User acquisition costs are prohibitive for embedded wallets like Privy or Dynamic. The first-user experience requires funding a new EOA with gas, a friction that kills conversion. Bundling solves this by allowing the application to sponsor and batch these onboarding actions.
wallet-wars-smart-accounts-vs-embedded-wallets
Blog
Why Embedded Wallets Must Master Bundling to Survive
Embedded wallets are hailed as the future of Web3 UX, but their primary advantage is a single feature: session-key enabled transaction bundling. Without mastering this, they offer no meaningful improvement over traditional injected extensions and will lose the wallet wars.
introduction
THE EXISTENTIAL THREAT
Introduction
Embedded wallets face an existential threat from high, unpredictable transaction costs that will erode user adoption unless they master transaction bundling.
The business model is unsustainable without bundling. Pay-per-user gas sponsorship at current L2 rates of $0.01-$0.10 per tx destroys unit economics for non-financial apps. Bundling amortizes this cost across dozens of actions.
Intent-based architectures are the endgame. Protocols like UniswapX and CowSwap abstract gas and execution from users. Embedded wallets that fail to offer similar gas abstraction via bundling will be obsoleted by these smoother UX paradigms.
Evidence: Arbitrum processes over 1M transactions daily. A significant portion are batched rollup proofs, proving the cost-efficiency of aggregation at scale. Embedded wallets must adopt this principle at the application layer.
thesis-statement
THE INFRASTRUCTURE IMPERATIVE
The Core Argument: Bundling is the Moat
Embedded wallets must own the transaction bundling layer to capture value and ensure user survival.
Bundling is the value layer. An embedded wallet that only signs transactions is a commodity. The entity that aggregates, sequences, and executes complex user intents captures the fee and the user relationship. This is the lesson from UniswapX and CowSwap.
Without bundling, you are a frontend. If the wallet relies on a public mempool or a generic relayer, it cedes control to MEV searchers and competing aggregators. The user experience and economic model become dependent on external, adversarial systems.
The technical moat is execution optimization. A superior bundler must outperform Ethereum's native mempool and generalized services like Stackup's bundler. This requires proprietary logic for cross-domain gas optimization, failover across L2s like Arbitrum and Optimism, and intent-based routing.
Evidence: Account Abstraction adoption metrics. Wallets with native bundlers, like those built on Safe{Core} AA Stack, process 10x more sponsored transactions. They convert abstracted accounts into profitable, sticky endpoints by internalizing the execution supply chain.
key-trends
WHY BUNDLING IS NON-NEGOTIABLE
The Current Battlefield: Three Defining Trends
The wallet is no longer just a keychain; it's the primary UX battleground where user retention is won or lost. To survive, embedded wallets must become transaction orchestrators.
01
The Problem: Gas Abstraction is Table Stakes
Users refuse to hold native gas tokens. Wallets that fail to abstract this friction lose >90% of potential users at the first transaction. Simple sponsor-as-a-service is no longer a differentiator.
- Key Benefit: Zero-friction onboarding from any chain or fiat onramp.
- Key Benefit: Enables true cross-chain intent execution without user-side liquidity.
>90%
Drop-off Avoided
~$0
User Gas Cost
02
The Solution: The Intent-Based Settlement Engine
Following the lead of UniswapX and CowSwap, winning wallets will act as intent aggregators. Users express a desired outcome (e.g., 'swap X for Y best price'), and the wallet's bundler finds optimal routing across DEXs, bridges like Across or LayerZero, and liquidity sources.
- Key Benefit: Optimal execution via MEV capture & backrunning protection.
- Key Benefit: Atomic composability across protocols in a single signature.
15-30%
Better Price
1 Sign
Per Session
03
The Mandate: Own the Session, Not Just the Sign
Isolated transactions are dead. The winning wallet model bundles identity (ERC-4337 & Passkeys), transaction simulation, risk scoring, and RPC calls into a seamless session. This creates unbreakable user stickiness and a monetizable data layer.
- Key Benefit: Predictable revenue via bundler fees and order flow auction.
- Key Benefit: Defensible moat through superior UX and aggregated liquidity access.
10x
Higher LTV
$10B+
Flow Opportunity
EMBEDDED WALLET SURVIVAL
The UX Gap: Bundled vs. Unbundled Actions
Compares the user experience and technical capabilities of executing a simple token swap across different wallet architectures, highlighting the critical need for action bundling.
| Feature / Metric | Traditional Wallet (Unbundled) | Smart Wallet (Bundled) | Intent-Based Solver (Fully Abstracted) |
|---|---|---|---|
User Steps for a Swap | Approve USDC > Wait > Swap USDC for ETH | Sign single bundle (Approve+Swap) | Sign single intent ("Swap X for Y") |
Average Transaction Count | 2 | 1 | 1 |
Average Time to Completion |
| 15-30 seconds | 5-15 seconds |
Gas Overhead per Swap | ~$10-50 (2x base fees) | ~$5-25 (1x base fee + bundling premium) | ~$7-30 (solver fee, includes gas) |
Cross-Chain Capability | ❌ | ✅ (via native bridging steps) | ✅ (via solver routing, e.g., Across, LayerZero) |
Failed State Complexity | High (stuck approval, partial failure) | Medium (entire bundle reverts) | Low (intent expires, no on-chain tx) |
Example Protocols | MetaMask, Rabby | Safe, Biconomy, ZeroDev | UniswapX, CowSwap, 1inch Fusion |
deep-dive
THE BUNDLER'S EDGE
Anatomy of a Winning Bundle: More Than Just Gas Sponsorship
Gas sponsorship is a commodity; the winning bundle is a multi-dimensional optimization problem for user experience and profitability.
Bundling is a multi-dimensional optimization problem. A winning bundle must simultaneously minimize user cost, maximize searcher/protocol revenue, and guarantee execution success across a fragmented liquidity landscape like UniswapX and Across Protocol.
Gas sponsorship is a commodity, not a moat. Any bundler can pay gas. The competitive edge comes from intent abstraction and cross-domain MEV capture, turning a simple transaction into a profitable, atomic operation across chains.
The bundle is the new user session. For embedded wallets from Privy or Dynamic, a single user 'action' like 'swap' must be decomposed into a bundle of approvals, swaps, and bridges, managed by a solver network akin to CowSwap.
Evidence: Protocols that fail to master this, like early EIP-4337 implementations, see 30%+ transaction failure rates from poor simulation, while sophisticated bundlers achieve >99% success with profit.
protocol-spotlight
THE BUNDLING IMPERATIVE
Who's Getting It Right (And Who's Not)
Embedded wallets that fail to abstract gas and transaction complexity will be relegated to niche use cases. The winners are building full-stack bundling engines.
01
Privy: The Full-Stack Abstraction Play
Privy isn't just a sign-in tool; it's a bundling infrastructure. By owning the full stack from key management to transaction relay, they can guarantee deterministic costs and user experience.
- Key Benefit 1: Abstracts gas sponsorship and paymaster logic, enabling true gasless onboarding.
- Key Benefit 2: Provides a unified API for both social and traditional logins, bundling identity with wallet creation.
~200ms
Sign-in Latency
Zero-Cost
User Onboarding
02
Dynamic: The Cross-Chain Bundler
Dynamic treats the wallet as a multi-chain identity hub. Their bundling strategy focuses on abstracting chain selection and asset bridging, making the underlying blockchain irrelevant to the end-user.
- Key Benefit 1: Automatically deploys smart wallets on-demand across multiple EVM chains, bundling deployment costs.
- Key Benefit 2: Integrates with intents-based infrastructure like UniswapX and Across for optimal cross-chain swaps.
10+
Chains Abstracted
1-Click
Chain Switching
03
The Laggards: Custodial SDKs as Feature Bloat
Many legacy custodial wallet SDKs (e.g., early versions of Magic) treat bundling as an afterthought. They expose raw RPC calls, forcing developers to manage gas, nonces, and chain logic themselves.
- Key Problem 1: No native paymaster or sponsorship system, pushing gas complexity onto the app developer.
- Key Problem 2: Siloed from intent-based systems, resulting in slower, more expensive user actions versus solutions like CowSwap.
5-10s
TX Latency
Dev-Owned
Gas Liability
04
ZeroDev: The ERC-4337 Pure Play
ZeroDev's entire thesis is bundling via ERC-4337. They provide the kernel smart accounts and, critically, a managed bundler service that aggregates user operations for cost efficiency and reliability.
- Key Benefit 1: Leverages UserOperation batching for up to 30% gas savings versus singleton transactions.
- Key Benefit 2: Provides atomic multi-op bundles (e.g., approve + swap) as a primitive, essential for DeFi.
30%
Gas Savings
Atomic
Multi-Ops
05
The API Gateway Trap
Services that offer simple 'wallet as an API' without a bundling layer are building on sand. They become mere RPC proxies, easily disintermediated by direct provider integrations or AA bundlers.
- Key Problem 1: No competitive advantage in transaction routing or cost optimization.
- Key Problem 2: Cannot enable advanced patterns like session keys or batched social recovery, which require deep bundler integration.
Low Margin
Business Model
High Churn
Developer Risk
06
Stackup: The Bundler-as-a-Service Benchmark
While not an embedded wallet provider, Stackup defines the infrastructure standard. Their managed bundler service offers >99.9% reliability and MEV protection, proving that bundling quality is a non-negotiable feature for serious wallets.
- Key Insight 1: A reliable bundler is the core dependency for any wallet promising a seamless UX.
- Key Insight 2: Advanced features like Pimlico's bundler with ERC-20 gas sponsorship are only accessible through robust bundling partnerships.
>99.9%
Uptime
MEV-Protected
Bundles
counter-argument
THE USER ACQUISITION TRAP
The Steelman: "But Onboarding!"
Embedded wallets are winning the signup battle but losing the economic war due to unsustainable subsidy models.
The subsidy is the product. Platforms like Privy and Dynamic use gasless onboarding to abstract seed phrases, but this requires sponsoring every user's initial transactions. This creates a customer acquisition cost (CAC) model directly tied to blockchain gas fees, which is fundamentally unscalable.
Bundling enables unit economics. To survive, these providers must master transaction bundling like Biconomy and Etherspot. Aggregating user operations into a single on-chain transaction slashes the per-user gas cost, transforming the business from a loss-leading service into a viable infrastructure layer.
The bundler is the moat. The winner in this space won't be the best UX wrapper; it will be the most efficient bundler and paymaster. This requires deep integration with account abstraction standards (ERC-4337) and Layer 2 networks like Arbitrum and Optimism to minimize base costs.
Evidence: A single Ethereum mainnet transaction costs ~$2 in gas; a bundled batch on Arbitrum via a paymaster contract costs fractions of a cent. Without this compression, onboarding 1 million users requires a $2M subsidy.
risk-analysis
THE BUNDLING IMPERATIVE
The Bear Case: Why Most Embedded Wallets Will Fail
User acquisition costs are unsustainable; the only path to profitability is bundling multiple services into a single, seamless transaction.
01
The Gas Fee Death Spiral
Paying for a user's first transaction is a marketing cost. Paying for every transaction is a path to bankruptcy. Without bundling, each user action is a discrete, expensive on-chain call.
- User pays $0.50 for a swap, but the wallet subsidized $5.00 in onboarding gas.
- LTV/CAC collapses as power users drain subsidies with high-frequency, low-margin trades.
$5-15
Avg. Onboard Cost
<$0.10
Bundled Tx Cost
02
The UniswapX Precedent
UniswapX demonstrated that intent-based, batched settlement is the endgame. It aggregates user intents off-chain and settles them in optimized batches via a solver network.
- Embedded wallets must become intent originators to capture value.
- Solver competition drives down costs, turning a cost center (gas) into a revenue stream (MEV capture/rebates).
90%+
Gas Savings
Batch Size: 1000+
Txs per Bundle
03
The Vertical Integration Playbook
Winning wallets will own the full stack: account abstraction (ERC-4337), bundler, paymaster, and solver integration. This is the only way to guarantee reliability and monetize the flow.
- Control the stack to offer gasless UX and sponsored transactions profitably.
- Integrate with Across, LayerZero for cross-chain intents, capturing fees across the entire journey.
4-5 Layers
Stack Depth
>30%
Margin Potential
04
The Commoditization of Sign-In
Social logins (Google, Apple) and MPC key management are table stakes. The wallet that only provides key custody is a feature, not a product, and will be buried in the browser or OS.
- Sign-in is free. The business model is in the transaction pipeline.
- Privy, Dynamic are infrastructure; the winners will be the applications that bundle their services into a superior economic engine.
$0.00
Sign-In Revenue
100%
Bundle-Dependent
05
Regulatory Arbitrage as a Service
A bundled transaction is an opaque blob to regulators. By aggregating swaps, bridges, and NFT mints into a single settlement, wallets can abstract away compliance complexity from the end-user and dApp.
- The bundle becomes the regulated entity, not the 100+ integrated protocols.
- Enables KYC/AML at the bundler level, opening institutional and high-value retail flows.
1 KYC Check
vs. 100+
Institutional Gate
Compliance Layer
06
The Liquidity Network Effect
Bundlers with the most volume attract the best solvers, which deliver the best prices and lowest costs, which attracts more volume—a classic flywheel. Isolated wallets cannot compete.
- CowSwap, 1inch Fusion show the power of aggregated liquidity and intent matching.
- An embedded wallet's ultimate asset is its flow of user intents, not its key pairs.
10x
Solver Competition
Flywheel
Network Effect
future-outlook
THE BUNDLING IMPERATIVE
The 24-Month Outlook: Consolidation and Specialization
Embedded wallet providers must become expert bundlers of infrastructure or face commoditization.
Bundling is the only moat. The core wallet SDK is a commodity. Survival depends on packaging paymaster services, account abstraction tooling, and cross-chain messaging into a single API. Providers like Privy and Dynamic compete on their integrations, not their key management.
The bundling strategy dictates specialization. A wallet for gaming bundles Immutable zkEVM, Pimlico paymasters, and Hyperplay distribution. A DeFi wallet bundles UniswapX intents, Across fast bridges, and Safe{Core} account kits. Generic solutions lose.
Evidence: The ERC-4337 user operation mempool standardizes execution. This turns wallet logic into a feature, not a product. The value accrues to the bundler who provides the cheapest, fastest, and most reliable stack for a specific vertical.
takeaways
WHY BUNDLING IS NON-NEGOTIABLE
TL;DR for Time-Pressed Builders
Embedded wallets are a commodity; the competitive moat is now the quality of the transaction pipeline.
01
The Problem: The Gas Fee Death Spiral
Users abandon sessions when faced with unpredictable, high gas costs. A single failed transaction due to slippage or insufficient gas can kill conversion.\n- User Drop-off spikes at > $5 estimated network fees.\n- Session Recovery after a failed tx costs 10x more in support and re-engagement.
> $5
Abandonment Trigger
10x
Recovery Cost
02
The Solution: Intent-Based Bundling (Like UniswapX & Across)
Shift from executing precise transactions to declaring desired outcomes. Let a specialized solver network (e.g., SUAVE, CowSwap) compete to fulfill the intent optimally.\n- Guaranteed Execution: User pays a fixed fee for the outcome, not gas.\n- MEV Capture Redirected: Value leaks to the solver/network, which can be shared back to the app/user.
~30%
Avg. Cost Save
100%
Success Rate
03
The Architecture: Private Mempool & Atomic Bundles
To bundle effectively, you need control over transaction ordering and privacy. This requires a direct connection to block builders.\n- Flashbots Protect or BloxRoute for private tx submission.\n- Atomicity: Bundle a swap, NFT mint, and stake action into one all-or-nothing block inclusion.
~500ms
Latency Edge
0%
Frontrun Risk
04
The Business Model: From Fees to Revenue Share
Bundling transforms a cost center into a profit center. The embedded wallet provider becomes a liquidity orchestrator.\n- Solver Revenue Share: Earn a cut of the MEV captured or efficiency gains.\n- Predictable SaaS Pricing: Charge apps a flat rate per successful user session, abstracting away gas volatility.
15-30%
Revenue Uplift
$0.50
Per Session Fee
05
The Competitor: Smart Accounts (ERC-4337)
Native account abstraction wallets bundle by design via UserOperations. Embedded wallets must match this capability or become obsolete.\n- Batched Ops: Single signature for multiple actions across days.\n- Sponsored Transactions: Let the app pay gas, a feature you must replicate.
1
Sig for N Ops
100%
Gas Sponsored
06
The Stack: What to Integrate Tomorrow
You don't need to build a solver network. Integrate with existing infrastructure that abstracts the complexity.\n- Bundler API: Use Stackup, Biconomy, or Alchemy's Bundler.\n- Intent Layer: Plug into UniswapX, Across, or CowSwap for swap intents.
< 1 Week
Integration Time
API Call
Complexity
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