These are definitely not theoretical use cases. Allowing client side encryption enables users to retain sovereignty over their data and service providers an ability to store it without a need or desire to view it. Data vaults are one example https://identity.foundation/edv-spec/#encrypted-storage Companies like Bitwarden are already taking advantage of this mechanism in Chrome https://bitwarden.com/blog/prf-webauthn-and-its-role-in-passkeys . In the realm of non-custodial digital wallets it would be a big UX and security advancement removing any need to access private keys server-side, or for a user to be forced to securely store/remember a key phrase.