The Future of Gas: Who Really Pays in Your Embedded Model?

Venture capital subsidizes user gas to drive adoption, creating a growth mirage that collapses when subsidies end. This is the core flaw of the 'gasless' narrative. Applications like Pimlico and Biconomy abstract gas fees, but the cost is simply transferred to the app's treasury, which is often funded by speculative capital.

The true cost of abstraction is a hidden tax on protocol revenue. Every 'free' user transaction paid for by an app's wallet is a direct expense. This model is unsustainable without perpetual VC funding or a profitable core business, a reality ignored by most ERC-4337 account abstraction pitches.

Compare this to the real world: Visa and AWS bake infrastructure costs into their service fees; they don't give away transactions for free. In crypto, the embedded gas model pretends infrastructure is free, delaying the inevitable need for applications to build real economic moats beyond subsidy.

User acquisition subsidies are unsustainable. Protocols like Biconomy and Particle Network currently abstract gas fees to onboard users, but this model functions as a venture-funded marketing expense. The subsidy cost scales linearly with user activity, creating a direct financial liability for the sponsoring entity.

The 'cliff' triggers at scale. When a dApp's daily active users (DAU) cross a critical threshold, the gas sponsorship bill becomes a primary P&L line item. This moment forces a choice: pass costs to users, degrade UX with slower confirmations, or find a new architectural primitive.

Account abstraction (ERC-4337) delays, not solves. While ERC-4337 Paymasters enable more flexible sponsorship, they do not change the underlying economic reality. The sponsor still pays the L1/L2 sequencer. This shifts the problem from engineering to treasury management.

Evidence: Base's Onchain Summer campaign, sponsored by Coinbase, demonstrated the model's power and its cost. Scaling that campaign's volume 100x would require a dedicated, multi-million dollar gas treasury, a burden unsustainable for most protocols.

The application subsidizes the gas. The embedded model inverts the traditional cost flow. Protocols like UniswapX or Base's Onchain Summer pay for user transactions to reduce friction. This creates a user acquisition cost line item, similar to web2 customer acquisition.

Sustainability requires monetization. Free gas is a loss leader. Applications must recoup costs via protocol fees, premium features, or data monetization. The model fails if the lifetime value (LTV) of an acquired user is less than the gas subsidy.

The wallet is disintermediated. In a user-pays model, wallets like MetaMask and Rainbow monetize via swap fees. Embedded abstraction removes this revenue stream, forcing wallets to become aggregators or service layers to capture value.

Evidence: Coinbase's Smart Wallet demonstrates this shift. It offers gasless transactions funded by the exchange, betting that onboarding users to its L2, Base, generates more value than the gas cost.

The user never pays gas. In an embedded model, the application or its relayer network sponsors transaction fees. This abstracts complexity but creates a new cost center for dApps, requiring sustainable monetization like meta-transaction fees or protocol revenue sharing.

Relayers become the new validators. The economic model shifts from user-tipped miners to application-subsidized executors. This centralizes fee market pressure onto a few entities, creating risks of censorship or downtime if relayers are underfunded or malicious.

Account abstraction enables this shift. Standards like ERC-4337 and EIP-7702 formalize the sponsor-pays model. Wallets like Safe{Wallet} and infrastructure from Stackup or Biconomy build the relay networks that batch and submit these sponsored transactions.

Evidence: On Arbitrum, applications using Gelato's relay service currently sponsor over 300,000 user transactions monthly. The cost is absorbed into their operational budget, proving the model works but highlighting its scalability dependency on L2 affordability.

The end-user never pays gas. The winning model abstracts gas costs into the application's business logic. Users sign intents, not transactions, and the gas sponsor (app, relayer, or protocol) handles execution. This mirrors the web2 experience where AWS bills the company, not the user.

Gas becomes a B2B commodity. Applications will compete on who offers the best subsidized UX. The cost burden shifts from users to application treasuries and relayer networks like Biconomy and Gelato, who batch and optimize execution for scale.

The real cost is MEV protection. Simple gas sponsorship is table stakes. The premium service is intent-based routing that finds optimal execution across chains via protocols like UniswapX, CowSwap, and Across, minimizing slippage and front-running costs for the sponsor.

Evidence: Arbitrum's Account Abstraction transactions grew 10x in 2023. Protocols like Polygon and Base now natively support gas sponsorship, proving the model's viability for mainstream adoption.