Sponsored transactions invert MEV incentives. Users submit intents, and applications (like UniswapX or dYdX) pay for execution, creating a direct competition for user flow based on subsidized costs and execution quality.
account-abstraction-fixing-crypto-ux
Blog
The Future of MEV in a Sponsored Transaction Ecosystem
Account Abstraction's ERC-4337 standard creates a new MEV supply chain. Bundlers and paymasters become central players, capturing value and redefining user protection from front-running. This is the new battleground.
introduction
THE NEW BATTLEGROUND
Introduction
Sponsored transactions are shifting MEV's economic and technical center of gravity from searchers to applications.
The MEV supply chain fragments. The monolithic searcher-builder-proposer stack splinters into specialized roles: solvers (CowSwap, UniswapX), fillers (Across), and intent-centric builders (SUAVE, Flashbots).
Evidence: The 0x API processes over $200B in intent volume, and UniswapX has settled billions in trades, proving the demand for this abstraction.
thesis-statement
THE ARCHITECTURAL SHIFT
The Core Argument
Sponsored transactions will not eliminate MEV; they will institutionalize it, shifting the extraction point from the block builder to the transaction originator.
MEV is a tax on user transactions that cannot be eliminated, only managed. Sponsored transactions, like those enabled by ERC-4337 account abstraction or Solana's priority fees, change who pays this tax, not its existence.
The MEV supply chain reconfigures. Today, searchers and builders extract value after a user signs a tx. With sponsorship, the wallet or dApp becomes the extractor, capturing value upfront by bundling and optimizing user intents before submission.
This creates a new business model for applications. Wallets like Safe{Wallet} and dApps can subsidize gas by internalizing MEV opportunities, similar to how UniswapX and CowSwap already abstract complexity for users.
Evidence: On Arbitrum, over 60% of transactions are now sponsored via paymasters, demonstrating user demand for gas abstraction and creating a new, application-layer MEV market.
market-context
THE SPONSORED TRANSACTION WARS
The Current Battleground
The abstraction of gas fees via sponsored transactions is shifting the MEV supply chain's power dynamics from users to applications.
Applications become the paymasters. Sponsored transactions, enabled by ERC-4337 and protocols like Biconomy and Pimlico, let dApps pay user gas fees. This transfers the fee payment surface from the user's wallet to the application's backend, making the app the primary client for block builders and validators.
MEV extraction moves upstream. With apps bundling user intents, the atomic bundling of transactions creates new MEV opportunities. Aggregators like 1inch Fusion and UniswapX now compete to fill these intents, internalizing what was once public mempool arbitrage.
The builder market consolidates. Sponsored flows require reliable transaction inclusion, favoring large, capital-backed builders like Flashbots SUAVE or BloXroute. This creates a two-tiered market: premium, guaranteed bundles for apps and a residual public mempool for everyone else.
Evidence: Over 60% of Arbitrum transactions are now sponsored, with entities like Coinbase's Smart Wallet defaulting to this model, demonstrating the rapid shift in who controls transaction ordering.
key-trends
THE FUTURE OF MEV IN A SPONSORED TRANSACTION ECOSYSTEM
Three Trends Defining the New MEV Supply Chain
Sponsored transactions and intents are unbundling the monolithic searcher-builder-proposer stack, creating a new, specialized supply chain for value extraction.
01
The Problem: Searchers Are Now Just Signal Providers
With sponsored transactions, users sign intents, not raw transactions. This strips searchers of their core advantage: exclusive access to private order flow. Their role is reduced to solving for the best execution path, becoming pure computation engines.\n- Core Shift: Value moves from transaction origination to execution optimization.\n- New Competition: Solvers on CowSwap, UniswapX, and Across compete on algorithm efficiency, not mempool sniping.\n- Commoditization Risk: Without exclusive flow, searcher margins compress towards the cost of compute.
0 Fee
User Pays
>90%
Intent-Based
02
The Solution: Builders Become the New Bottleneck
The entity that bundles the solved intents into a block now controls the final, profitable arrangement. This centralizes power with sophisticated builders like Flashbots SUAVE, Titan, and Rsync. They arbitrage between solvers and validators.\n- Pivotal Role: Builders are the market makers between execution quality and block space.\n- Vertical Integration: Top builders operate their own solver networks and relay infrastructure, capturing value across the chain.\n- Data Advantage: Aggregate intent flow provides superior market data for cross-domain MEV.
$1B+
Builder Revenue
~500ms
Auction Latency
03
The Endgame: Proposer-Builder Separation (PBS) is Non-Negotiable
Without enforced PBS, the builder and proposer roles merge, recreating the miner extractable value (MEV) centralization of Proof-of-Work. In-protocol PBS, as envisioned for Ethereum, is the only way to keep the supply chain healthy and permissionless.\n- Structural Necessity: Prevents validator cartels from monopolizing the builder role.\n- Credible Neutrality: Ensures the auction for block space is fair and open.\n- Protocol Capture: Without it, L2s and alt-L1s risk MEV capture by a few dominant staking pools.
100%
Ethereum Roadmap
-99%
Validator MEV
ARCHITECTURAL SHIFT
MEV Supply Chain: Legacy vs. Sponsored Transaction Era
A comparison of the dominant MEV supply chain models, contrasting the legacy searcher-builder-proposer pipeline with the emerging intent-based, sponsored transaction paradigm.
| Key Dimension | Legacy Pipeline (e.g., Flashbots MEV-Boost) | Sponsored Transaction Era (e.g., UniswapX, Across) |
|---|---|---|
Primary Actor | Searcher / Builder | User (via Solver / Filler) |
Transaction Origin | Searcher's private mempool | User-signed off-chain intent |
Execution Risk Vector | Frontrunning, Sandwiching | Failed fulfillment (no revert protection) |
User Cost Model | Gas + Priority Fee + Implicit MEV tax | Quote-based (includes solver profit) |
Settlement Latency | 1-12 seconds (next block) | Up to 5 minutes (optimistic window) |
Cross-Chain MEV Capture | Relayers (e.g., layerzero), Wormhole | Native via intents (e.g., Across, Chainlink CCIP) |
Proposer Extractable Value (PEV) | High (auctioned block space) | Low (execution is permissionless) |
Required User Trust | Validator honesty | Solver competence & liquidity |
deep-dive
THE POWER SHIFT
The Bundler & Paymaster Duopoly
Sponsored transactions centralize MEV extraction into a new, protocol-level duopoly.
User Abstraction Centralizes Power. Account Abstraction (ERC-4337) moves transaction assembly and payment from users to bundlers and paymasters. This creates a new MEV supply chain where these two actors control the flow of sponsored transactions.
Bundlers Become MEV Super-Seekers. A bundler like Pimlico or Stackup aggregates hundreds of user intents. This creates massive, atomic bundles that are optimal for MEV extraction, far exceeding what individual searchers can access.
Paymasters Control Economic Access. The entity paying gas fees, like a Visa-backed paymaster, dictates which user transactions are viable. This creates a gatekeeping role that can censor or prioritize based on commercial agreements.
Evidence: In a sponsored flow, the bundler-paymaster partnership captures the MEV. The user's intent to swap on Uniswap via 1inch Fusion is just feedstock for their larger, more profitable bundle.
risk-analysis
SPONSORED TRANSACTION THREATS
The Inherent Risks of Permissioned MEV
Sponsored transactions shift the MEV risk profile from public mempools to private order flows, creating new centralization vectors and systemic vulnerabilities.
01
The Centralized Sequencer Dilemma
Block builders like Flashbots Suave and Jito become critical choke points. Their private order flow is a honeypot for censorship and manipulation.
- Risk: Single sequencer controls >50% of sponsored flow, enabling transaction blacklisting.
- Outcome: Recreates the trusted third-party problem crypto was built to solve.
>50%
Flow Control
1
Failure Point
02
The Opaque Cartel Problem
Private mempools enable off-chain collusion between searchers, builders, and validators, invisible to public monitoring.
- Risk: Cartels can implement time-bandit attacks or extract value via latency arbitrage without detection.
- Outcome: User losses are hidden, eroding trust and making enforcement impossible.
0%
Visibility
Hidden
Extraction
03
The Long-Term Fee Market Collapse
Sponsored transactions decouple user payment from execution, subsidizing complexity today at the cost of network security tomorrow.
- Risk: If sponsors (e.g., dYdX, UniswapX) withdraw subsidies, base chain security budget plummets.
- Outcome: Ethereum's ~$2M/day security budget becomes dependent on volatile, extractive MEV.
$2M/day
Budget at Risk
Volatile
Security Funding
04
Solution: Enshrined Proposer-Builder Separation (PBS)
Ethereum's core protocol must formalize the builder role to enforce credibly neutral rules and prevent off-chain cartels.
- Mechanism: Validators commit to blocks via a cryptographic commitment to the highest bid, not the builder's identity.
- Outcome: Creates a permissionless auction for block space, neutralizing private order flow advantages.
Protocol
Level Enforcement
Neutral
Auction
05
Solution: SUAVE as a Universal Plug
Flashbots' SUAVE chain aims to be a decentralized, specialized intent mempool and executor, not a single sequencer.
- Mechanism: Decouples preference expression (intents) from execution, creating a competitive market for both.
- Outcome: Reduces reliance on any single entity's private order flow, distributing MEV capture.
Decentralized
Mempool
Market
For Execution
06
Solution: Force Public Good Commitments
Protocols like EigenLayer can impose slashing conditions on builders/sequencers for violating neutrality or censoring.
- Mechanism: Builders must stake and can be penalized for malicious behavior, enforced by decentralized watchdogs.
- Outcome: Aligns economic incentives with network health, making censorship more expensive than compliance.
Staked
Enforcement
Slashing
For Censorship
counter-argument
THE ARCHITECTURAL SHIFT
The Bull Case: Is This Actually Better?
Sponsored transactions shift MEV from a public good problem to a private market, creating a more efficient and predictable execution layer.
MEV becomes a private market. Sponsored transactions move the auction for block space from the public mempool to private order flow agreements between users and builders. This eliminates the latency arms race for frontrunning, turning MEV into a predictable cost of doing business, similar to a gas fee, rather than an unpredictable exploit.
User experience is the primary beneficiary. Protocols like UniswapX and CowSwap abstract this complexity, allowing users to sign intents for desired outcomes. The system's builders and solvers compete privately to fulfill these intents at the best price, capturing the MEV surplus themselves instead of letting it leak to searchers.
The public mempool atrophies. High-value transactions will migrate to private channels via Flashbots Protect, BloXroute, or direct integrations. The public Ethereum mempool becomes a residual market for low-value, non-time-sensitive transactions, fundamentally changing the network's threat model and surveillance economics.
Evidence: The success of intent-based architectures is proven. UniswapX, which uses a similar model, now facilitates over $2B in monthly volume, demonstrating user preference for gasless, MEV-protected swaps without managing complex execution.
takeaways
MEV & SPONSORED TXX
TL;DR for Protocol Architects
Sponsored transactions shift the MEV risk profile, forcing a redesign of block building and protocol incentives.
01
The Problem: MEV Extraction Becomes a Subsidy War
When protocols like EIP-3074 or Particle Network sponsor gas, the cost of failed arbitrage is externalized. This leads to:\n- Hyper-competitive bidding for block space, inflating base fees.\n- Centralization pressure as only the largest searchers/relayers can afford to lose on failed bundles.\n- Inefficient allocation where MEV profits are burned in gas wars instead of user rebates.
>90%
Gas Burned
1-2
Dominant Builders
02
The Solution: Encrypted Mempools & Commit-Reveal Schemes
To prevent frontrunning in a sponsored world, you need privacy. Architect for Shutter Network-style encrypted mempools or Flashbots SUAVE's intent-based design.\n- Fair ordering is enforced before execution details are revealed.\n- Searcher competition shifts to solving for optimal execution, not speed.\n- Protocols can safely sponsor complex intents without leaking alpha.
~500ms
Reveal Latency
0%
Frontrun Risk
03
The Problem: Builder Collusion & Censorship Hardens
Sponsored txs create a natural payment-for-inclusion market. Dominant builders like Flashbots or Titan can:\n- Censor transactions by ignoring sponsored bundles from certain relayers.\n- Collude with searchers to create exclusive, high-MEV pipelines.\n- Extract rents by charging protocols for guaranteed, timely inclusion.
80%+
Builder Market Share
Yes
Censorship Risk
04
The Solution: Enshrined Proposer-Builder Separation (PBS)
Mitigate builder power by pushing PBS into the protocol layer, as envisioned by Ethereum's roadmap.\n- Credible neutrality is enforced by the protocol, not off-chain cartels.\n- Permissionless builder entry is restored via a competitive block auction.\n- Validators capture MEV directly, creating a more sustainable staking yield.
Protocol
Enforced
100%
Builder Entry
05
The Problem: User Abstraction Creates Liability Vectors
When a sponsor (e.g., a dApp) pays for a user's failed transaction, it assumes liability. This opens new attack surfaces:\n- Resource exhaustion attacks where bots spam sponsored intents to drain sponsor wallets.\n- Oracle manipulation to force unfavorable sponsored trades.\n- Complex dependency on relayers like Biconomy or Gelato becoming single points of failure.
$M+
Attack Surface
Critical
Relayer Risk
06
The Solution: Intent-Based Architectures & Risk Markets
Move from transaction sponsorship to intent sponsorship. Protocols like UniswapX and CowSwap already abstract execution. Pair this with decentralized risk underwriting.\n- Users sign declarative intents ("swap X for Y"), not prescriptive txs.\n- Solvers compete on execution quality, bearing the gas risk.\n- Insurance pools or bonding can underwrite solver failure, creating a native MEV risk market.
Intent
Paradigm
-20%
Slippage
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