# Butterfly Effects + Paradoxes of Account Abstraction in DeFi by Niharika | Devcon SEA

- Channel: [Devcon](https://streameth.org/devcon)
- Date: 2025-10-09
- Duration: 19:55
- Topics: Science & Technology
- Watch: https://streameth.org/watch/yt-uCcU6qUX8w0
- YouTube: https://www.youtube.com/watch?v=uCcU6qUX8w0

## Description

In this session, we’ll dive into the transformative potential of account abstraction in shaping the future of DeFi, exploring both its cascading impacts and inherent paradoxes. By pushing the boundaries of accessibility, onboarding, and wallet capabilities—such as multi-sig, social recovery, custom modules, transaction batching, and advanced transaction logic (ERC-7579)—account abstraction opens up new possibilities for collaborative DeFi, cross-chain interoperability, and enhanced composability

Speaker(s): Niharika
Skill level: Intermediate
Track: Usability
Keywords: Decentralization, User Experience, Account Abstraction, defi

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Devcon SEA was held in Bangkok, Thailand on Nov 12 - Nov 15, 2024.
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## Transcript

[Music] GM everyone today I'm going to be talking about the Butterfly Effects and paradoxes of account abstraction in defi imagine this in 2018 Unis swap introduced the automated Market making model a smart SM contract that runs billions of dollars of transactions daily this single Innovation became like a Cornerstone of defi setting off a chain reaction of new protocols in defi Lego blocks in form of composability and that's essentially the butterfly effect in action incremental technological decisions leading to massive ripples across the entire ecosystem let's fast forward to today we stand at another edge of transformative shift account abstraction on the surface AA might just seem like a technical optimization another EIP another EIC but beneath that there lies a potential to reshape how users actually interact with these T5 protocols from simplified wallet experiences to seamless gas management AA can remove some of the most frustrating Dy ux challenges that plague the ecosystem today however as with any transformation Innovation AA brings its own set of challenges and paradoxes how do we improve security without compromising on the usability how do we ensure decentralization while seamlessly offering web tool like ux and how do we Foster innovation without fragmenting the ecosystem I'm Niha and I'm going to be uh I'm I work with safe as a technical product manager and I'm building AA Dev tooling to build more secure onchain apps if you're interested in this topic I'd be happy to chat with you later so let's navigate The Butterfly Effects and paradoxes in the defi realm before everything else let me quickly explain the concept of Butterfly Effects this concept comes from the chaos theory famously illustrated by the idea that butterfly flapping its wing in one part of the world world can set off a hurricane in another part of the world at its core it demonstrates how very small or insignificant changes can lead to large unpredictable outcomes over time and this concept is not just limited to abstract mathematics or weather conditions it's deeply relevant in the technological space and especially with defi as the system is vastly interconnected and small Innovations or decisions can Cascade into massive systemwide changes now let's take an example in the tech history about the CI keyboard in the late 19th century the city keyboard was designed to prevent typewriters from jamming by spreading apart frequently used characters it was a very small and a practical mechanical decision made at that time and fast forward to today Cor is actually the most dominant keyboard layout globally influencing how billions of people interact with computers and mobile devices daily and that small local decision in the 19th century has rippled across centuries shaping modern digital communication and now if I allude back to the amm model of Unis swap here's how the Butterfly Effects come into the picture Unis swap introd use the amm model to enable swapping without relying on order books to match buyers as well as Sellers and they use a simple formula to uh facilitate these trades in the liquidity pools at its core it's a simple equation x * y = k where X and Y are two quantities two tokens of the same value in a pool and K is a constant that remains unchanged and in a nutshell here wouse works the liquidity providers deposit the two tokens into a smart contract which is the pool and the Traders can swap between these tokens directly from the pool paying a small incentive fee to the lp providers and why is it transformative three reasons one accessibility anybody can become a liquidity provider that democratizes the liquidity provisioning efficiency amm eliminate the need for complex order books and it reduces the barriers for decentralized trading third composability protocols can very easily integrate Unis swap into their own ecosystems which enables many swapping or liquidity strategies so the incremental change that we see with Unis swap was that in 2018 the amm model was introduced removing the need for autobooks in an exchange and here's the effect so now we have amm model and anybody can provide liquidity which democratizes liquidity and after that it it made dexus to be more Central to Defi and inspiring more and more dexes to come up like curve balancer or sushi swap which cater to very specific use cases like stable coin swapping or multi-asset pools and as a result billions of dollars started flowing through these contracts which resulted into the famous defi summer of 2020 and as defi fa this explosive growth the onchain ux unfortunately could not keep Pace these topics still plag defi to this state I would like to go over some of the ux issues with defi number one complex wallet management today users still rely on private keys and Seed phrases and may also have multiple wallet addresses and losing your private key means losing access to your funds which can be very intimidating for a newcomer and as a result non- Crypton native users find defi to be very intimidating which reduces Mass adoption number two gas fee and transaction complexity having native gas token on a new chain is quite confusing and difficult to achieve and estimating gas cost is even more confusing sometimes there to achieve one single action there are several transactions to be signed for example to swap on a DEX you need to approve and then transfer which requires multiple signatures the impact is that new users often feel priced out because of this gas requirement and on- ramping is quite difficult the third issue poor onboarding experience for new users to set up a wallet to acquire new crypto to interact with dii protocols often requires multiple steps and also requires engaging with several protocols like exchanges Bridges various apps and as a result there's a high learning curve that's involved and that do and that deters non-technical users and that kind of limits defi appeal and finally liquidity fragmentation this problem is also still quite persistent it significantly impacts the efficiency and effectiveness of the capital markets and this happens when the capital is spread across several platforms protocols or chains rather than being concentrated at a single venue and it can happen for several reasons in defi because many amm protocols exist like curve Unis swap or sushi Swap and they all compete for liquidity often split liquidity across several pools it can also happen because of several chains we see coming up every day layer one layer 2 Chains liquidity is spread across several different chains and it's also possible because of isolated liquidity pools within the same protocol there can exist several similar pairs like e d and e usdc but it still results into liquidity fragmentation and that means that the liquidity providers may receive receive less incentives or their Capital remains idle now let's see how account abstraction can help mitigate these issues at its core account abstraction redefines the concept of user accounts in the blockchain today user operates through externally owned accounts or eoas which are controlled by private keys and are quite Limited in functionality in contrast AA Ena builds accounts to function as smart contracts allowing for a customizable logic and a behavior this upgrade introduces a more flexible a more user Centric model and there are several ways like in a Swiss knife in which account abstraction actually hits the hammer on its nail there can be very simple onboarding to a wallet experience in case a user is locked out of their account there are social recovery mechanism or multiactor authentications baked in there are gasless transactions so the user doesn't have to worry about having the native gas token on the Chain users can also bundle multiple transactions into one simple transaction for for example for swapping for approving and this is also quite gas efficient security features like uh setting daily spending limits or session keys will become a standard and this significantly reduces the risk of losing funds or falling victim to a malicious contract and cross chain and Layer Two compatibility cross-chain interactions can be abstracted users interact with D5 protocols without needing to manually Bridge the assets or even be aware of the underlying network account abstraction is not just about solving these us ux frictions it's about truly unlocking the potential of defi it Bridges the gap between between web 3 and web 2 to offer more intuitive more secure experiences so that many more non-native crypto users can participate in defi with ease and confidence now I want to give you a real world example of how innovation in defi is causing major ripples in the world today poly Market is a decentralized prediction Market which has taken the World by storm because of the recent US presidential election c s something that's not talked about enough is that poly Market uses safe in its architecture if you register on poly Market using metamask it spins up a safe proxy wallet for you on polygon poly Market's use of safe in its architecture is a critical component to its ux strategy and security by leveraging proxy wallets and maintaining a non-custodial approach poly Market ensures that its users have control over their funds while still benefiting from enhanced functionality and the security that safe offers and here I would like to take a look at some numbers so far poly Market has created about 420,000 saves and the number of transactions that went through oopsy sorry about that and the number of transactions that went through safe on poly Market were about 1.6 million which is approximately 3.7 transactions per account quite sticky enough for web 3 and finally so far the betting volume on polygon uh on poly Market is 5.7 billion and as we see it the smallest Innovations in account abstraction like easy onboarding experience can set off a Cascade of transformative events in defi Innovations like account abstraction are not just a technical upgrade there a catalyst for the future where Finance becomes more accessible more secure and more efficient while these numbers are quite optimistic addressing defi gives rise to several challenges and paradoxes where solving one problem creates new problems or it reveals conflicting priorities let's take a look at them the first Paradox is of security versus convenience this highlights the tension between making systems that are more secure and ensuring that they remain convenient for the users to use and striking the right balance between the two is the key to Great user experience one of the advantages of account abstraction is its ability to provide Advanced security features such as multisig wallets social recovery me mechanisms and these features enhance the security of user assets by reducing the risks associated with the private key L however adding extra steps or extra layers of security comes at a great expense of convenience for instance in a multisig wallet it requires several parties to sign off a transaction before it hits the chain or with social recovery mechanisms it is designed to involve several trusted parties which require some coordination and forethought and while these features make accounts more secure they also introduce friction in day-to-day use the second Paradox that I want to talk about is customization versus standardization while account abstraction offers great level of flexibility to users to Define their own account behavior and this includes custom uh transaction logic as promised by ERC 7579 or automated workflows users can create account personas that fit to their needs for either trading strategies or rebalance ing portfolios or just to hold assets however with increased customization comes the risk of fragmentation and standardization is very critical to ensure that different wallets protocols Services they work seamlessly together and everybody can create their own custom account behaviors and the risk of incompatibility with different protocols or apps grows and this Paradox centers around challenges of offering enough customization to me the needs of the user while maintaining enough standardization to ensure interoperability and what if I tell you there was a way to transcend these paradoxes and this is where AI agents intents come into the big CH intents are a fundamental shift in how users interact with defi uh decentralized systems instead of micromanaging every single transaction the user simply expresses their desired outcome whether it's swapping tokens or executing a yield farming strategy these are all high level goals that can be abstracted away while interacting with multiple protocols and the where this is where AI agents also kick in these intelligent agents can interpret users intents and navigate decentralized ecosystems and optimize the outcomes autonomously and imagine an AI system where it's continuously monitoring several different liquidity pools without any kind of human intervention in a in essence like intense and AI agents they resolve the very paradoxes that we discussed in the previous slides and have the potential to set off a ripple effect in defi to another level there are two use cases that I'd like to discuss here an AI agent can be used in decentralized trading for example the user expresses the intent to maximize profits by grid trading strategy where token X and Y should be within a price range of $100 to $120 the workflow would look like this the agent would be constantly monitoring the price of X and Y in several different pools and as soon as the price in the grid hits to the lower level of 100 or 105 it places buy orders and as soon as it hits a higher range it places sell orders and this would be occurring in a gas efficient manner potentially potentially transaction badges because there are several token involved which can save gas and the outcome is that the user achieves their desired profit targets without needing to manually track or execute these traits the final use case that I want to talk about is with poly Market the user might Express an intent to maximize returns by betting on most likely outcome of the US presidential election to reallocate funds based on real time changes in the probabilities and here's how it would look like with the workflow so the AI agent would be constantly monitoring offchain data news reports or social media sentiments and it defines some probability estimates bets can be placed on the highest expected value based on the current odds and the transaction costs and if new data suggests a shift in probabilities between different candidates then the AI agent would dynamic Ally reallocate the funds to a more favorable outcome and as a result the US can the you user can actually maximize their potential earnings while minimizing risk without needing to interfere manually because AI agent would just take care of uh readjusting the portfolio and in this Essence we see how the future of web3 can look like where decentralized systems become more intuitive and automated and AA provides the programmable infrastructure and AI agents provide in uh user intents to be read in a more intelligent Manner and together they can Empower users to interact with defi in a more smarter and a more accessible way and with this I want to close by saying that whether you're a user a developer or a product leader your actions today could spark the next wave of innovation and let's Embrace this responsibility and continue building a decentralized future one small flap at a time and the question I want to pose to you today is that was what small decisions will you make today that will shape D5 for tomorrow and with this I close my talk I'd be hanging at the a community Hub later today and happy to chat with you [Applause]