Why ERC-4337's Gas Economics Are Fundamentally Flawed

Paymaster subsidies create systemic risk. The standard externalizes gas costs to third-party paymasters, creating a fragile dependency on centralized sponsors like Pimlico or Stackup for user onboarding.

Bundler economics are misaligned. Bundlers, like those run by Alchemy or Etherspot, must prioritize profit, leading to user operation censorship and creating a new, extractive MEV layer.

Gas overhead is multiplicative. Each user operation requires separate validation and execution logic, adding fixed costs that make micro-transactions economically impossible on Ethereum L1.

Evidence: A simple token transfer via a 4337 wallet costs ~42k more gas than an EOA, a 70%+ overhead that scales with every new signature scheme or privacy feature.

Bundlers operate in a separate market from L1 block builders. They compete for UserOperations based on their own fee logic, which is not directly exposed to the L1's priority gas auction. This creates a two-layer fee inefficiency where the bundler's profit margin becomes a mandatory tax on every AA transaction.

Paymasters introduce a hidden subsidy risk. Protocols like Biconomy or Stackup that sponsor gas create a moral hazard where dApps bear unpredictable, volatile costs. This is the opposite of the predictable, user-paid model that makes EIP-1559 effective on L1.

The system defaults to L1 gas spikes. During network congestion, bundlers must win L1 blockspace to submit their bundles. Their secondary auction fails under stress, causing AA transaction failure rates to soar while vanilla L1 tx succeed. This defeats the purpose of a resilient user experience.

Evidence: Early data from pimlico.io and Stackup shows AA transaction costs are 20-50% higher than equivalent L1 transfers during normal loads, and can fail entirely during periods of high Base or Arbitrum sequencer activity, which cascades to L1.

Paymaster sponsorship creates arbitrage. The standard decouples the gas payer (paymaster) from the transaction submitter (bundler). This separation allows bundlers to front-run user operations by submitting identical transactions with higher gas bids, capturing the paymaster's sponsorship fee.

The system guarantees extractable value. Unlike Ethereum's base layer, where miners compete for MEV, ERC-4337's design makes this arbitrage predictable and low-risk. Bundlers like Pimlico and Stackup are incentivized to optimize for this, not user experience.

Users subsidize bundler profits. The paymaster's fee, intended to abstract gas costs, becomes a bounty. This creates a hidden tax on every sponsored transaction, inflating costs for protocols like Base's Onchain Summer or any dApp using account abstraction.

Evidence: Analysis of the Ethereum Foundation's bundler and Alchemy's Rundler shows they consistently prioritize operations with the highest effective gas price, not the earliest received, proving the economic incentive overrides fair ordering.

Paymasters create hidden subsidies. The protocol allows third parties to pay user gas fees, enabling sponsored transactions. This abstracts cost from the user but transfers the economic burden to dApps and wallets, creating a sponsorship arms race that cannot be profitably scaled.

Bundler competition is a mirage. The bundler auction model for including UserOperations is designed to optimize for lowest cost. In practice, this creates a race to the bottom on bundler margins, disincentivizing robust infrastructure and centralizing execution power with the lowest-cost, often subsidized, operators.

Gas overhead is multiplicative. Every UserOperation requires additional calldata and validation logic versus a native transaction. On L1 Ethereum, this makes simple actions prohibitively expensive. While L2s mitigate this, the inherent overhead still doubles or triples base costs compared to EOA transactions, a tax on adoption.

Evidence: Early data from Stackup and Alchemy shows paymaster-sponsored transactions can cost sponsors 2-5x the equivalent EOA gas, a cost that explodes with mass adoption. The model assumes perpetual VC subsidy, not sustainable unit economics.

Paymasters break fee markets. ERC-4337's design requires a third-party paymaster to sponsor gas for UserOperations, inserting a rent-seeking intermediary where none should exist. This creates a new fee abstraction layer that distorts Ethereum's native pricing mechanism.

Bundlers face negative externalities. The protocol forces bundlers to simulate paymaster logic for every UserOp, incurring significant computational overhead with no direct compensation. This creates a principal-agent problem where user convenience is subsidized by bundler infrastructure costs.

Account abstraction becomes a tax. Compared to native EOA transactions, every 4337 operation adds verification gas overhead for signature aggregation and paymaster checks. This makes simple transfers prohibitively expensive, undermining the standard's mass adoption thesis.

Evidence: Vitalik Buterin's own analysis shows a ~42k gas overhead for basic 4337 transactions versus EOAs. Projects like Rhinestone and ZeroDev are building mitigations, but these are patches on a flawed base layer economic model.