Why 'Gasless' Transactions Attract Unwanted Regulatory Attention

Gasless transactions abstract compliance. By decoupling the fee payer from the transaction signer, protocols like ERC-4337 Account Abstraction and UniswapX obfuscate the economic actor. Regulators trace flows to the entity funding the gas, not the end-user.

This is a legal mismatch. Anti-Money Laundering (AML) rules target the 'financial institution' facilitating the transfer. In a gasless model, the relayer or bundler becomes the de facto institution, attracting regulatory scrutiny previously reserved for centralized exchanges.

Evidence: The Tornado Cash sanctions established precedent. OFAC didn't sanction users but the smart contract and its relayers. Gasless infrastructure like Gelato Network or Biconomy now occupies a similar high-risk position as critical financial plumbing.

Paymasters are financial intermediaries. They accept user assets (fiat or crypto) and transmit value by paying network fees on their behalf. This is the core function of a money transmitter under FinCEN's 2013 guidance.

The 'gasless' UX is the liability. Protocols like Biconomy and Gelato abstract gas to onboard users, but this creates a centralized compliance chokepoint. The paymaster operator controls the final transaction broadcast.

ERC-4337 standardizes the risk. By formalizing the paymaster role, the standard creates a clear regulatory target. Every Account Abstraction wallet using a third-party paymaster inherits this legal exposure.

Evidence: FinCEN's action against Bitcoin mixer Helix established that anonymizing and transmitting funds constitutes money transmission. A paymaster anonymizing gas payment is a direct parallel.

Gasless transactions abstract compliance. Protocols like Biconomy and Gelato Network sponsor user fees, severing the direct payment link between a user's wallet and an on-chain action. This breaks the fundamental transaction graph that regulators like FinCEN use to trace fund flows and enforce AML rules.

Account abstraction enables regulatory arbitrage. ERC-4337 smart accounts and services like Safe{Wallet} allow users to pay fees in any token or via a third-party. This creates a regulatory blind spot where the entity settling the transaction (the paymaster) is legally distinct from the entity initiating the value transfer.

The intent-centric model obscures origin. Systems like UniswapX, CowSwap, and Across Protocol bundle user intents off-chain before settlement. The resulting on-chain transaction is a batched clearance from a relayer network, not the individual user, complicating the attribution of financial activity under laws like the Bank Secrecy Act.

Evidence: The 2023 OFAC sanction of Tornado Cash established that mixers are regulated. The next logical enforcement targets are the privacy-preserving rails—gas sponsorship, batched intents, cross-chain bridges—that mainstream applications now depend on for usability.

Gasless transactions centralize payments. Protocols like Biconomy and Gelato act as centralized paymasters, paying fees for users. This creates a single, identifiable entity funding potentially illicit transactions, which is a textbook money transmitter under laws like the Bank Secrecy Act.

The paymaster is the regulated entity. Unlike a simple wallet, the paymaster service directly controls the flow of funds to validate a transaction. This operational role makes it a Virtual Asset Service Provider (VASP) under FATF guidelines, requiring full KYC on all beneficiaries.

Intent-based architectures amplify risk. Systems like UniswapX or Across Protocol that solve user intents often bundle gas sponsorship. This aggregation of financial intent with payment creates a single point of compliance failure that regulators will target first.

Evidence: The Tornado Cash sanctions set the precedent. The OFAC action targeted smart contract addresses, proving regulators view protocol-level intermediaries as accountable entities. A centralized paymaster is a far easier target.

Gas is the asset. The legal distinction between paying for execution and transferring value collapses when a third-party relayer subsidizes the transaction. The user receives a service of quantifiable monetary worth, which regulators classify as a transfer of economic benefit. This is the core of the SEC's 'investment contract' analysis in cases like Coinbase.

Abstraction creates a regulated intermediary. Protocols like Biconomy and Gelato that sponsor gas become de facto money transmitters. Their role in settling network fees for users places them squarely within existing frameworks like the Bank Secrecy Act, requiring KYC/AML compliance they are not built to handle.

The precedent is payment processing. Regulators view this model identically to a merchant covering a customer's credit card fee. The fee-payer assumes liability. In crypto, this liability includes potential sanctions screening for every sponsored transaction, a burden that scales catastrophically.

Evidence: The IRS Form 1099-MISC requirement for any entity paying over $600 in 'other income' applies directly to gas sponsorship. Any protocol that systematically pays user gas fees on Ethereum or Polygon triggers this reporting threshold, creating an unmanageable compliance overhead.

Gasless models obscure the payer. Protocols like UniswapX and ERC-4337 account abstraction separate the transaction's signer from its funder, breaking the native chain-of-payment that regulators use for AML tracing.

This creates a compliance vacuum. Without a clear, on-chain fee payer, existing Travel Rule tools and TRUST-like solutions fail, forcing regulators to target the only identifiable entity: the relayer or sequencer network.

The result is centralization pressure. To manage liability, services like Pimlico's bundlers or Across's relayers must implement KYC, moving critical infrastructure toward permissioned validator sets and defeating decentralization goals.

Evidence: The Financial Action Task Force (FATF) guidance explicitly states VASPs must identify transaction originators and beneficiaries, a requirement intent-based architectures inherently complicate.