Gas abstraction is inevitable. Users will not pay for gas directly. This shift mirrors the internet's evolution from pay-per-minute dial-up to flat-rate broadband, where user experience dictates adoption.
wallet-wars-smart-accounts-vs-embedded-wallets
Blog
Why Transaction Sponsorship is the Next Major Crypto Business Model
Transaction sponsorship, powered by ERC-4337 Paymasters, is shifting the cost of on-chain activity from users to applications. This creates a multi-billion dollar market for subsidized gas and redefines user acquisition in crypto.
introduction
THE PARADIGM SHIFT
Introduction: The End of User-Paid Gas
Transaction sponsorship is the next major crypto business model, abstracting gas fees to unlock mainstream adoption.
Sponsorship is a business model. Protocols like Pimlico, Biconomy, and Etherspot monetize by sponsoring user transactions, capturing value through application-specific fees instead of base-layer rent extraction.
Account abstraction enables this. ERC-4337 and native AA on chains like Starknet and zkSync separate the fee payer from the transaction signer, creating a fee market for sponsors.
Evidence: The success of Arbitrum's gas sponsorship for NFT mints and Coinbase's Smart Wallet demonstrates user growth directly correlates with removing the gas payment step.
thesis-statement
THE BUSINESS MODEL SHIFT
Core Thesis: Sponsorship as a Service (SaaS)
Transaction sponsorship will become the dominant business model for blockchain infrastructure, decoupling user experience from wallet balances.
Gas abstraction is the killer app. Users will not pay for gas. Protocols like ERC-4337 and Particle Network abstract gas fees, shifting the cost to applications. This creates a direct monetization path for infrastructure.
Sponsorship is the new yield. Paymasters in ERC-4337 and EIP-3074 allow protocols to sponsor user transactions. This sponsorship becomes a service layer sold to dApps, similar to AWS selling compute.
The model inverts infrastructure economics. Instead of selling RPC calls, providers sell guaranteed finality. Services like Gelato and Biconomy already monetize by ensuring user transactions succeed, regardless of network volatility.
Evidence: The Arbitrum Stylus upgrade enables sponsors to pay for user compute in any currency. This creates a sponsorship market where dApps bid for user attention by subsidizing their on-chain activity.
key-trends
FROM USER FRICTION TO USER ACQUISITION
The Three Pillars of the Sponsorship Economy
Transaction sponsorship shifts the cost of on-chain interaction from the end-user to the application, unlocking new business models and onboarding millions.
01
The Problem: The Onboarding Tax
Requiring users to hold a network's native token for gas is a $10B+ market cap barrier to entry. It kills conversion for non-crypto-native apps and fragments liquidity.
- Eliminates Pre-Funding: Users interact without ever touching ETH, MATIC, or SOL.
- Unifies Liquidity: Apps can sponsor on any chain, pooling user activity into a single, predictable cost center.
~90%
Drop-off Reduced
$10B+
Addressable Market
02
The Solution: Intent-Based Abstraction
Protocols like UniswapX and CowSwap pioneered this: users declare a desired outcome, solvers compete to fulfill it. Sponsorship is the natural extension, abstracting gas from the user's intent.
- Solvers Pay Gas: Competitive solver networks bundle and sponsor transactions to win MEV or fees.
- User Pays in Any Asset: Settlement occurs in the user's input token, completing the abstraction loop.
~500ms
Solver Latency
0
User Gas Knowledge
03
The Business Model: Pay-for-Action
This isn't charity; it's CAC. Apps treat sponsored gas as a customer acquisition cost, monetizing through take-rates, order flow, or premium features. Think AWS Free Tier for Web3.
- Predictable CAC: Gas costs become a scalable, variable marketing expense.
- Data & Flow Monetization: Sponsored transactions generate valuable intent data and order flow for auctions.
-50%
Effective CAC
10x
LTV Increase
TRANSACTION SPONSORSHIP IS THE NEXT MAJOR CRYPTO BUSINESS MODEL
Paymaster Market Map: Who's Winning & How
Comparative analysis of leading paymaster models, their technical capabilities, and economic incentives.
| Feature / Metric | Generalized (Pimlico, Alchemy) | Application-Specific (Uniswap, Base) | Protocol-Native (Starknet, zkSync) |
|---|---|---|---|
Primary Revenue Model | Fee on sponsored gas (0.5-2% markup) | User acquisition cost (0% gas fee) | Protocol subsidy (0% user fee) |
ERC-4337 Bundler Integration | |||
Native Gas Abstraction | User pays in any ERC-20 | Sponsors swap-specific txs only | Sponsors all txs on the L2 |
Average User Gas Savings | 15-40% vs. native ETH | 100% for approved actions | 100% for all actions |
Custom Logic / Policy Engine | |||
Requires Smart Contract Wallet | |||
Typical Sponsorship Cap | $10-50 per tx | Unlimited for whitelisted ops | Unlimited for all users |
Business Goal | Commoditize gas infra | Increase app-specific volume | Increase L2 adoption & TVL |
deep-dive
THE BUSINESS MODEL SHIFT
The Mechanics of Monetization: From Cost Center to Profit Center
Transaction sponsorship transforms a protocol's largest expense into a direct revenue stream and strategic moat.
Gas sponsorship is monetization: Protocols currently pay gas as a cost to acquire users. By sponsoring transactions, they convert this cost into a pay-per-action revenue model, charging dApps for each sponsored user interaction.
The moat is user experience: A protocol that abstracts gas creates a frictionless onboarding funnel. Users no longer need native tokens, which locks them into the sponsor's ecosystem and increases retention.
Compare to traditional models: Unlike Uniswap's fee switch or Lido's staking cut, sponsorship revenue scales directly with ecosystem activity, creating perfect alignment between protocol growth and profit.
Evidence: Pimlico and Biconomy already process millions of sponsored operations, proving dApps pay for this service. Arbitrum's gas subsidy programs demonstrate chains use it for competitive acquisition.
risk-analysis
THE LIMITS OF ABSTRACTION
The Bear Case: Where Sponsorship Fails
Transaction sponsorship is not a panacea. These are the critical failure modes and attack vectors that protocols must solve.
01
The MEV Extortion Problem
Sponsors become centralized profit centers, extracting value from users they claim to help. Without competitive markets, they can front-run, censor, or impose rent-seeking fees.
- Centralized Sequencer Risk: A dominant sponsor like EigenLayer or Flashbots SUAVE could dictate transaction order.
- Opaque Pricing: Users have no visibility into the true cost vs. sponsor markup.
- Cartel Formation: Collusion between sponsors and block builders negates user savings.
>30%
Potential Rent Extraction
1-2
Dominant Players
02
The Subsidy Sustainability Trap
Growth-stage protocols use sponsorship as a temporary marketing subsidy, creating unsustainable cost structures and user expectations.
- VC-Burn Rate Model: Protocols like Pimlico and Biconomy rely on venture capital to fund gas, not organic fees.
- Protocol Collapse Risk: When subsidies end, user activity plummets, as seen in early L2 seasons.
- Distorted Metrics: Blinds builders to real product-market fit.
$100M+
Cumulative Subsidy
~80%
Activity Drop Post-Subsidy
03
The Wallet Lock-In Vector
Sponsorship requires deep integration with specific smart accounts (ERC-4337), creating vendor lock-in and stifling wallet innovation.
- Infrastructure Dependence: Wallets become thin clients to sponsor's bundler/verifier stack.
- Fragmented UX: Users face incompatible sponsors across chains, breaking cross-chain intents.
- Innovation Stagnation: New signature schemes or privacy features require sponsor approval.
3-5
Major Bundler Vendors
High
Switching Cost
04
The Regulatory Blowback
Sponsoring transactions for unknown users is a compliance nightmare, inviting KYC/AML scrutiny and breaking crypto's permissionless ethos.
- Money Transmission Laws: Sponsors could be classified as financial transmitters (like Coinbase or Kraken).
- OFAC Sanctions Risk: Sponsoring a sanctioned address has legal consequences, forcing censorship.
- Privacy Erosion: To mitigate risk, sponsors will demand user identification, killing pseudonymity.
High
Legal Overhead
Inevitable
Censorship
05
The Systemic Fragility Risk
Mass adoption of sponsorship creates a single point of failure. A bug in a major sponsor's infrastructure could halt entire application ecosystems.
- Smart Account Dependency: A vulnerability in a dominant Safe or ZeroDev module affects millions.
- Bundler Centralization: If Stackup or Alchemy's bundler fails, dApps on that stack go offline.
- Cascading Failure: Similar to the risks in EigenLayer restaking, but for transaction flow.
Minutes
Time to Downtime
Billions
TVL at Risk
06
The Economic Misalignment
Sponsorships decouple the user from the network's gas market, distorting fee signals and leading to inefficient blockchain resource allocation.
- Spam Incentive: Users have no cost disincentive, flooding networks with low-value transactions.
- Validator Revenue Erosion: If sponsors negotiate bulk rates, base-layer security budgets suffer.
- Unfair Competition: Sponsored dApps outcompete non-sponsored ones on cost alone, not quality.
10-100x
Spam Increase
-20%
Validator Revenue
future-outlook
THE BUSINESS MODEL
Future Outlook: The 2025 Sponsorship Stack
Transaction sponsorship will become the dominant business model for user acquisition and protocol revenue by abstracting gas and bundling services.
Sponsorship abstracts gas friction. Users will never hold native gas tokens. Protocols like Pimlico and Biconomy sponsor onboarding, recovering costs via application fees or MEV capture. This mirrors AWS's free-tier model for web2 user acquisition.
The stack becomes a profit center. The sponsorship layer (e.g., ERC-4337 bundlers) will not be a cost center. It will monetize order flow, offer premium routing via 1inch Fusion or CowSwap, and sell data on user intent. This creates a B2B2C market.
Vertical integration wins. The most profitable sponsors will own the full stack: the wallet (like Safe), the bundler, and the application. This allows for cross-subsidization where profitable DeFi actions subsidize social or gaming transactions, creating unbreakable user lock-in.
Evidence: Arbitrum's adoption of ERC-4337 and Coinbase's Smart Wallet prove the demand. The bundler market will consolidate, with the top 3 players controlling over 60% of sponsored volume by 2025, extracting value from every transaction.
takeaways
THE NEW GAS WAR
TL;DR for Builders and Investors
The fight for users is shifting from yield to UX. Transaction sponsorship is the wedge.
01
The Problem: The Pay-to-Play Barrier
Native gas is crypto's original sin for UX. It blocks new users, fragments liquidity, and kills composability.
- ~70% of DApp interactions fail due to gas estimation errors or insufficient funds.
- Every new chain requires fresh capital for gas, creating a ~$100M+ annual friction tax on the ecosystem.
- ERC-4337 Account Abstraction adoption is gated by wallet infra, not protocol design.
70%
Failed Txs
$100M+
Friction Tax
02
The Solution: Intent-Based Abstraction
Sponsorship isn't just paying gas; it's abstracting the entire transaction lifecycle. See UniswapX, CowSwap, and Across.
- Users sign what they want, not how to do it. Solvers compete on execution, subsidizing costs.
- Gas becomes a B2B cost center, not a user-facing product. Enables true cross-chain atomic UX.
- Business model shifts to order flow auction (OFA) and MEV capture, not direct fees.
0
User Gas
B2B
Model
03
The Blueprint: Protocol-Owned Liquidity for Gas
The winning model: a protocol that owns the gas payment rail. Think LayerZero for messages, but for transaction execution.
- Stake-to-Sponsor: Validators/sequencers stake to earn the right to sponsor txs and capture OFA revenue.
- Dynamic Bundling: Aggregate sponsored txs into optimized bundles, reducing net cost by ~30-50% via MEV recycling.
- Vertical Integration: The sponsor becomes the default entry point for apps, controlling the top of the funnel.
30-50%
Cost Save
Stake-to-Sponsor
Mechanism
04
The Moats: Data, Scale, and Trust
This isn't a feature; it's an infrastructure play with deep moats.
- Data Advantage: The sponsor sees cross-chain, cross-app intent flow, enabling superior execution (see Flashbots SUAVE vision).
- Scale Economics: >1M daily sponsored txs creates an unbeatable cost structure and solver network.
- Trust Minimization: Cryptographic proofs (like zk-proofs of execution) replace brand trust, preventing rent-seeking.
1M+
Daily Txs
zk-Proofs
Trust
05
The Vertical: Who Captures Value?
Value accrual shifts from L1 gas tokens to application-layer aggregators and intent solvers.
- Lose: Pure L1s (ETH, SOL gas) become commoditized backends.
- Win: Intent-centric DEXs, AA wallet stacks (like Safe), and cross-chain messaging (like LayerZero, Axelar) that bundle sponsorship.
- New Entrant: Dedicated sponsorship networks that become the AWS for gas.
App Layer
Value Accrual
AWS for Gas
Analogy
06
The Catalyst: ERC-7677 & 4337
New standards are turning sponsorship from a hack to a protocol. ERC-7677 (Paymaster extensions) is the key.
- Enables any token for fees, subscription models, and sponsorship auctions at the RPC level.
- ERC-4337 Bundlers become the natural sponsors, creating a $500M+ market for bundled gas by 2025.
- This is the plumbing for the next 100M users who will never own a native gas token.
ERC-7677
Standard
$500M+
Market '25
ENQUIRY
Get In Touch
today.
Our experts will offer a free quote and a 30min call to discuss your project.
NDA Protected
Confidentiality24h Response
Time to ValueDirectly to Engineering Team
No Sales Fluff10+
Protocols Shipped
$20M+
TVL Overall