In our earlier post about smart wallet use cases, we spoke about some of the features of smart wallets such as Transaction Bundling and Sponsored Transactions. In this post, we will take a brief look at how these features work and where they can be used.
Transaction Bundling
Transaction Bundling is a superior transaction management system used by smart wallets to simplify the complex technical steps involved in making cryptocurrency transactions. There are plenty of use cases for transaction batching in today’s Web3 market.
Decentralised Finance (DeFi)
DeFi is the blockchain’s variant of financial services and an alternative to today’s popular banking, investment and other financial service offerings. It is aimed at using blockchain’s foolproof decentralized ledger management system to give users better control over their funds and digital assets. But DeFI is an emerging technology and making transactions involves time-consuming steps of moving assets between different apps, switching between different wallets and signing each transaction multiple times to ensure authenticity for a dApp to process the transaction. This process also requires users to pay transaction fees multiple times.
Transaction bundling is used in such use cases to take away the complex technical steps involved and simplify the transaction process so that an end user can perform the transaction easily. They would just have to initiate a transaction and sign the transaction once when approval is needed instead of multiple signing authentications to process a transaction.
Two of the prominent use-case in DeFi where transaction bundling can be applied are Swap transactions and Lend & Borrow transactions. Let us take a look at how this feature can be applied to these two types of transactions.
Swaps — Swap transactions especially those involving different third-party traditional crypto wallets and cross-chain transactions are very time-consuming and security-intensive processes. A user would need to connect multiple wallets to dApp UI and is necessitated to sign transactions multiple times (4–5 times or even higher) depending on wallet/bridge and liquidity aggregator dApps involved. Missing out even a single step in between would lead to the failure of the transaction and another disadvantage is that user also misses out on the best price for making transactions. Here at Kana Labs, our smart wallet SDK works together with our Web3 middleware SDK which combines cross-chain solutions (asset bridges & messaging protocols) and liquidity aggregators into one unit. Transaction batching is a process in smart contracts that abstracts away the need for users to manually perform multiple steps when making such transactions and instead combines them into a one/two-step process with just single transaction signing/authentication. This means that a user can now complete the complex & time-consuming cross-chain transaction process with just one or two mouse clicks in a simple and fast manner, reducing transaction time and getting the best rates at the same time.
Lend & Borrow — Typical lend and borrow process in the DeFi space requires a user to submit collateral before borrowing new tokens. There is also the issue of on-chain liquidation stemming from a token imbalance in liquidity pools and sharp price swings in token price. Users need to constantly watch the market price of tokens and keep supplying adequate collateral. The smart wallet can be pre-programmed in such a way that it constantly monitors the price of assets and supplies adequate collateral and notify the user when the available balance reaches a critical point. Also, just the process of submitting collateral and borrowing can be intensive and time-consuming for new users. By applying transaction batching, we can now make the whole process of submitting collateral and borrowing assets into a one/two-step process with single transaction signing/authentication requirements.
Digital Payments
Digital Payments is another area in which transaction bundling can be applied easily and an area to focus on as we work to bring mass adoption of Web3 and migration of users from the Web2 to Web3 market. Two common Web2 instances where transaction bundling can be used to innovate digital payments include automated bill payments and POS/e-commerce payment transactions both of which take up a large part of the retail transaction market
Automated Payments — There are scenarios where a user would need to pay monthly bills or a firm requires to pay salaries to its employees etc which are recurring payments and mandatory. And often, the amount involved in these payments and the number of transactions to be done within a pre-defined time limit has already been fixed. In such cases, these payments can be bundled together as a single transaction and processed at the same time be it to the same wallet address or a different wallet address. This not only reduces the gas fees associated with these transactions but also ensures that transactions are made on time and transaction handling time frame.
POS/e-commerce transactions — When making a purchase at an online e-commerce website or from a retail store, multiple items are brought during the shopping bout and the payment for these multiple items can be bundled together and processed as a single transaction.
Sponsored Transactions
Sponsored Transaction is a scenario where a third party pays the gas/transaction fee for transactions performed by the user. Some of the use-case scenarios include promo activities by shops/merchants and dApps and Referral Program and unique use-cases.
Promos — When a shop/merchant is conducting a clearance sale or festive sale, they can encourage customers to make crypto transactions by agreeing to pay gas fees for all payments made by their customers in their POS smart wallet. Similarly, when a DEX is conducting a contest to promote a new feature or product update, they can waive transaction fees for users making transactions in their platform during the duration of the contest by choosing to pay gas fees for all the transactions.
Referral Programs — Often, affiliates referred to a platform by introduction agents may slow down their transaction volume after a while and may even go inactive. In such situations, the introduction agent can work together with dApp platforms to encourage active participation from his affiliates by agreeing to pay their gas fees fully or partially if they transacted for a minimum volume within a certain time frame.
Unique Use-cases — The platform or entity can mention conditions during which they will choose to bear the gas fees for particular transactions. This depends on the scenario and users/entities involved.
Our Kana Wallet SDK allows our clients to improve their transaction handling and management capabilities by providing the above-mentioned features. Please click here to check out our smart wallet offerings.
