Regulatory Clarity Will Define Crypto Wallets in 2025 | HackerNoon

If you have spent much time in the Web3 ecosystem, you likely feel we’ve been at an inflection point for some time now. As regulatory scrutiny matures from one jurisdiction to the next, one sector feeling the pressure is digital wallet providers.

Wallets are at the core of Web3 for apparent reasons. Without them, you cannot transfer, transact, exchange, onboard, cash out, or store your cryptos and monkey jpegs. For that reason, it’s unsurprising to learn that top wallet providers like MetaMask found success with 100M users by perfecting browser-based DeFi interactions. Similarly, Trust Wallet carved out 70M users through mobile dominance.

Exchange wallets also play a massive role in the wallet space, though they pursue different strategies. Coinbase’s wallet leverages its enormous exchange userbase to simplify onboarding, while Crypto.com focuses on making DeFi accessible to retail users. Both know their customers will choose convenience over decentralization (though they’re not necessarily against the latter).

These technical choices face a regulatory stress test. For example, Brazil’s push to restrict self-custody wallets threatens the non-custodial model in that region. That would mean no more MetaMask for this country’s citizens.

Across the ocean, Europe’s Markets in Crypto Assets (MiCA) regulations have already forced Tether to wind down its EU stablecoin, resulting in the company offering redemption of its EURT token. These moves expose a core weakness: regulators can target users’ interfaces to access Web3, even if they can’t control the underlying protocols. MiCA enforcement has already prompted major players to reconsider their regional presence.

Of course, there are not all red flags. Consider Singapore’s forward-thinking Project Guardian, which embraces the most desirable elements of Web3. But regardless, it will be the projects that are well-prepared for regulatory clarity that have staying power.

Stellar is unique because it was built back when most people ignored regulation. The team figured institutions would eventually want the benefits of crypto without the headaches of compliance. Launched in March 2024, the new Stellar smart contracts platform Soroban takes that same practical approach to DeFi. Instead of fighting regulators, the Stellar blockchain gives institutions the tools to build applications that work within existing rules.

Web3 Wallets on Stellar

Freighter Wallet is a non-custodial browser extension wallet built for the Stellar ecosystem. With full support of Soroban’s latest features, Freighter has quickly become the go-to wallet for the emerging DeFi ecosystem on Stellar among both users and developers.

Lobstr Wallet is the most popular mobile-first wallet explicitly designed for Stellar. Its user-friendly interface makes managing Stellar Lumens (XLM) and Stellar-based assets simple, and the wallet’s built-in exchange allows users to trade assets directly within the app.

Solar Wallet, developed by SatoshiPay, is another Stellar-specific wallet. The team built Solar with speed, a smooth user experience at its core, and baked-in integration with the Stellar Decentralized Exchange (DEX).

Trust Wallet is a Binance product that also supports Stellar assets. With a user-friendly interface, this wallet makes it easy for beginners and experienced users alike to manage their Stellar assets.

Compliance or Design?

DeFi changed the way wallets work. MetaMask started as a simple key manager, but now you can swap tokens and stake assets in the interface. Trust Wallet added a DApp browser because users kept asking for easier access to DeFi protocols.

This shift matters because wallets, not protocols, shape how most people use DeFi. Try explaining Uniswap’s smart contracts to a new user. By comparison, users understand the “Swap” button in their wallet.

But here’s the problem: better interfaces attract regulatory attention. Regulators don’t care much about raw protocols. They care about the tools people use to move money. When those tools look like banking apps, they get treated like banks.

The CFPB made this clear with their November 2024 rule – if you’re processing over 50 million annual transactions, you’re now under federal supervision. We’re talking about seven major companies that control 98% of the digital wallet market.

What does this mean in practice? These wallet providers need hardcore security, including encryption, tokenization, multi-factor auth, and real-time monitoring. The CFPB is investigating everything from privacy practices to how these companies handle fraud.

Interestingly, the rule explicitly excludes crypto transactions. The CFPB admits it needs more data before tackling digital assets. However, as of January 9, 2025, we’ll see complete banking-style oversight for traditional payment flows through these interfaces.

The message is clear: Build a popular enough interface for moving money, and you’ll face bank-level scrutiny. Recently, the CFPB launched another initiative to examine privacy protections in digital payments.

Stellar Soroban Offers a Middle Ground for Compliant DeFi

Soroban’s March 2024 launch transforms what’s possible for digital wallets in the Stellar ecosystem. Wallets will begin upgrading to support Soroban’s capabilities, which include WebAuthn-powered smart wallets and direct DeFi protocol integration. Stellar delivers performance at 10 TPS on Soroban (alongside Stellar’s existing 200 TPS).

The Stellar Development Foundation’s $100 million Soroban Adoption Fund also strategically expands the resources available for teams that aim to expand wallet capabilities while maintaining the security standards institutions need.

Soroban solves a real problem: Institutions don’t need another high-throughput chain with questionable security. They need infrastructure to build sophisticated financial products while meeting their compliance requirements. Soroban-enabled wallets deliver precisely that – combining Stellar’s robust compliance tools with the programmability modern finance demands. It’s not the flashiest solution, but it might be the most practical one.

Where Wallets Go Next

We’re headed for a split in how people access digital assets. If you want to use DeFi without restrictions, you’ll need to figure out non-custodial wallets and likely give up some convenience. If you want something more like traditional banking, use regulated interfaces like Coinbase’s wallet or tools built on Stellar.

That isn’t necessarily bad. Banks and cash have coexisted for centuries. DeFi and regulated crypto tools will do the same. What matters is that users understand the tradeoffs they’re making with each choice.

The real test comes next: will wallet teams find ways to satisfy regulators without sacrificing what makes DeFi powerful? Or will regulation force users to choose between convenience and control? Anyone building wallets today has to answer these questions.