Phantom #3: Finding another 5x growth
Can Phantom, a self-custodial wallet, sustain its 5x growth in 2024 going forward?
This is Part 3 of our Phantom protocol review series. Part 1 elaborates on its features, user experience, and security practices while Part 2 speaks to its adoption and business model.
Phantom, a self-custodial wallet, started as a Solana-only wallet that expanded to 6 chains and grew 5x to 10mn Monthly Active Users (MAU) in 2024. Will growth taper off in 2025? Or has it found new markets to conquer?
Chain-driven growth has its limits
In Part 2 we covered how Phantom boosted its user base by adding 5 chains, but a quick glance of L2Beat shows there are at least 60 Layer 2s in the Ethereum ecosystem – let alone other Layer 1 chains on the rise. How would the Phantom team keep up its growth trajectory in the years to come as more chains launch and fragment the Web3 user base?
A major hurdle in supporting more chains is ensuring cross-chain compatibility. Each blockchain has unique protocols and standards, so Phantom’s speed to integrate might vary depending on their architecture.
Fortunately, Phantom has already done the hard work in 2024. It integrated Ethereum mainnet, Polygon (sidechain), Base (optimistic rollup), Bitcoin, Sui (built on Move). With the exception of ZK rollup, Phantom has covered most of the popular blockchain frameworks, making its journey in adding more blockchains easier in the future.
But technical readiness is not the only factor at play. A chain is only "ready" for Phantom users if it provides the ability to swap and bridge tokens with minimum loss. This requires Decentralized Exchange (DEX) with high liquidity and secure bridges for moving funds to those chains. This narrows down the chains suitable for Phantom integration.
Expanding to more chains also increases security risks. A broader attack surface makes Phantom a more attractive target for hackers. As Phantom works with bridge partners like Li.Fi, it needs to ensure security both in-house and with their partners. While users are asked to Do Your Own Research (DYOR), not every person would spend the time or have enough knowledge to do their due diligence. This means Phantom would be the first to blame if anything goes south, deteriorating hard-earned trust from users.
Users need to learn how to use these chains differently. Phantom makes it easy for users to transact on different chains, but those accustomed to Solana gas fees might not realize the same transaction could cost >100x on Ethereum mainnet. Those transacting in small amounts may particularly feel the pain if they didn’t pay attention to the difference.
Optimizing resource allocation is another challenge. Supporting more chains increases computational demand, requiring Phantom to optimize performance and provide real-time tracking across multiple architectures. This necessitates a scalable infrastructure to maintain the same level of responsiveness for users.
Adding more chains to expand the user base is easier said than done. While we applaud Phantom’s remarkable growth in 2024, the same strategy may become less effective over time.
Can Phantom control its growth trajectory?
Wallets are essential for blockchain interactions, but even the best-designed ones need an active ecosystem of dApps to drive user adoption. If users lack compelling reasons to engage on-chain, wallet growth will stagnate.
For Phantom to achieve another 5x growth, the question isn't just about wallet improvements but whether better consumer applications emerge. Some key drivers of adoption today include memecoin trading, NFTs and gaming, DeFi lending, and staking. But these primarily target Web3-savvy retail users and are highly dependent on market cycles.
If new, compelling on-chain applications don’t materialize, Phantom’s growth will be constrained. The real questions are:
Can Phantom influence dApp adoption, or is it dependent on external innovations?
What role should wallets play in fostering an ecosystem beyond just asset storage?
Phantom now aims to offering P2P payment
Instead of relying solely on third-party dApps, Phantom has started to build its own consumer finance product in peer-to-peer (P2P) payments. This marks a fundamental shift from being an intermediary for on-chain interactions to directly offering financial services.
A key aspect of this strategy is user ownership. Traditionally, wallets served as neutral gateways, enabling users to interact with third-party applications. By introducing usernames and P2P payments, Phantom becomes a platform where users engage directly with its own product, reducing reliance on external DeFi protocols.
This mirrors traditional fintech strategy, where companies like PayPal evolved from simple payment processors to consumer financial platforms. Embedding financial tools within the wallet increases user stickiness. User engagement and loyalty stay with Phantom rather than coming from third-party dApps.
… but that comes with more regulatory oversight
Expanding into consumer finance comes with significant regulatory risks. As a non-custodial wallet, Phantom could argue that it merely provides an interface for users to interact with third-party dApps. Once it offers direct P2P payment, Phantom may now be seen as directly providing financial services. This comes with a whole host of regulatory requirements:
AML/KYC requirements to prevent illicit activities
Consumer protection laws governing financial transactions
Jurisdictional compliance for operating in multiple countries
To mitigate these risks, Phantom could:
Implement automated compliance tools for real-time monitoring
Conduct regular audits and risk assessments
Invest in regulatory training and strategic partnerships to ensure compliance.
Phantom’s transition from a wallet interface to a full-fledged financial platform could help it grow in new markets – its growth will no longer depend on other dApp. But the journey getting there will present new challenges that require new expertise to address.
Would you have done the same?
Phantom’s transition from a wallet (a replaceable utility) to a consumer finance product marks a significant shift in its positioning. It makes sense – to grow and differentiate, Phantom must evolve beyond being just an interface for external dApps. But the shift introduces new challenges, particularly in regulatory compliance, user adoption, and competition with existing payment providers.
Given Phantom’s strong track record as a wallet, we have reason to be cautiously optimistic. If Phantom can remain committed to security and usability, it could very well redefine itself as a top player in consumer finance. Still, the road ahead will demand adaptability, strategic execution, and continuous trust-building with its users.
To the founders and operators out there, would you have made the same choice as Phantom? What other growth opportunities would you try instead? Let us know in the comments!