From messari by Mihai Grigore & Seth Bloomberg

Key Insights

Primer

With over $100 billion of assets stored in 8+ million deployed smart accounts, Safe is one of the go-to solutions for smart contract wallets. Previously called Gnosis Safe, Safe aims to create the standard for ownership with smart accounts.

Safe is largely used as a multi-sig wallet. It enables individuals to securely self-custody their funds and organizations to manage their treasury operations effectively. As per Messari's wallet landscape analysis, Safe is a wallet infrastructure aggregator, in addition to offering smart contract wallets. Safe thus serves both as a:

Safe{Core} Protocol takes a vendor-agnostic approach to enable any developer to contribute to the protocol. Additionally, one of the key considerations for the Safe{Core} Protocol will be fee design and implementation.

Safe community voted in favor of making the SAFE token transferable as of April 23, 2024. Simultaneously, a successful proposal brought up strategies to enhance the utility of the SAFE token by linking the ecosystem activity growth to token utility.

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Key Metrics

Network

The usage of Safe can be gauged in terms of account and transaction activity across Safe’s multiple deployments. As of Q1’24, Safe has been deployed on 10+ networks, including Optimism, Polygon, zkSync, Arbitrum, Avalanche, Base, BNB Chain, Celo, Ethereum, Fantom, and Gnosis Chain.

Active Accounts

Monthly average users are measured as Safe smart accounts with at least one outgoing transaction a month.

Safe had over 1.6 million monthly average users in Q1’24, up 181% QoQ from a total of nearly 600,000 in Q4’23. The number of monthly average Safe users on Optimism surged to 1.58 million in Q1’24 (up 211% QoQ), totaling a whopping 96% of Safe’s monthly average users in Q1’24. Polygon and zkSync accounted for 1.5% and 1.2% of Safe’s monthly average users in Q1’24, respectively.

The rise in Safe accounts on Optimism can be largely explained by the Worldcoin protocol deciding to migrate to OP Mainnet in Q2'23. Since then, Worldcoin has deployed Safe smart accounts on the OP Mainnet for its World App users. As of March 31, 2024, a total of 2.85 million Worldcoin smart accounts have been deployed on Safe.

With the recent announcement of the World Chain Layer-2, it remains to be seen to what extent the number of monthly active users of Safe smart accounts on Optimism will continue to grow over the coming quarters. For context, the Dencun upgrade implemented EIP-4844, which has led to significant reductions in transaction costs on Layer-2s. In turn, the lower transaction costs may alleviate the issue of high usage costs associated with smart wallets, as per Messari’s recent analysis.

New Accounts

Over 2.2 million Safe smart accounts were newly created in Q1’24, up 124% QoQ from 1.0 million in Q4’23. In terms of the corresponding chains, Optimism accounted for 1.9 million newly created Safe smart accounts, i.e., 85% of all Safe accounts newly created in Q1’24, up 18% QoQ. More than 99% of the newly created Safe smart accounts on Optimism were Worldcoin Safe account deployments in Q1’24. Simultaneously, zkSync and Base accounted for 137,000 (6%) and 77,000 (3%) of newly created Safe smart accounts, respectively.

With more than 71,000 (3%) newly created Safe smart accounts, Polygon was down 92% from 847,000 in Q2’23. This growth divergence between Optimism and Polygon can be explained by Worldcoin migrating in Q2’23 from Polygon to Optimism’s ecosystem via OP Mainnet.

Adoption Rate

In line with the growth in active Safe users, transactions involving Safe smart accounts — Safes — surged 161% QoQ from 6.3 million in Q4’23 to almost 17 million in Q1’24. For perspective, the share of Safe transactions relative to all transactions reached 2.5% in Q1’24, up ~4x YoY from only 0.65% in Q1’23.

The vast majority of Safe onchain activity now happens on Layer-2 scaling solutions, with Optimism accounting for 93% of all Safe transactions, followed by Gnosis and zkSync with 2% each. As per Messari's wallet landscape analysis, infrastructure aggregators such as Safe are expected to further benefit from an influx of new crypto applications.

Financials

Currently, Safe does not generate any revenues from its smart contract wallet or its general suite of product offerings. However, the gas fees originating from Safe smart contract wallets can serve as a proxy for the general value associated with Safe across its multiple deployments. In this sense, one of the key considerations for the Safe{Core} Protocol will be fee design and implementation. Simultaneously, a successful proposal introduced strategies to enhance the utility of the SAFE token and potentially generate revenue by linking ecosystem activity to token utility.

Transaction Fees

Gas spent on Safe transactions grew 138% in Q1’24 to over 34,500 billion gwei, or 34,500 ETH, in line with the growth of transactions involving Safes. General activity migrated from Ethereum Mainnet to scaling solutions like Optimism, coupled with the introduction of EIP-4844 and World Chain Layer-2. As a result, Safe may see lower average fees per transaction in the coming quarters. However, the expected reduction in average fees per transaction may continue to be offset by a growing user base catalyzed by these low-fee Layer-2 chains.

Assets Stored in Safes

A further way to gauge the economic value of Safe accounts is to consider assets under management (AUM). In the case of Safe, the dollar value of assets stored in Safe smart accounts is a suitable proxy for AUM.

As of the end of Q1’24, there was over $112 billion in assets stored in Safes, up 88% QoQ. For context, the value of assets stored in Safes in Q1’24 is on par with Robinhood’s AUM, which reportedly reached $119 billion in Q1’24.

In terms of distribution by chains, Ethereum leads the way with $88 billion (83%) of assets stored on Safe smart accounts, followed by Optimism and BNB Chain with $9 billion (9%) and $4 billion (4%), respectively.

Notably, while Optimism accounts for 93% of transactions and 96% of monthly active users in Q1’24, its corresponding share of assets stored in Safes is only 9%. In turn, Safe smart accounts on Ethereum store larger amounts of assets that are moved less frequently than on Layer-2s.

Qualitative Analysis

Key Developments

Safe{RecoveryHub}

Safe has introduced the Safe{RecoveryHub} to enable users to set up account recovery for wallets on Ethereum, Arbitrum, Optimism, Polygon, and Gnosis Chain. Various recovery options will be gradually rolled out, starting with self-custody recovery and eventually including third-party recovery via partnerships with Sygnum and Coincover in H1 2024.

The self-custodial recovery feature allows users to set a "Recoverer" that can initiate the recovery process for an account in addition to a review window during which users can reject the recovery and a transaction expiry period.

Launch on Blast

The Safe protocol is now available on the Blast network via the Brahma protocol. Blast is the latest addition to the suite of 10+ networks the Safe protocol is deployed on, including Ethereum, Polygon, Optimism, Arbitrum, Gnosis, Base, zkSync, Fantom, Avalanche, and BNB Chain.

Key Governance

SAFE Token Utility (SEP 21)

Safe Ecosystem Proposal (SEP) 21 passed on March 18, 2024, formally outlining strategies to enhance the utility of the SAFE token as per SEP 3:

For context, the existing utility of the SAFE token is primarily governance, allowing token holders to vote on SafeDAO matters. The upcoming Safe Activity Program is designed to reward active users of the Safe Smart Account with benefits like sponsored transactions, seasonal NFTs, and potentially SAFE tokens. It ultimately aims to increase engagement and token distribution among active users. Notably, SEP 21  states that SAFE token utility should not be a requirement for developers using Safe smart accounts. The rationale behind this is to avoid hindering adoption.

To enhance the utility of Safe smart accounts, SEP 21 emphasizes the development of account abstraction as the core, and the implementation of multiple abstraction layers like Network, Username, Payment, and Security Abstractions. Future explorations of token utility will involve:

SEP 21 also emphasizes the need to consider the impact on various stakeholders, including users, builders, and tokenholders. SEP 21 aims to keep the strategic focus aligned with the broader goals of the Safe ecosystem.

SAFE Token Transferability (SEP 22)

This successful proposal makes the SAFE token transferable as of April 23, 2024. Unvested tokens would remain in the vesting contract and thus would not become transferable after unpausing the SAFE token. The proposal follows the completion of all milestones established in SEP 3.

SAFE tokens will continue to be used to govern SafeDAO and provide additional benefits within the upcoming Safe Activity Program, as outlined in SEP 21. Additional utility for the SAFE token is currently being explored through the Safe Token Utility Sprint 1 approved in SEP 23.

Safe Token Utility Sprint 1 (SEP 23)

This successful proposal requested 50,000 USDC to create and fund a working group responsible for the research and design of three to five SAFE token use cases related to:

The sprint will be broken into the following three phases:

Treasury Manager (SEP 24)

This successful proposal chose karpatkey, a financial services provider for DAOs, to perform treasury management for the SafeDAO. As part of the mandate, the treasury management of the joint SafeDAO <> GnosisDAO treasury will be delegated to karpatkey. As a service provider to SafeDAO, karpatkey is required to contribute to:

The joint SafeDAO <> GnosisDAO treasury contains 5% of SAFE tokens. Karpatkey will use this treasury to create liquid Safe markets with up to 2.5 million SAFE used for incentivizing SAFE DEX liquidity on the Gnosis Chain.

Additionally, the proposal stated that the joint treasury will provide liquidity for Safe on Ethereum and Gnosis Chain. Karpatkey may also diversify the treasury in the future, to use assets for staking or other means to gather yield on the assets.

The proposal explains that this agreement has an indeterminate time duration, and the SafeDAO may terminate it by another governance vote. There will be a 2% annual fee on assets under management, paid in monthly installments.

Split Delegation (SEP 16)

This successful proposal requested 60,000 USDC to increase governance participation by building an updated delegate registry and Snapshot strategy.

The plan includes the following three key features:

Enhance Modular Safe Accounts (SEP 13)

This successful proposal requested 60,000 USDC in funding over 15 weeks to enhance modular Safe Accounts by providing a platform for developers to build, publish, and verify modules through onchain audits, and for users to easily explore and enable these modules. ZenGuard plans to onboard module developers and auditors, provide a module explorer Safe App, and work on an SDK to facilitate integration and automation.

Governance Analytics Dashboard (SEP 12)

This successful proposal requested 50,000 USDC to support infrastructure costs and the development of insightful governance reports from February to July 2024. The initiative, aligning with the strategy to increase governance participation, will provide analytics on voting patterns, participation rates, and the distribution of voting power. It is aimed at fostering informed decision-making within the SafeDAO community.

Governance Amendment (SEP 11)

This successful proposal amended SafeDAO's governance processes in Season 1, Sprint 4. The amendments include the introduction of partial delegation, a revised voting mechanism for OBRA initiatives, adjustments to the voting timeline, an extension of the soft launch for Season 2, and clarification for OBRA initiatives with implementation dependencies.

The introduction of partial delegation, developed in collaboration with Snapshot by Gnosis Guild, is designed to increase voter turnout by allowing larger tokenholders to delegate parts of their voting power separately. The revised voting mechanism for OBRA initiatives aims to manage budget constraints effectively through a ranking system for approved initiatives.

Key Events

Multis Acquisition

Safe has announced the strategic acquisition of Multis, "an all-in-one financial software designed for crypto businesses." According to the announcement, the acquisition will help Safe "solve the complexities of cross-chain interaction through network abstraction, with the end goal of enabling users to manage assets across diverse blockchain networks effortlessly." The Multis senior leadership team joined the Safe Ecosystem Foundation, and former Multis CEO Thibaut Sahaghian will serve as the Safe Core Team's Network Abstraction Lead.

Base Partnership

Safe has announced a partnership with Base to offer modular tooling for developers building with smart accounts on Base. To support gas costs incurred by developers while leveraging Safe's smart account infrastructure, Base is offering (up to) 1 ETH in gas credits during the program's initial 12-month launch. Safe x Base builders can fill in this form to register for the gas credit program.

Closing Summary

While most smart contract wallets have struggled to find mainstream adoption, Safe has continued to be an exception. As the leading smart contract wallet system, Safe users continued to derive value from the core wallet product in Q1, with over $112 billion of assets stored in Safes, which is on par with Robinhood’s AUM which reached $119 billion in Q1’24.

Safe witnessed an all-time high in most usage metrics in Q1’24. Safe users continued to derive value from the core wallet product, with 1.6 million monthly active accounts in Q1’24 (up 18% QoQ). In addition, the overall share of transactions originating from Safe smart contract wallets ticked up to 2.5%, reaching an all-time high. Wallet infrastructure aggregators such as Safe are expected to benefit from an influx of new crypto applications.

Safe community voted in favor of making the SAFE token transferable as of April 23, 2024. Simultaneously, a successful proposal introduced strategies to enhance the utility of the SAFE token by linking ecosystem activity to token utility.