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How it Works

What is a Smart Wallet?​

A Smart Wallet is a wallet that is controlled by a smart contract following the ERC-4337 specification.

Ethereum has 2 types of accounts to transfer and receive tokens: EOAs (Externally Owned Accounts) and Contract Accounts. A smart contract wallet is a wallet managed by a contract account instead of an EOA. A smart wallet is a wallet type requiring no private keys or seed phrases. Smart contract wallets rely on code instead of private keys to secure and recover wallet information.

A smart contract wallet is a type of Web3 wallet powered by smart contracts.

This smart wallet is unlocked by a 'key' - a personal account. This key can be anything from a MetaMask wallet or even a Local Wallet and is used as a way to 'sign in' to the wallet.

Benefits of Smart Wallets:

  1. Optimized transaction efficiency & batch transactions
    • Combine multiple transactions into a single transaction to save on gas fees
  2. Improved Security Features
  3. Social & Multi-Sig Recovery
    • Recover a wallet without seed phrases/passwords
    • Nominate a trusted person to recover your wallet in the case of an emergency

How does it work?​

When sending a transaction using a smart wallet, the execute method is called on the account contracts which sends a UserOperation object that defines the purpose of the transaction and includes the relevant data for verification.

The requested UserOperation goes to an alt mempool — a waiting area specifically for pending smart account transactions — and waits for bundlers (nodes) to pick up transactions, bundle them, and pay the gas, via a paymaster contract, for the transaction to register all UserOperation in a block.

To prioritize transactions, bundlers use a similar logic to how miners or validators prioritize transactions in the mempool based on the fee associated with each of them. Bundlers earn the combined fee paid within all UserOperation they bundled.

These bundled UserOperation are then sent to the EntryPoint contract which verifies the UserOperation and executes the transaction.

To learn more about how smart wallets work, read our smart contract deep dive.

Smart Wallet Flow

Terminology​

UserOperations​

This is the data structure for the transaction that the user wants to perform. It contains the following fields:

  • sender: The account making the operation.
  • nonce: Anti-replay parameter; also used as the salt for first-time account creation.
  • initCode: The initialization code needed to create the account (needed if and only if the account is not yet on-chain).
  • callData: The data to pass to the sender during the operation.
  • callGasLimit: The amount of gas to allocate for the operation.
  • verificationGasLimit: The amount of gas to allocate for the verification step.
  • preVerificationGas: The amount of gas to pay for to compensate the bundler for pre-verification execution and calldata.
  • maxFeePerGas: Maximum fee per gas (similar to EIP-1559 max_fee_per_gas).
  • maxPriorityFeePerGas: Maximum priority fee per gas (similar to EIP-1559).
  • paymasterAndData: Address of paymaster sponsoring the transaction, followed by extra data to send to the paymaster (empty for self-sponsored transaction).
  • signature: Data passed into the account along with the nonce during the verification step. Should depend on the chainid and EntryPoint address to prevent replay attacks.

EntryPoint​

The EntryPoint is a singleton contract (a contract that has a predictable address that is the same on every chain). It has two methods that are used as entry points to execute bundles of UserOperations: handleOps and handleAggregatedOps.

Bundler (relayer)​

A bundler is a smart contract that bundles multiple 'UserOperations' into a single bundle, a handleOps call, to the EntryPoint contract.

Paymaster​

A paymaster is a smart contract that relays transactions. It provides a service that enables a third party to pay the transaction fee on behalf of the user by funding the paymaster in advance. The Paymaster acts as a gas reserve which then can be used during the call execution via the EntryPoint contract. The thirdweb Smart Wallet paymaster is initially paid for by thirdweb. By using an API key, the usage is tracked and billed.