I had all the same ideas. And build an Embedded wallet fro some hackathon projects here is one
It is a stupid simple implementation that stores 2 encrypt versions of the users’ private key on the self hosted backend: 1) Encrypt with device key stored in local storage 2) Encrypt with user pin/password
When the user logs in they need to get a magic link from their email then the server will send over the two encrypted versions of the private key. If they have the device key still in local storage then they are in, if they are on a new device they need to type the pin. (multi device support needs some extra work but just requires saving the private key with another device key)
(It was important that the user does not need to type a password and a pin this was important for usability of existing password management tools in firefox / lastpass etc . )
This is much simpler than what Privy does with the shamir secret share. Not that SSS is hard but just unnecessary.
Anyway I would be happy to contribute to grant funding for this and also requirements definition.
i’m ruben_wolff on discord and tg