Why Paymasters Will Dictate Chain Economics

Protocols like Pimlico, Biconomy, and Stackup currently sponsor gas to onboard users, but this is a loss-leader with no direct ROI. It's a race to the bottom on user acquisition cost, burning venture capital to buy ephemeral volume.

• No Retention: Subsidies don't guarantee user loyalty or protocol usage.
• Wash Trading Risk: Incentivizes empty transactions to farm the subsidy.
• Unsustainable: Burns $10M+ annually for major protocols with unclear long-term value capture.

Paymasters become intent solvers and order flow auctions. They don't just pay gas; they bundle user intents (e.g., 'swap X for Y') and auction the right to execute them to searchers and builders, capturing MEV and fee revenue.

• Revenue Flip: Transforms cost center (gas spend) into profit center (order flow revenue).
• Better Execution: Users get ~5-15% better prices via CowSwap-like batch auctions.
• Protocol Alignment: Revenue can be shared with dApps, creating sustainable business models beyond token emissions.

L1/L2 foundations will deploy sanctioned paymasters to enact monetary policy. They will dictate which tokens are accepted for fees, subsidize strategic transaction types (e.g., zk-proof submission), and penalize others (e.g., NFT minting during congestion).

• Economic Sovereignty: Chains like zkSync, Starknet, and Polygon can prioritize ecosystem dApps.
• Token Utility: Native gas tokens become governance tools for fee market control.
• Vertical Integration: The chain's preferred paymaster becomes the default RPC endpoint, controlling the entire user transaction stack.

Paymasters abstract gas complexity for users but create a critical dependency. The entity sponsoring fees controls transaction inclusion, creating a new validator-client relationship.

• Control Point: Paymaster decides which transactions to sponsor, acting as a gatekeeper for chain access.
• Economic Capture: They can extract value via order flow auctions or MEV capture, similar to searcher-builder dynamics in Ethereum.
• Risk Vector: A compromised or malicious Paymaster becomes a single point of censorship for all dependent accounts.

Vertical integration between Bundlers (who build blocks) and Paymasters (who sponsor fees) is economically rational, leading to centralized transaction pipelines.

• Vertical Integration: A dominant player like Stackup or Biconomy can operate both roles, controlling the entire user operation lifecycle.
• Economic Gravity: Scale begets scale; large Paymasters get better gas prices from Bundlers, creating a winner-take-most market.
• Result: The decentralized mempool is bypassed, recreating the centralized block builder problem from Proposer-Builder Separation (PBS) within the ERC-4337 ecosystem.

Paymasters enable applications to subsidize user fees, turning gas into a customer acquisition cost. This leads to subsidy wars and vendor lock-in.

• Walled Gardens: Apps like SocialFi platforms or gaming studios will sponsor fees only for their own transactions, fragmenting chain liquidity.
• Economic Warfare: Deep-pocketed entities can out-sponsor competitors, dictating which dApps users can afford to interact with.
• Sovereignty Risk: Chain economics become subject to the marketing budgets of a few large dApps, not organic user demand.

By paying fees on behalf of users, Paymasters become Financial Transmission intermediaries, attracting regulatory scrutiny under money transmitter laws.

• KYC/AML Hook: Compliance-driven Paymasters (e.g., bank-integrated services) will require identity verification, breaking pseudonymity for sponsored transactions.
• Sanctions Enforcement: They become choke points for enforcing transaction blacklists, implementing censorship at the infrastructure layer.
• Result: The permissionless base layer gets a permissioned access layer, determined by Paymaster policy and jurisdiction.

In Proof-of-Stake chains, the entity paying the gas fee should logically provide the staking security. Paymasters break this alignment.

• Security Decoupling: Users consume block space but the Paymaster's stake (or lack thereof) backs the transaction, creating a moral hazard.
• Staking Centralization: Large Paymasters will run massive validator stakes to ensure reliability, centralizing consensus power under a new business model.
• Economic Distortion: Chain security budgets become dependent on Paymaster profitability, not direct user valuation of block space.

The counterweight is decentralized, non-custodial Paymaster networks that operate as public goods, similar to DEX liquidity pools.

• Model: A staking pool (like Pimlico's Verifying Paymaster) where sponsors deposit funds; a decentralized network of operators executes sponsorship based on open rules.
• Mitigation: Prevents single-point censorship, distributes economic power, and preserves permissionless access.
• Key Projects: Ethereum Foundation's 4337 SDK, Rhinestone's modular smart accounts, and ZeroDev's kernel factories are building towards this standard.

Requiring users to hold a chain's native token for gas is a massive adoption barrier. It fragments liquidity and creates a terrible onboarding experience.

• Key Benefit 1: Abstract gas away completely, enabling gasless transactions for end-users.
• Key Benefit 2: Unlock sponsored transactions where dApps or protocols pay fees to acquire users.

Paymasters monetize transaction sponsorship, creating a new ad-supported web3 economy. Think Google AdSense for block space.

• Key Benefit 1: Generate protocol-owned revenue by selling subsidized block space to dApps.
• Key Benefit 2: Enable intent-based flows where paymasters route and bundle transactions for optimal execution, similar to UniswapX or CowSwap on the settlement layer.

The entity that controls the bundler—which orders and submits user operations—holds immense power. This is the real economic control point.

• Key Benefit 1: MEV capture shifts from miners/validators to bundlers and paymasters.
• Key Benefit 2: Chain loyalty is dictated by which paymaster network offers the best subsidies and routing, not the base layer's specs.

Dominant paymaster providers will vertically integrate with RPC endpoints, bundlers, and account abstraction wallets. This creates unstoppable user acquisition funnels.

• Key Benefit 1: Wallet providers like Safe or Rainbow become massive paymaster operators, locking in users.
• Key Benefit 2: L2s & Alt-L1s will compete by funding aggressive paymaster subsidy programs to bootstrap ecosystems, directly attacking Ethereum's gas market.