Why Subsidizing Relayer Networks Creates Long-Term Centralization

Subsidies create centralization debt. Protocols like Across and Stargate use token incentives to attract relayers, creating a temporary, subsidized equilibrium. This attracts capital-seeking actors, not sustainable infrastructure builders, locking the network into a fragile, centralized state.

The market consolidates to the cheapest capital. Relayer networks become a commodity race to the bottom, where the entity with the lowest cost of capital (e.g., a well-funded VC entity) dominates. This centralizes order flow and creates a single point of failure.

Evidence: The MEV relay market demonstrates this outcome. Post-merge, block building consolidated under a few entities like Flashbots and bloxroute because their sophisticated capital and infrastructure outcompeted decentralized alternatives. Subsidized relayers follow the same path.

Subsidies are a centralizing force. Protocols like Across and Stargate use token incentives to pay relayers, artificially lowering transaction costs for users. This creates a winner-take-most market where only the best-funded relayers can operate at a loss, squeezing out smaller, independent operators.

The subsidy model inverts economic logic. A healthy network like Ethereum or Solana earns fees that secure the system. In a subsidized relayer network, the protocol pays for security, creating a permanent cost center instead of a sustainable business. This is a direct subsidy for centralization.

Evidence from DeFi confirms this. The liquidity mining wars of 2020-21 proved that mercenary capital flees when subsidies end. A relayer network dependent on token emissions will see its security budget and operator count collapse when the grants stop, leaving a handful of entrenched players.

Subsidies create permanent dependencies. Protocols like Across and Stargate use token incentives to attract initial relayers. This initial bootstrapping phase creates a cost structure that users never pay for directly, making the subsidy a permanent operational expense for the protocol treasury.

The relayer cartel emerges. A small group of capital-efficient operators (e.g., Biconomy, bloXroute) inevitably dominates. They optimize for subsidy capture, not user experience, creating a centralized bottleneck that controls transaction flow and censorship resistance.

Decentralization becomes a cost center. The protocol's governance token must perpetually fund these relayers. This turns a core infrastructure layer into a rent-seeking entity, diverting value from token holders and creating misaligned incentives that are impossible to unwind.

Evidence: Across Protocol's $ACX token emissions to relayers exceed $50M annually. This creates a governance capture risk where the largest relayer operators become the dominant token voters, directly controlling the subsidy that pays them.

Subsidies create economic dependency. A protocol that pays relayers to operate creates a permanent cost center. This model fails when subsidies end, as seen in early Layer 2 sequencer models, forcing the protocol to either centralize control or collapse.

Bootstrapping attracts mercenary capital. Subsidies attract operators seeking yield, not network resilience. When profit margins compress, these actors exit, creating a vacuum that only a heavily subsidized, centralized entity can fill, defeating decentralization goals.

The market designs superior solutions. Protocols like Across and Chainlink CCIP use a cryptoeconomic security model where user fees directly fund relayers. This creates a sustainable, permissionless marketplace without protocol-level subsidies from day one.

Evidence: Examine the lifecycle of a subsidized relayer pool. Initial high APY attracts many nodes. As usage grows and subsidies taper, node count collapses, leaving a centralized oligopoly of the few actors who can operate at a loss, which is the antithesis of Web3.

Subsidies create artificial demand. Protocols like Across and Stargate use token incentives to bootstrap relayers, but this attracts mercenary capital that exits when rewards dry up.

The result is centralization pressure. A few well-funded entities like Biconomy or Connext's Spark network dominate, as they can absorb losses and outlast smaller, independent operators.

Fee markets are the only equilibrium. A sustainable system requires users to pay for security and liveness directly, creating a competitive market where the best-priced, most reliable relayers win.

Evidence: The 2022-23 bridge wars demonstrated this cycle, where subsidized relay volumes collapsed by 60-80% post-incentives, leaving only a handful of professional operators.