In this post, part of our non-custody series, we’re diving into why non-custodial wallets are seeing a surge in adoption.

Early adopters were drawn to crypto for its novelty, core principles of decentralization, and speculation. But with the latest uptick, we have to ask the question: why are non-custodial wallets becoming more appealing to everyday users?

The monthly downloads across the top 21 non-custodial wallets, showed slight year-on-year growth in Q1 this year, signaling a recovery from the rapid expansion at the end of 2020 and a decline thereafter.

Mainstream adoption of non-custodial wallets is still in its early stages, but nearly 5 million mobile crypto wallet downloads in July 2024 for the top 10 apps indicate growing interest and demand, as reflected in the data on mobile crypto wallet downloads.

Early adopter motivation

To help us understand why demand is growing, let’s first look at the value proposition that attracted early adopters.

Full ownership and control

Non-custodial wallets give users complete control over their private keys, meaning they have full ownership of their digital assets without relying on third parties. This aligns with the core principle of decentralization in the crypto space.

Enhanced privacy and censorship resistance

These wallets allow users to maintain their privacy as they generally don’t require Know Your Customer (KYC) processes, reducing the amount of personal information shared with third parties. Non-custodial wallets are less susceptible to censorship or restrictions imposed by centralized authorities, offering greater freedom in financial activities. 

A supporting trend is perhaps evident in this survey by Consensys in 2023 where 83% of respondents prioritize data privacy and want more control over their online identity. Regions like Nigeria and Argentina show high enthusiasm for crypto and Web3, while Europe and Japan remain more skeptical.

Security against centralized risks

Non-custodial wallets protect users from risks associated with centralized entities, such as hacks, regulatory shutdowns, or mismanagement of funds by custodial services. For instance, the collapse of FTX in November 2022, which led to the loss of billions in customer funds, is a stark reminder of the dangers of centralized exchanges where users don’t control their assets. Similarly, the Silicon Valley Bank collapse in March 2023 left many startups without access to their funds, illustrating the vulnerability of centralized financial institutions. Additionally, the disruptions at Evolve Bank caused account freezes and service interruptions, further emphasizing the risks of relying on centralized entities for financial services. Non-custodial wallets, by contrast, offer a decentralized solution where users maintain direct control over their assets, reducing exposure to such centralized risks.

Speculation and hype cycles

The rise of non-custodial wallets can also be attributed to the cyclical nature of speculation and hype in the crypto space. Each major crypto bull market brings an influx of new users eager to capitalize on price movements, leading to increased demand for secure, non-custodial solutions. In these periods, many users seek control over their assets to mitigate the risks associated with leaving funds on exchanges, especially in times of heightened volatility.

New trends driving adoption

Direct access to DeFi and dApps

Non-custodial wallets are essential gateways to decentralized finance (DeFi) platforms and decentralized applications (dApps), enabling users to interact directly with blockchain networks for activities like trading, lending, and borrowing without intermediaries.

The ecosystem of DeFi and dApps has started to mature having been in the market for multiple years, building up reputation and trust. Popular DeFi apps such as Uniswap and Aave empower users to trade tokens and lend assets straight from their non-custodial wallets, eliminating the need for traditional financial intermediaries. As of September 2024, the total value locked (TVL) in DeFi has reached $100 billion, underscoring the rapidly growing adoption of these decentralized platforms and the crucial role non-custodial wallets play in facilitating this interaction.

Popular dApps like Zerion (screenshot below) and OpenSea are key examples of platforms that users can access directly for DeFi and NFT activities. These innovations ensure a smoother, more accessible user experience, fostering broader adoption in the crypto community.

Growing ecosystem and usability

The rise of user-friendly non-custodial wallets, such as Argent with its smart contract-based recovery features, MetaMask which supports multiple chains like Ethereum and Binance Smart Chain, Coinbase Wallet and Trust Wallet with broad multi-chain support, Zengo, which eliminates the need to manage a private key while ensuring full recoverability through threshold signatures, has significantly lowered the barrier for both newcomers and seasoned users to engage with decentralized finance (DeFi).

There has also been more focus on real-world use cases like we have recently seen with Kontigo and Decaf. Both companies are targeting the Latin American market, utilizing USDC as the core asset and offering multiple on/off ramps along with optional debit cards. Kontigo also features a yield account with an annual return of 8%. These examples demonstrate how non-custodial neobanking products are beginning to address real-world financial needs, signaling a wave of new solutions as the pieces continue to come together. Decaf and Stellar collaborated on a case study on how crypto is used in the real world where it matters most.

Ease of development

Non-custodial wallets are increasingly integrating advanced features that simplify development and user experience. For example, Coinbase’s Smart Wallets leverage account abstraction to streamline interactions with decentralized applications, making it easier for developers to build and users to manage their assets. Infrastructure providers like Fireblocks is making it easier to add non-custodial MPC-embedded wallets to apps.

These factors contribute to the increasing adoption of non-custodial wallets as users seek more control, privacy, and direct engagement with the blockchain ecosystem.

Better onboarding and education

All of the major exchanges and wallets invested significant resources into education portals helping customers learn more about how the systems work and the risks associated with it, e.g. Argent Learn, Coinbase Learn, MetaMask Learn and more.

Growing adoption of stablecoins

Non-custodial wallets are gaining popularity as safe havens for stablecoins, particularly in high-inflation regions. USDC's global transaction volume exceeded $16 trillion by August 2024, reflecting its broad adoption.

These wallets offer secure storage, protecting users from currency devaluation and centralized exchange risks, enabling safer participation in the global financial system.

Countries like Venezuela, Turkey, Nigeria, and Argentina have seen severe inflation. To give context to the severity of the problem, below is the inflation map for 2024 by the International Money Fund showing that over half a billion people are effective with inflation above 10% in 2024.

Stablecoins are also seeing growing adoption for cross-border payments, with companies like Paypal and Visa among early adopters. Solana leads blockchain payments but faces scalability challenges, needing significant growth to compete with established payment networks.

Solana is conducting pilots with Visa and Shopify. Earlier this year Stripe also announced plans to support USDC checkout.

Conclusion

Non-custodial wallets are no longer just for early crypto adopters—they’re gaining real momentum as more people recognize the benefits of control, security, and ease of use.

That being said, looking at the problem of inflation alone, being able to hold USDC without having to trust a custodian is a perfect value proposition for the mainstream user - benefits of blockchain, but backed by a stablecoin and reliable currency.

As we continue to explore this space, we’ll dive deeper into how these wallets are evolving and reshaping the financial landscape.

Let us know if you have any questions about our non-custodial white-label solution.