🔐CDP Auto-Repayment

Technology: CDP (Coinbase Developer Platform) Smart Wallets with ERC-4337 Status: Demo built, production-ready architecture designed Demo: apps/web-auto

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Overview

CDP Smart Wallets enable automatic loan repayments without requiring users to manually approve each transaction. This is achieved through session keys - a feature of ERC-4337 account abstraction that allows pre-authorized transactions within defined rules.

The user experience: Sign once to authorize repayments, then everything happens automatically.

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How Session Keys Work

Traditional Wallet (MetaMask, etc.)

Revenue arrives → Backend calculates repayment → Email borrower →
Borrower logs in → Approves transaction → Signs with wallet → Payment sent

❌ High friction: 5+ manual steps, easily forgotten

CDP Smart Wallet with Session Keys

Revenue arrives → Backend calculates repayment → Smart contract executes →
Wallet validates session key → Auto-approves → Payment sent

✅ Zero friction: Fully automated after one-time setup

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Technical Implementation

Session Key Creation (One-Time Setup)

When a borrower takes out a loan, they create a session key with predefined rules:

const sessionKey = await smartWallet.createSessionKey({
  // What contract can be called
  allowedContracts: [LOAN_REPAYMENT_CONTRACT],

  // What functions are allowed
  allowedFunctions: ['repayLoan'],

  // Spending limits
  maxAmountPerTransaction: parseUnits('100', 6),  // $100 max per payment
  maxAmountPerMonth: parseUnits('500', 6),        // $500 max per month

  // Time-based expiration
  validUntil: Date.now() + (90 * 24 * 60 * 60 * 1000), // 90 days
})

This is the ONLY signature required from the borrower.

On-Chain Validation

Every repayment transaction is validated on-chain by the smart wallet:

function validateUserOp(UserOperation calldata userOp)
  external returns (uint256 validationData)
{
  // Check if transaction uses a valid session key
  SessionKey memory session = getSessionKey(userOp.signature);

  // Validate against rules
  require(block.timestamp <= session.validUntil, "Session expired");
  require(userOp.callData.target == session.allowedContract, "Invalid contract");
  require(userOp.callData.value <= session.maxPerTransaction, "Exceeds limit");
  require(monthlyTotal + userOp.callData.value <= session.maxPerMonth, "Monthly limit");

  return 0; // Valid - auto-approve
}

Automatic Repayment Flow

1. Merchant processes sale via Stripe/Square
   ↓
2. Webhook triggers backend
   ↓
3. Backend calculates repayment (% of revenue)
   ↓
4. Bridge API converts USD → USDC
   ↓
5. Smart contract calls repayLoan() with session key
   ↓
6. CDP Smart Wallet validates session key rules
   ↓
7. Auto-approves if valid (NO SIGNATURE NEEDED)
   ↓
8. USDC distributed to lenders

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Key Benefits

For Borrowers

• Zero friction: Sign once, never think about payments again

• Can't forget: Payments happen automatically

• Stay in control: Set spending limits, revoke anytime

• Still non-custodial: You control your keys

For Lenders

• Lower defaults: No missed payments from forgetfulness

• Predictable yield: Automated repayment schedule

• No chasing payments: Everything automatic

For the Protocol

• Better UX: Removes biggest friction point

• Lower default rate: Automation prevents forgetfulness

• Scalable: Works for 10 or 10,000 borrowers

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Architecture Comparison

Aspect	Traditional Wallet	CDP Smart Wallet
Setup	Connect wallet	Connect wallet + create session key
Each payment	Manual approval + signature	Automatic (no action)
Missed payments	Common (forgetfulness)	Impossible (automated)
User effort	High (every payment)	Zero (after setup)
Gas costs	User pays each time	Can be sponsored (Paymaster)
Security	Manual review each time	Pre-approved rules enforced on-chain

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Security Features

1. On-Chain Rule Enforcement

All session key rules are validated on-chain by the smart wallet contract - not by your backend.

2. Spending Limits

• Maximum per transaction

• Maximum per month

• Can never exceed these limits, even if backend is compromised

3. Time-Based Expiration

• Session keys expire automatically

• Borrower must renew to continue automatic payments

4. Contract Whitelisting

• Can only call specific approved contracts

• Cannot drain wallet to arbitrary addresses

5. User Control

• Borrower can revoke session key anytime

• Emergency pause function available

• Still fully non-custodial

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Demo Application

We've built a working demo at apps/web-auto that showcases:

1. CDP Wallet Connection - Connect via passkey, Google, or Apple

2. Session Key Creation - Configure limits and expiration

3. Auto-Repayment Simulation - See it work without signatures

Run the demo:

cd apps/web-auto
npm install
npm run dev

Visit http://localhost:3003

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Production Implementation

For production deployment, see detailed implementation plans:

📄 Phase 2 Auto-Deduction Plans

Plans include:

• Plan A: Chainlink Automation (decentralized triggers)

• Plan B: Multi-Sig Backend (enhanced security)

• Plan C: On-Chain Attestations (future)

• Plan D: Crypto-Native Revenue (fully decentralized)

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Trust Model

What's Non-Custodial

✅ User controls private keys via CDP smart wallet ✅ Session key rules enforced on-chain ✅ Spending limits cannot be exceeded ✅ User can revoke access anytime

What's Centralized

⚠️ Backend calculates repayment amounts ⚠️ Revenue data comes from Stripe/Square (off-chain) ⚠️ Timing of repayments controlled by backend

Protection Mechanisms

• Session key limits enforce maximum amounts

• Transparent on-chain logging

• Dispute mechanism for incorrect calculations

• Emergency pause function

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Technology Stack

• CDP SDK: @coinbase/wallet-sdk, @coinbase/onchainkit

• Smart Wallet Standard: ERC-4337 account abstraction

• Network: Base (Coinbase L2)

• Token: USDC

• Revenue Sources: Stripe, Square (via webhooks)

• Fiat Conversion: Bridge API

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Next Steps

1. ✅ Demo Built - Working proof of concept

2. 🚧 Smart Contracts - Deploy production loan repayment contracts

3. 🚧 Stripe Integration - Production webhook handling

4. 🚧 Bridge Integration - USD → USDC conversion

5. 📅 Chainlink Automation - Decentralized triggers (Phase 2B)

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Learn More

• Demo Code: apps/web-auto

• Implementation Plans: Phase 2 Plans

• CDP Documentation: https://docs.cdp.coinbase.com

• ERC-4337 Spec: https://eips.ethereum.org/EIPS/eip-4337