ERC-4337's core flaw is the mandatory on-chain contract deployment for every new smart account. This creates a permanent gas cost floor that defeats the purpose of gas sponsorship and makes user onboarding a scaling bottleneck.
wallet-wars-smart-accounts-vs-embedded-wallets
Blog
Why Smart Account Deployment Bottlenecks Will Cripple Scaling
ERC-4337 solves UX but not scaling. Factory contract calls and mandatory on-chain funding create unsustainable bottlenecks for mass onboarding, handing the advantage to embedded wallet and L2-native models.
introduction
THE DEPLOYMENT BOTTLENECK
The Great Deception of ERC-4337
Smart account deployment costs and latency are the unaddressed scaling failure of ERC-4337.
The counter-intuitive scaling failure is that UserOperations (UserOps) are cheaper than the initial deployment. Systems like Stackup's bundler optimize transaction bundling, but the one-time deployment cost remains a fixed, unavoidable tax on every new user.
Compare this to existing infrastructure. Layer 2s like Arbitrum and Optimism scale transaction execution but cannot reduce the immutable cost of a CREATE2 or CREATE opcode. This makes mass adoption campaigns economically impossible.
Evidence from live networks. A simple Safe{Wallet} deployment on Ethereum mainnet costs ~0.02 ETH. Even on an L2 like Polygon, this is a prohibitive $2-3 fee that destroys the 'gasless' user experience promise.
key-trends
WHY SMART ACCOUNT DEPLOYMENT BOTTLENECKS WILL CRIPPLE SCALING
The Scaling Contradiction
L2s promise cheap transactions, but the on-chain deployment of smart accounts creates a paradoxical, unscalable cost.
01
The Problem: The Per-User On-Chain Tax
Every new smart account requires a one-time, on-chain deployment transaction. At ~21k gas per CREATE2, this is a $1-$5+ onboarding tax on L1. This cost doesn't scale with L2 throughput, creating a hard economic ceiling for mass adoption.
- Fixed Cost Per User: Unlike a simple transfer, you can't batch this initial cost away.
- L1 is the Bottleneck: L2s can't make this cheaper; it's a fixed L1 gas auction.
- Kills Viable Business Models: Subsidizing onboarding for millions becomes economically impossible.
$1-$5+
Per-User Tax
21k gas
Fixed L1 Cost
02
The Solution: ERC-4337 Bundlers & Paymasters
ERC-4337 introduces off-chain infrastructure that abstracts the deployment cost. The Bundler submits the user's UserOperation, and the Paymaster can sponsor the gas, enabling gasless onboarding.
- Deployment is Lazy-Loaded: The account contract is only deployed on its first user-initiated action, paid for by a sponsor.
- Social & App-Specific Recovery: Enables programmable security models (e.g., multi-sig, social recovery) without upfront user burden.
- Critical for Adoption: Protocols like Stackup, Alchemy, and Biconomy operate this infrastructure, allowing apps to absorb onboarding costs.
$0
User Onboarding Cost
Lazy-Loaded
Deployment
03
The Bottleneck: Centralization of Bundler Censorship
Shifting cost to Paymasters creates a new centralization vector. The entity paying the gas (Paymaster) or submitting the bundle (Bundler) gains transaction-order influence, recreating Miner Extractable Value (MEV) risks.
- Relayer Risk: A dominant Bundler/Paymaster combo can censor or front-run user transactions.
- Staking Requirements: Permissionless bundling may require staking, creating capital barriers.
- Protocols at Risk: Wallets and dApps become dependent on a few infrastructure providers like Stackup or Alchemy for reliable operation.
New MEV Vector
Censorship Risk
Capital Barriers
For Decentralization
04
The Architectural Fix: Native Account Abstraction (AA)
The endgame is moving AA into the protocol layer. zkSync Era, Starknet, and Arbitrum have native AA, where smart account logic is validated by the protocol, not a deployed contract.
- Zero-Cost Deployment: No L1 CREATE2 transaction is needed. Account creation is a state update.
- Protocol-Level Security: Censorship resistance inherits from the L2's validator set, not a Bundler market.
- The True Scaling Path: This removes the economic contradiction, making user onboarding as cheap as an L2 transaction.
~$0.01
Native AA Cost
Protocol-Level
Security Model
ACCOUNT ABSTRACTION BOTTLENECK
The On-Chain Cost of a User
Comparing the on-chain footprint and economic viability of different user account models for scaling.
| Key Metric | EOA (Status Quo) | Smart Account (Full Deployment) | ERC-4337 Paymaster (Sponsored) |
|---|---|---|---|
Initial Deployment Gas Cost | 0 gas (Pre-funded) | ~250k-450k gas | 0 gas (Bundler pays) |
Per-User On-Chain State (bytes) | ~80 bytes | ~500-1000+ bytes | ~80 bytes (EOA state) |
Recurring Tx Overhead | 21k gas (base) | ~42k-100k+ gas (validation + execution) | 21k gas (base) + sponsor fee |
Can Batch Multiple Actions | |||
Requires Pre-Funding for Gas | |||
Annual State Bloat per 1M Users | ~76 MB | ~476 MB - 953 MB+ | ~76 MB |
Break-Even User LTV vs. Deploy Cost | N/A (No cost) | $15-$27 (at 50 gwei) | $0 (sponsor absorbs) |
deep-dive
THE DEPLOYMENT COST
Anatomy of a Bottleneck: Factory & Funding
Smart account deployment costs and factory contract inefficiencies create a fundamental scaling barrier that current infrastructure cannot solve.
Factory contract overhead is the primary cost driver. Every new ERC-4337 account requires a separate on-chain deployment transaction, consuming gas for the factory's CREATE2 opcode and the initcode execution. This process is inherently unscalable for mass adoption.
Counterfactual deployment is a myth for active users. While accounts can be referenced before creation, the first user operation that triggers deployment pays the full gas cost. This creates a user acquisition tax that protocols like Coinbase Smart Wallet and Safe{Wallet} must subsidize, distorting economic models.
Funding the account is a separate transaction. After deployment, a user must send native gas tokens (ETH, MATIC) to the new account's address. This second on-chain transaction doubles the friction and cost, a problem Polygon's Paymaster infrastructure and Biconomy attempt to abstract but cannot eliminate.
Evidence: Deploying a basic Safe{Wallet} on Ethereum mainnet costs 0.01 ETH ($30). At scale, this per-user capital lockup for millions of accounts becomes a multi-billion dollar inefficiency that no venture-subsidized gas abstraction can sustainably cover.
counter-argument
THE BOTTLENECK
The L2 Salvation Fallacy (And Why It's Wrong)
Scaling transaction execution is irrelevant if you cannot scale the deployment of the agents who sign them.
Smart Account Deployment Bottlenecks are the new scaling frontier. L2s like Arbitrum and Optimism optimize for cheap execution but ignore the single-threaded L1 dependency for contract creation. Every new ERC-4337 bundle or AA wallet requires an L1 transaction for its factory or singleton, creating a hard ceiling.
The Counter-Intuitive Reality is that L2s are not sovereign scaling solutions. They are execution shards tethered to Ethereum's consensus. This architecture makes user onboarding a shared global resource, where a surge on Base can congest deployment for users on zkSync.
Evidence: The Ethereum L1 block gas limit is the ultimate governor. Even if an L2 processes 100k TPS, it can only deploy a few hundred new smart account contracts per minute. This bottleneck will manifest as prohibitive fees and multi-hour delays during mass adoption events.
protocol-spotlight
THE DEPLOYMENT WALL
Architectures Navigating the Bottleneck
Mass adoption of smart accounts is blocked by a fundamental scaling wall: deploying a unique contract for every user.
01
The Singleton Factory (ERC-4337's Fatal Flaw)
The standard EntryPoint contract becomes a global bottleneck. Every user operation must be processed serially through a single state-changing contract, capping throughput at ~50-100 ops/sec and creating a centralized point of failure and censorship.
- Bottleneck: Single contract state contention.
- Consequence: Network-level DoS vulnerability.
- Reality: Makes 10M+ AA users a pipe dream on current L2s.
~100
Ops/Sec Cap
1
Global Contention Point
02
The Paymaster Pre-Payment Trap
ERC-4337's gas abstraction requires paymasters to pre-fund the EntryPoint. This locks millions in capital per chain, creating massive operational overhead and limiting who can offer sponsored transactions.
- Capital Inefficiency: Idle capital scales linearly with users.
- Barrier to Entry: Only well-funded players (e.g., Coinbase, Stripe) can operate at scale.
- Risk: Paymaster becomes a high-value exploit target.
$M+
Locked Capital
O(n)
Cost Scaling
03
Solution: Parallelized EntryPoints (Rhinestone, ZeroDev)
Shard the bottleneck by allowing multiple, parallel EntryPoint contracts. This moves contention from L1/L2 consensus to the mempool level, enabling horizontal scaling.
- Architecture: Mempool routers direct UserOps to sharded EntryPoints.
- Throughput: Scales with the number of shards (10-100x potential).
- Ecosystem: Adopted by Kernel, Biconomy, Etherspot.
10-100x
Throughput Gain
Sharded
Architecture
04
Solution: Native AA & L1 Account Abstraction
Bypass the factory model entirely. Protocols like Ethereum's EIP-7702 and L1s like Monad, Berachain, and Fuel bake AA into the protocol layer, making accounts programmable by default without deployment overhead.
- Eliminates: Contract deployment gas costs and latency.
- Native Security: Leverages core consensus security, not a singleton.
- Future: The end-state for scalable smart account infrastructure.
$0
Deploy Cost
Protocol-Level
Integration
05
Solution: Intent-Based Batching (UniswapX, Anoma)
Shift the paradigm from transaction execution to intent fulfillment. Users submit what they want, solvers compete to batch and fulfill thousands of intents off-chain, submitting a single proof.
- Throughput: ~1000x efficiency gain via batching.
- User Experience: Gasless, MEV-protected, cross-chain.
- Ecosystem: UniswapX, CowSwap, Across, Anoma are proving the model.
~1000x
Efficiency Gain
Gasless
User Experience
06
The Verdict: Modular vs. Monolithic
The bottleneck forces a fundamental architectural choice. Modular stacks (EVM L2s + parallel EntryPoints) offer a pragmatic patch. Monolithic L1s with native AA (e.g., Monad, Solana) offer a clean-slate solution. The winner will be decided by time-to-market vs. long-term scalability ceilings.
- Trade-off: Interim fix vs. foundational redesign.
- VC Bet: ~$1B+ invested in native AA chains in 2024.
- Outlook: Bottlenecks catalyze the next infrastructure cycle.
$1B+
VC Investment
Architecture War
Outcome
future-outlook
THE BOTTLENECK
The Inevitable Pivot: Hybrid Models and L2-Native Primitives
Smart account deployment on L2s creates a critical scaling bottleneck that forces a shift to hybrid models and native primitives.
Smart account deployment is a scaling wall. Every new ERC-4337 account requires a contract deployment, consuming L1 gas for security. This process is fundamentally unscalable and will throttle user onboarding.
The solution is a hybrid model. The future is key-based onboarding with gradual smart account migration. Users start with an EOA on an L2 like Arbitrum or Base, then upgrade to a Safe or Biconomy account after initial activity.
L2-native primitives will dominate. Protocols must build for the L2's native account abstraction, like Starknet's native accounts or zkSync's paymasters. This bypasses the ERC-4337 overhead entirely.
Evidence: Deploying a Safe wallet on Ethereum mainnet costs ~$50. On an L2, it's cents, but multiplied by millions of users, the L1 data availability cost remains prohibitive for mass adoption.
takeaways
THE DEPLOYMENT BOTTLENECK
TL;DR for Protocol Architects
Mass adoption requires billions of smart accounts, but current deployment models will choke on-chain scaling.
01
The Gas Fee Wall
Deploying a contract-wallet for every user is a non-starter. At $10 gas, onboarding 1M users costs $10M in pure deployment fees, making user acquisition economically impossible for mainstream apps.
- Key Constraint: Linear cost scaling with user growth.
- Network Impact: Congestion from mass deployments would spike fees for all users.
$10M+
Onboarding Cost
0%
Scalability
02
The Deterministic Factory (ERC-4337's Flaw)
ERC-4337's default CREATE2 factory pattern shifts cost to the first transaction, not deployment. This creates a latency bottleneck as each user's initial op must be sequenced and mined, preventing instant, scalable onboarding.
- Key Constraint: Sequential, on-chain initialization.
- Real-World Limit: Systems like Stackup's Bundler still face this fundamental throughput cap.
~12 sec
Min Latency
1
Serial Process
03
Solution: Counterfactual Instantiation
The only viable path is to never deploy the account until its first user-initiated on-chain action. The address is pre-computed (e.g., via Safe{Core} Protocol), and the deployment cost is bundled with the user's first meaningful transaction.
- Key Benefit: Zero-cost onboarding and instant UX.
- Architecture: Requires advanced bundler logic and global state proofs, as pioneered by ZeroDev and Biconomy.
$0
Sign-Up Cost
~0ms
Perceived Latency
04
The Verifier Node Load
Every new smart account is a new contract for sequencers and verifiers to track. A billion accounts means tracking a billion contract states, exploding the hardware requirements for nodes and threatening decentralization.
- Key Constraint: State bloat for network participants.
- Implication: Centralization pressure on infra layers like AltLayer or EigenDA.
1B+
State Objects
100x
Node Specs
05
Solution: Ephemeral Session Keys & Paymasters
Minimize on-chain footprint by handling authentication and gas sponsorship off-chain. Session keys (via ERC-7702) allow multiple actions under one signature. Paymasters (like Pimlico) abstract gas fees. This reduces the required on-chain interactions per account by ~90%.
- Key Benefit: Drastically reduces the deployment & transaction load on L1/L2.
- Composability: Enables batched intents across dApps.
-90%
On-Chain Load
1 -> Many
Tx per Session
06
The Interoperability Trap
A smart account deployed on one chain is a stranger on another. Native multi-chain usability requires either: 1) costly re-deployments on each chain, or 2) complex cross-chain message passing via LayerZero or CCIP, adding latency, cost, and security risk.
- Key Constraint: Fractured liquidity and user identity.
- Vendor Lock-in: Solutions often tie you to a specific interoperability stack.
N Deployments
Per Chain
+200ms
Cross-Chain Latency
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