Embedded Wallets: Externally Owned Wallets (EOAs) vs. Smart Contract Wallets vs. Smart EOAs (7702)

Crypto user experiences have been continually improving for the past few years as wallet infrastructure gets progressively better. The dominant trend here has been embedded wallets - wallets embedded directly into crypto applications. These provide more familiar user experiences, and make the wallet feel invisible. Users don’t need to switch to external wallets like Metamask or even have to know they’re dealing with crypto under the hood.

A great example of this is Coinbase Loans. Released in January 2025 , it embeds a crypto wallet directly into the core Coinbase application that can interact with the onchain loan protocol that powers the product experience. Users skip all of the pain points associated with crypto of old — storing seed phrases and clunky popups — and instead get a significantly streamlined user experience.

Developers working with embedded wallets still have a lot of decisions to make. In this blog post we'll take a look at three different approaches for embedded wallets and how they work: Externally Owned Wallets (EOAs), Smart Contract Wallets (Smart Wallets), and Smart EOAs (7702).

What is an Embedded Wallet (EOA)?

When developers discuss “Embedded Wallets” they generally refer to embedded externally owned wallets, or EOAs. EOAs are user-controlled accounts, identified by a public address and managed with a private key that is used to send transactions. In the EOA model, the private key is the user account. That means:

• If the user cannot access the key, they cannot access their wallet

• If the user loses their key, they forever lose access to their wallet

• If a malicious actor gains access to a user’s key, they can steal the user’s entire balance

In the context of embedded wallets, this is critical because users rely on third party services like Turnkey or Privy to provide these keys. In the context of the above:

• If the service goes down, users cannot access their wallet or their funds

• There is a single entity responsible for securing the keys for millions of users, which if compromised could result in a loss of funds for those users

One recent development that highlights the risk users and developers are taking with embedded EOAs is the SimpleHash acquisition by Phantom. Phantom acquired a leading crypto data provider, and is moving to sunset SimpleHash’s services as a competitive differentiator of their wallet offering. This announcement caused hundreds of developers to start scrambling for alternative solutions. In a world of Embedded EOAs, these EOAs are not easily transferable to a new provider or to a self-custodial model - it is certainly not as simple as migrating to a new data provider.

EOAs offer simplicity for builders. With mature tools like Viem and Foundry, they're easy to integrate. But this simplicity comes at a cost, limiting critical UX and security features. For example:

• Standalone EOAs do not support any form of gas abstraction, meaning users always need to have enough funds in their wallet to pay for a transaction

• EOAs cannot batch execute transactions leading to painful UX flows like separate “Approve + Swap”

• EOAs cannot implement onchain security features like contract whitelisting or M/N threshold signatures. Any such offchain implementation would too trust the centralized service provider

• EOAs cannot provide seamless cross-chain transactions and interoperability, which depends on resource locks as well as some of the above functionality

• EOAs cannot provide liquidity access like Coinbase’s Magic Spend, enabling onchain spending with offchain balances

• Hardcoded nonce validation causes wallet throughput issues for high load applications

• For durable products, EOAs are not quantum resistant with NIST setting public deprecation notices for five years out.

What are Embedded Smart Contract Wallets (Smart Wallets)?

Embedded Smart Contract Wallets (Smart Wallets) are the next iteration of UX and security improvements in crypto. Smart Wallets are programs deployed to the blockchain that act as the user’s account. Smart Wallets enable much more functionality than EOAs, driving significant UX and security improvements. So much so that Vitalik, the co-founder of Ethereum, sees a transition from EOAs to Smart Wallets as a requirement for getting mainstream users onchain.

Critically, Smart Wallets remove the single point of failure on third party services by enabling key rotation, and multiple valid private keys on a single account. Examples include Alchemy’s Smart Wallets (contracts code), Circle’s Programmable Wallets (contracts code), and Coinbase Smart Wallet (contracts code).

When an Embedded EOA serves as a signer for a Smart Wallet, the EOA’s private key—typically managed by a third-party service as mentioned above—becomes a revocable component of the Smart Wallet’s programmable logic. The Smart Wallet can implement key rotation or multi-signature schemes, allowing users to replace or revoke the EOA signer without losing access to their funds. This eliminates the rigid vendor lock-in seen in standalone Embedded EOAs, where users are tethered to a single provider’s infrastructure. If a service like SimpleHash shuts down or a provider becomes unreliable, the Smart Wallet can seamlessly onboard a new EOA signer—or even transition to a self-custodial key—without disrupting the user’s account.

Additional key features offered by Smart Wallets include:

• Gas abstraction: Standardized support for gasless transactions, enabling developers to sponsor fees or allowing users to pay gas with ERC-20 tokens instead of ETH, streamlining the user experience.

• Batch execution: Support batched transactions with a single user signature for common flows like “Approve + Swap”.

• Programmable signatures: Enhanced security through onchain validation of Passkeys for local key management, also providing a pathway to quantum resistance when required.

• Session keys and contract whitelisting: programmable wallets mean temporary permissions and restricted interactions with approved contracts, boosting security and control.

• Threshold signatures and MFA: onchain multi-signature or multi-factor authentication options, adding robust layers of account protection.

• Interoperability: Enables seamless cross-chain functionality, leveraging resource locks and other mechanisms to enable interactions across blockchain networks.

• Liquidity orchestration: Enable onchain spending with offchain balances

While Smart Wallets introduce some complexity and minor deployment costs, these are increasingly negligible as tooling matures and adoption grows. The flexibility and security they offer make them a compelling choice for developers aiming to build scalable, user-friendly, and durable crypto applications—paving the way best-in-class user experience without any of the existing security concerns.

What are Embedded Smart EOAs (7702)?

Embedded Smart EOAs, introduced by Ethereum’s EIP-7702 as part of the Pectra hard fork in 2025, offer a hybrid model that enhances Externally Owned Accounts (EOAs) with smart contract functionality. Unlike traditional EOAs, which rely solely on a private key, or Smart Wallets, which are fully deployed onchain programs, Smart EOAs allow an EOA to delegate to smart contract code for a single transaction—enabling features like gas sponsorship, batched operations, or passkey authentication without permanent contract deployment. This approach, championed as a step toward account abstraction, aims to make embedded wallets more versatile within existing EOA-centric ecosystems like MetaMask.

Smart EOAs re-use much of the infrastructure mentioned above for Smart Wallets, relying on the same standardized relaying infrastructure, gas abstraction infrastructure, and smart contracts. There is a lot of excitement around this space, and beyond tools like Alchemy Smart Wallets or Circle Programmable Wallet, teams like Rhinestone and Safe are also heads down building out support for 7702.

However, implementing Smart EOAs can present challenges, and therefore many are choosing phased adoption rather than full support. For providers used to simple EOA key management, support for smart features is a lengthy roadmap which forces developers to stitch together multiple external services to enable things like gas abstraction or session keys.

Additionally, security remains a critical tradeoff. While 7702 enables delegation for advanced features, the EOA's key remains a single point of failure with unlimited control. If compromised, all delegated protections become useless. Ownership flexibility is similarly limited. Though additional signers can be added, the EOA's key keeps unrestricted control. Unlike Smart Wallets Smart EOAs remain vulnerable due to their EOA foundation — making Smart EOAs a compromise rather than a complete solution.

Smart EOAs (7702) offer embedded wallet providers a low-friction way to introduce advanced features without abandoning the EOA model entirely. They’re a practical stepping stone for applications needing occasional programmability—like gasless onboarding or cross-chain actions—while preserving compatibility with mature tooling like Viem or Foundry. Yet, their reliance on a static EOA key and the challenges of retrofitting smart capabilities into EOA systems position them primarily as a transitional solution.

Conclusion: Improving Embedded Wallets for a Frictionless Web3

As the crypto landscape evolves, embedded wallets stand at the forefront of onboarding the next wave of users. The level of security, ease of use, and ease of development varies with each approach:

• Embedded Wallets (EOAs) provide simplicity but with significant security risks and UX limitations

• Embedded Smart Contract Wallets (Smart Wallets) deliver unparalleled flexibility and security with minor complexity costs

• Embedded Smart EOAs (7702) provide a transition path for EOAs to get Smart Wallet functionality but inherit EOA security risks

The future of embedded wallets isn't just about keys, but how invisibly and securely the wallet integrates into the user journey. At Alchemy, our approach goes beyond key management to deliver enterprise-grade smart wallets that eliminate seed phrases, sponsor gas, and batch transactions - all while empowering developers with flexible tools to tailor their UX.