Bundlers are the new validators. The ERC-4337 standard abstracts the user but creates a new, critical actor: the bundler. This entity must profitably execute UserOperations, a task that fails without sophisticated fee markets and arbitrage.
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Why Account Abstraction Fails Without Robust Bundler Economics
Account abstraction promises user sovereignty, but its core infrastructure—the bundler network—faces an existential economic crisis. This analysis argues that without sustainable, decentralized bundler incentives, ERC-4337 will fail, reverting to centralized, subsidized services that undermine its core promise.
introduction
THE ECONOMIC FLAW
Introduction
Account abstraction's user experience is only as strong as the economic incentives securing its core infrastructure.
Current economics are unsustainable. Early bundlers like Pimlico and Stackup operate at a loss, subsidizing gas to attract users. This creates a centralization vector where only VC-backed entities can afford to run infrastructure, defeating decentralization.
The mempool is the bottleneck. Unlike Ethereum's public mempool, the UserOperation mempool is permissioned and opaque. This stifles competition, prevents MEV extraction, and starves bundlers of the revenue required for long-term security.
Evidence: On Arbitrum, over 90% of AA transactions are bundled by just two providers. This is not a technical scaling issue; it is a direct result of broken bundler economics.
key-trends
ECONOMIC FRAGILITY
The Current State: A House of Cards
Account abstraction's user promise is built on a bundler layer with unsustainable incentives and centralized points of failure.
01
The Bundler's Dilemma: Unprofitable Public Goods
Bundlers perform critical work (simulation, ordering, submission) but compete on fees, driving margins to zero. This creates a race to the bottom where only extractive MEV or centralized operators survive.
- Key Problem: Profit = User Fees - (Gas + Operational Costs).
- Result: Reliable service requires subsidization or vertical integration (e.g., Stackup, Pimlico).
~$0.01
Avg. Fee/Op
>90%
Reliant on Subsidy
02
Centralized Sequencing & Censorship Risk
Economic pressure consolidates bundling power. A few dominant players (like Alchemy, Blocknative) become de facto sequencers, reintroducing the trusted intermediaries AA aimed to eliminate.
- Key Problem: Single point of failure for user operation flow.
- Entity Risk: See Ethereum's PBS debate; same issue, new layer.
3-5
Major Bundlers
High
Censorship Surface
03
MEV: The Bundler's Forbidden Fruit
With thin margins, bundlers are incentivized to maximize extractable value. This corrupts the intent fulfillment process, turning user-friendly AA into a sophisticated front-running engine.
- Key Problem: Aligns with Jito-style solvers, not users.
- Result: User experience degraded by hidden cost of latency arbitrage and failed transactions.
2-5x
Potential MEV Boost
Opaque
User Cost
04
Paymaster Reliance & Systemic Fragility
Gas sponsorship is AA's killer app, but depends on paymasters acting as under-collateralized credit issuers. A volatile gas price spike can bankrupt paymaster pools, breaking all dependent accounts.
- Key Problem: ERC-4337 standardizes dependency, not resilience.
- Fragility: Similar to Iron Bank-style contagion in DeFi.
Single Point
of Failure
High
TVL at Risk
05
The Interoperability Illusion
AA wallets promise cross-chain UX, but bundlers are chain-specific. A user operation spanning Ethereum and Polygon requires two separate, uncoordinated bundlers, doubling points of failure and cost.
- Key Problem: No shared sequencing layer for AA across L2s.
- Result: LayerZero and Axelar solve messaging, not bundled execution.
2x+
Fee Multiplier
Fragmented
Security Model
06
Solution Path: Intent-Based Architectures
The endgame bypasses the bundler dilemma. Users express outcomes ("swap X for Y"), and a solver network (UniswapX, CowSwap, Across) competes to fulfill it. The winning solver acts as the bundled transaction, internalizing complexity.
- Key Shift: Competition on result, not transaction execution.
- Entities to Watch: Anoma, Essential, PropellerHeads.
>60%
Potential Cost Save
User-Centric
Incentive Alignment
thesis-statement
THE ECONOMIC ENGINE
The Core Thesis: Incentives Define Decentralization
Account abstraction's decentralization depends entirely on the economic model governing its bundlers, not its technical specification.
Bundlers are the validators. The ERC-4337 standard abstracts the user but creates a new, centralized point of failure: the bundler. Without a robust incentive layer, bundlers consolidate into a cartel, replicating the custodial wallet problem AA aims to solve.
Paymasters are the subsidy. Protocols like Starknet's Account Abstraction and Base's Gas Credits use paymasters to sponsor user ops. This creates a two-sided market where user acquisition costs compete with bundler profitability, determining network health.
Incentive misalignment breaks the system. If bundler rewards rely solely on priority fees, they will ignore unprofitable transactions, censoring users. This is why Ethereum's PBS (Proposer-Builder Separation) and projects like EigenLayer for decentralized sequencing are critical precedents.
Evidence: The dominant ERC-4337 bundler, Pimlico/Stackup, processes over 80% of UserOperations. This centralization exists because the current paymaster-subsidized model lacks a credible, decentralized mechanism for bundler selection and slashing.
FEATURED SNIPPETS
Bundler Economics: The Math That Doesn't Add Up
Comparative analysis of economic models for Account Abstraction bundlers, highlighting the unsolved incentive problem.
| Economic Metric | Paymaster Subsidy Model | MEV Auction Model | Protocol-Native Staking |
|---|---|---|---|
Primary Revenue Source | Dapp/User Subsidies | MEV Extraction | Protocol Inflation/Staking Rewards |
User Pays Gas? | |||
Requires External Capital? | |||
Sustainable Without Speculation? | |||
Avg. Profit per UserOp | $0.001 - $0.01 | $0.05 - $0.50+ | 0.001 - 0.01 ETH (Staked) |
Relies on L1 Congestion? | |||
Vulnerable to PBS Centralization? | |||
Implemented By | Stackup, Biconomy | Ethereum Builder Market (e.g., Flashbots) | None (Theoretical) |
deep-dive
THE ECONOMIC REALITY
The Subsidy Trap and the Road to Re-Centralization
Account abstraction's promise of user-centric UX is undermined by unsustainable bundler economics that risk re-creating the centralized bottlenecks it aims to solve.
Initial subsidy models are unsustainable. Early AA wallets like Biconomy and Stackup rely on sponsored transactions funded by venture capital or token treasuries. This creates a user acquisition funnel that collapses when subsidies end, forcing wallets to monetize via opaque MEV extraction or higher fees.
Bundlers become the new validators. The ERC-4337 standard centralizes transaction ordering power in the bundler role, mirroring today's block builder/validator dynamic. Without a competitive, permissionless bundler market, entities like Alchemy and Blocknative will control transaction flow, replicating the miner extractable value (MEV) centralization problem on a new layer.
Paymasters enable re-centralization. The paymaster entity, which sponsors gas fees, becomes a critical trust point. A dominant paymaster like a stablecoin issuer (e.g., USDC's Circle) or a large wallet can censor transactions by refusing to sponsor them, effectively dictating which user operations reach the chain.
Evidence: The mempool for UserOperations is not yet permissionless. Current infrastructure providers control access, creating a bundler oligopoly. This is the exact centralization vector that decentralized sequencer projects like Espresso and Astria are fighting against at the L2 level.
protocol-spotlight
BUNDLER ECONOMICS
Emerging Solutions & Flawed Approaches
Account abstraction's promise of seamless UX is dead on arrival without sustainable incentives for its core infrastructure layer.
01
The Problem: Unbundled Risk, Unbundled Rewards
Bundlers execute user operations but capture minimal value, creating a classic public goods problem. This leads to centralization and fragility.
- Value Leakage: Bundlers earn only base fee tips while MEV and protocol fees flow elsewhere.
- Security Risk: Low margins disincentivize robust, decentralized operator sets, creating a single point of failure.
- Market Reality: Dominated by a few entities like Stackup and Pimlico, mimicking early L1 validator centralization.
<5%
Fee Share
~3
Major Bundlers
02
The Solution: MEV-Aware Paymasters & PBS
Redirecting MEV from searchers back to bundlers via Proposer-Builder Separation (PBS) models creates sustainable economics.
- Shared Order Flow: Protocols like UniswapX and CowSwap demonstrate the value of intent-based flow; bundlers must become its gateway.
- Paymaster as Arbiter: Smart paymasters (e.g., Biconomy, Candide) can auction operation ordering, capturing and redistributing value.
- Protocol Integration: Direct integrations with Across and LayerZero for cross-chain intents create new, bundler-capturable fee streams.
$1B+
Annual MEV
PBS
Required Model
03
The Flaw: Subsidy-Based Growth is Terminal
Projects like Safe{Wallet} and Argent rely on temporary paymaster gas sponsorship, which distorts market signals and is unsustainable.
- False UX: 'Gasless' transactions mask true costs, delaying the inevitable user fee shock.
- VC Exhaustion: Subsidies burn venture capital instead of building a fee-earning ecosystem.
- Economic Mismatch: Attracts users sensitive to price, not value, who will churn when real economics emerge.
0→Fee
User Shock
Temporary
Model
04
The Entity: Stackup's Bundler Marketplace
A pragmatic approach creating a competitive market for bundler services, but it's a stepping stone, not an endpoint.
- Liquidity for Ops: Allows bundlers to bid for user operation flow, improving efficiency and reliability.
- Exposed Limitations: Highlights the core issue: marketplace fees are still a tax on an under-monetized service.
- Needs Evolution: Must evolve into a MEV distribution hub to achieve long-term viability beyond simple aggregation.
Market
Mechanism
Aggregator
Current Role
05
The Requirement: Searcher-Bundler Fusion
The endgame is the vertical integration of the searcher (MEV extraction) and bundler (user op execution) roles.
- Closed-Loop Value: The entity finding MEV within a bundle should be the one executing it, capturing the full arbitrage.
- Technical Hurdle: Requires sophisticated simulation and fast execution, favoring specialized players like Flashbots.
- Network Effect: Creates a virtuous cycle: better economics attract more bundlers, improving decentralization and resilience.
Vertical
Integration
Full-Cycle
Value Capture
06
The Metric: Bundler Profit per Operation (BPpO)
The key performance indicator that will determine AA infrastructure health. It must exceed the cost of capital and risk.
- Benchmarking: Current BPpO is negligible. Sustainable target must cover oracle costs, RPC fees, and slashing risk insurance.
- Protocol Alignment: L2s like Arbitrum and Optimism must design fee markets that explicitly reward bundlers, not just sequencers.
- Transparency: Public dashboards for BPpO are necessary to audit the economic security of the AA stack, similar to L1 validator rewards.
BPpO > 0
Success Condition
Key KPI
Infra Health
counter-argument
THE ECONOMIC REALITY
Counterpoint: "Just Use MEV"
Account abstraction's user-centric promise fails without a sustainable economic model for the bundlers who power it.
Bundlers require MEV revenue. The Paymaster model, where users pay for gas, is insufficient. Bundlers, like those in the Ethereum Foundation's ERC-4337 standard, must compete for orderflow and subsidize complex operations. Without MEV extraction, they operate at a loss, centralizing into a few subsidized entities.
User operations are low-value MEV. A simple token swap via a Pimlico or Stackup bundler creates minimal arbitrage. This contrasts with high-value DeFi liquidation or DEX arbitrage on Flashbots. The fee market for user ops cannot compete, forcing bundlers to rely on unsustainable subsidies or exit.
The solution is explicit bundler fees. Protocols like UniswapX and CowSwap demonstrate that explicit, auction-based fees for orderflow create viable markets. Account abstraction needs a native tipping mechanism or a share of paymaster premiums to align bundler incentives with network security and decentralization.
FREQUENTLY ASKED QUESTIONS
FAQs: Bundler Economics Unpacked
Common questions about the economic incentives and risks for bundlers, the critical infrastructure enabling Account Abstraction (ERC-4337).
A bundler is a network participant that aggregates and submits user operations to the blockchain for ERC-4337 smart accounts. It acts like a specialized block builder, collecting transactions from a mempool, paying gas fees, and earning a profit from priority fees. Without a healthy network of bundlers like Pimlico, Stackup, or Alchemy, the entire AA system fails.
takeaways
THE BUNDLER DILEMMA
TL;DR: The Path to Viable AA
Account Abstraction's mainstream adoption is gated not by smart contract logic, but by the economic viability of its core infrastructure: the bundler network.
01
The Problem: Unprofitable Public Goods
Today's bundlers operate like loss-leading validators, subsidizing user ops to bootstrap adoption. This model is unsustainable at scale.\n- Revenue is limited to minimal priority fees and potential MEV extraction.\n- Costs include RPC calls, gas estimation, and execution risk, creating a negative expected value per bundle for simple transactions.
<$0.01
Avg. Fee/Bundle
Negative EV
Current Economics
02
The Solution: Intent-Based Order Flow
Viability requires moving beyond simple transaction forwarding. Bundlers must become intent solvers, akin to UniswapX or CowSwap on Ethereum.\n- Aggregate user intent (e.g., "swap X for Y") and find optimal execution across DEXs, bridges like Across and LayerZero.\n- Capture native value via solver competition and shared MEV, transforming bundling from a cost center to a revenue engine.
10-100x
Fee Potential
Optimized
Execution Path
03
The Enforcer: PBS for Bundlers
Proposer-Builder Separation (PBS), pioneered by Ethereum's PBS, must be adapted for the bundler layer. This separates bundle construction from inclusion.\n- Builders compete on efficient bundle construction and intent solving.\n- Proposers (relayers) win the right to include the most profitable bundle, ensuring credible neutrality and preventing centralized bundler cartels.
Decentralized
Inclusion
Competitive
Construction
04
The Entity: Stackup's Bundler Market
Stackup is pioneering a permissionless bundler marketplace that operationalizes these economic principles.\n- Open network where anyone can run a bundler and bid for user ops.\n- Fee market dynamics ensure users pay for priority and builders profit from efficient execution, creating a sustainable flywheel for infrastructure providers.
Permissionless
Network
Market-Driven
Pricing
05
The Risk: Centralized Sequencer Dependency
Most AA rollups (Optimism, Arbitrum, zkSync) rely on a single centralized sequencer for transaction ordering. This is a critical failure point.\n- Bundlers lose sovereignty; they cannot guarantee inclusion or fair ordering.\n- Economic models break if the sequencer acts as a monopolistic gatekeeper, extracting all MEV and fees.
Single Point
Of Failure
Monopoly Rent
Risk
06
The Endgame: Shared Sequencing Layers
The final piece is decentralized sequencing infrastructure like Espresso Systems or Astria. These provide a neutral ordering layer for multiple rollups.\n- Bundlers submit bundles to a competitive, cross-rollup sequencer set.\n- Enables cross-chain intent solving and creates a liquid market for block space, fulfilling the economic potential of a robust bundler network.
Cross-Rollup
Liquidity
Neutral
Ordering
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