite how young the industry is, DeFi has made massive progress and it’s clear that DeFi is here to stay.