Use of EOAs, Multisigs, and Smart Contract Wallets

Effective account and key management is crucial for DAO security and governance. This section explores the three main types of wallets used in DAOs:

• Externally Owned Accounts (EOAs) – Simple wallets controlled by a private key.
• Multisig Wallets – Require multiple approvals for transactions.
• Smart Contract Wallets – Programmable wallets with advanced security features.

Each wallet type has distinct trade-offs in security, decentralization, and usability.

Externally Owned Accounts (EOAs)

An EOA is a standard wallet controlled by a single private key, typically managed through wallets like MetaMask, Ledger, or Trezor.

Advantages

• Simplicity – Easy to set up and use.
• Low Gas Costs – No additional contract interactions.
• Full Control – Only the keyholder can sign transactions.

Challenges

• Single Point of Failure – If the private key is lost or compromised, access is permanently lost.
• No Built-in Recovery – Unlike smart contract wallets, EOAs lack account recovery options.
• Risk of Centralization – In a DAO setting, a single EOA controlling key functions undermines decentralization.

DAO Use Cases

• Suitable for individual contributors receiving payments.
• Used for low-privilege DAO roles where decentralization isn’t a concern.

Multisig Wallets

A multisignature (multisig) wallet requires multiple signers to approve transactions. Popular multisig solutions include Gnosis Safe and TotalSig.

How Multisigs Work

• Require M out of N signatures (e.g., 3 out of 5 signers).
• Transactions are only executed if the required threshold is met.

Advantages

• Enhanced Security – Prevents a single compromised key from executing transactions.
• Shared Control – Ensures decisions involve multiple trusted parties.
• Built-in Governance – Aligns with decentralized decision-making.

Challenges

• Slower Execution – Transactions need multiple approvals, which can delay operations.
• Coordination Complexity – Requires ongoing signer participation.
• Vulnerability to Collusion – If a majority of signers collude, they can bypass security measures.

DAO Use Cases

• Commonly used for treasury management.
• Helps governance committees control high-privilege administrative actions.
• Used for grant funding to ensure fair distribution.

Smart Contract Wallets

A smart contract wallet is a programmable account that can enforce security rules. Examples include Safe Modules, Argent, and Kernel Smart Wallets.

Features of Smart Contract Wallets

• Customizable Permissions – Define who can execute certain actions.
• Account Recovery Mechanisms – Enable social recovery or multi-key setups.
• Gas Abstraction – Some wallets allow fee payment in tokens instead of ETH.

Advantages

• Advanced Security – Can include time locks, withdrawal limits, or multisig-like logic.
• Programmability – Custom governance logic can be implemented.
• User-Friendly Recovery – Reduces risks of permanent loss due to private key mismanagement.

Challenges

• Higher Gas Costs – Smart contract execution requires more gas than EOAs.
• Complexity – Requires proper configuration and security audits.
• Upgradeability Risks – Poorly designed upgrades can introduce vulnerabilities.

DAO Use Cases

• Ideal for governance-controlled contracts (e.g., automated treasury disbursement).
• Used for DAO-based identity and access control.
• Facilitates progressive decentralization by transitioning from a multisig to smart contract governance.

Comparison: EOAs vs. Multisigs vs. Smart Contract Wallets

DAOs should choose the right wallet type based on their governance needs, balancing security, decentralization, and usability.