Gasless onboarding is a subsidy. Protocols like Particle Network and Biconomy abstract gas fees to onboard users, but the cost is paid by the relayer infrastructure, creating a hidden business model dependency.
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The Hidden Cost of Free: Who Really Pays for Gasless Onboarding?
A first-principles breakdown of the economic transfer in sponsored transactions. We analyze the long-term sustainability of subsidized account creation, from paymaster models to protocol-level subsidies.
introduction
THE ILLUSION
Introduction
Gasless onboarding is a user-experience subsidy that shifts transaction costs and risk onto third-party infrastructure.
The user pays with data and custody. The trade-off for free transactions is often embedded wallet custody or aggregated user data, centralizing control that contradicts decentralized principles.
This shifts systemic risk. Relayer networks like Gelato and OpenZeppelin Defender become single points of failure; a subsidized transaction spike can bankrupt a sponsor's wallet, halting the service.
key-trends
WHO PAYS THE PIPER?
The Subsidy Landscape: Three Dominant Models
Gasless onboarding is a user acquisition tool, not magic. The cost is socialized through three primary economic models, each with distinct trade-offs and centralization vectors.
01
The Relayer Cartel Model (ERC-4337)
A decentralized network of bundlers competes to sponsor user operations, recouping costs via MEV extraction and priority fees. This creates a pay-for-priority market where user experience is gated by economic viability.
- Key Mechanism: Bundlers pay gas, users sign intents.
- Centralization Risk: High; economies of scale favor a few dominant bundlers like Stackup or Alchemy.
- Who Pays?: Ultimately the user, via inflated priority fees and captured MEV value.
~5-10s
Latency
Oligopoly
Market Structure
02
The Application Treasury Model (dApp Pays)
The dApp's treasury directly subsidizes gas for its users, treating it as a customer acquisition cost (CAC). This is simple but financially unsustainable at scale and creates perverse incentives.
- Key Mechanism: DApp holds native tokens, pays via meta-transactions.
- Centralization Risk: Absolute; the dApp is a single point of failure and control.
- Who Pays?: The protocol's tokenholders and community via treasury dilution. Leads to CAC > LTV problems.
$0
User Cost
Finite Runway
Sustainability
03
The Intent-Based Subsidy (UniswapX, Across)
Solvers compete to fulfill user intents off-chain, internalizing gas costs into the overall swap quote. The subsidy is hidden in slightly worse exchange rates, creating a seamless but opaque user experience.
- Key Mechanism: Solvers are reimbursed via the spread on the filled order.
- Centralization Risk: Medium; solver networks (CowSwap, UniswapX) can be permissioned.
- Who Pays?: The user, implicitly, through price execution slippage rather than explicit gas fees.
~1s
Perceived Speed
Hidden Cost
Pricing
deep-dive
THE SUBSIDY TRAP
The Paymaster's Dilemma: Unit Economics at Scale
Gasless onboarding creates a hidden cost structure that shifts the burden from users to protocols, challenging long-term sustainability.
The subsidy is a user acquisition cost. Paymasters like those from Stackup or Biconomy allow protocols to sponsor transaction fees, removing a primary user friction. This cost is a direct marketing expense, similar to cloud credits for developers.
Unit economics invert at scale. A successful onboarding campaign drives volume, but the paymaster's gas bill scales linearly with user activity. Without a clear monetization path, this creates a negative cash flow loop.
The real payer is the token treasury. Most protocols fund paymasters from their native token reserves, creating constant sell pressure. This dilutes token holders to pay for a service that generates no direct protocol revenue.
Evidence: Base's Onchain Summer campaign, powered by Coinbase's paymaster, sponsored millions in gas fees. The user growth was undeniable, but the multi-million dollar cost was a direct subsidy from corporate balance sheets, a model unsustainable for most DAOs.
WHO PAYS FOR THE 'FREE' TRANSACTION?
Gas Sponsorship Cost Analysis (Ethereum Mainnet)
A comparison of primary gas sponsorship models, detailing the cost structure, security trade-offs, and ultimate payer for user onboarding.
| Key Metric / Feature | Paymaster (ERC-4337) | Relayer (Gasless Meta-Tx) | Sponsored Gas (Protocol-Specific) |
|---|---|---|---|
Primary Funding Source | Smart Contract Wallet Deposit | Relayer Operator Treasury | Protocol Treasury / Fee Revenue |
Cost to End-User | $0.00 | $0.00 | $0.00 |
Typical Sponsor Cost per Tx | $0.50 - $2.50 | $0.75 - $3.00+ | $0.30 - $1.50 |
User Pre-Funding Required | Yes (for wallet) | No | No |
Sponsor Recoupment Mechanism | Wallet deducts from deposit | Off-chain billing or ads | Protocol fee premium or tokenomics |
Max Sponsorship Complexity | Any UserOperation | Simple | Pre-approved contract functions |
Key Security Model | Smart contract wallet signatures | Relayer reputation & whitelists | Protocol governance & limits |
Representative Protocols | Stackup, Biconomy, Alchemy | OpenGSN, Gelato | Uniswap (via permit2), Polygon PoS |
counter-argument
THE HIDDEN COST OF FREE
The Bull Case: Why Subsidies Aren't Stupid
Gasless onboarding is a strategic acquisition tool, not a charity, shifting the cost burden from users to protocols to capture long-term value.
Subsidies are a customer acquisition cost. Protocols like Biconomy and Pimlico treat gas sponsorship as a marketing expense, directly comparable to web2 user acquisition spend. The goal is converting subsidized users into profitable, retained participants.
The cost is a protocol-level investment. The real payer is the protocol treasury, not the end-user. This creates a direct incentive for the protocol to optimize onboarding efficiency and user quality, unlike opaque venture capital funding.
Free transactions enable new economic models. Gasless interactions are the foundation for intent-based architectures like UniswapX and CowSwap, where the solver network internalizes gas costs. This abstracts complexity and unlocks new design space.
Evidence: Arbitrum’s 2023 gas sponsorship program processed over 10 million transactions for dApps, directly linking subsidy spend to ecosystem growth and developer adoption metrics.
risk-analysis
THE HIDDEN COST OF GASLESS ONBOARDING
The Breaking Point: Four Sustainability Risks
Gasless UX shifts transaction costs from users to protocols, creating a fragile economic model that threatens long-term viability.
01
The Problem: The Relayer Cartel
Gasless transactions rely on relayers to pay fees, centralizing power and creating a single point of failure. This invites censorship and MEV extraction, undermining the decentralized promise.\n- Centralized Risk: A few dominant relayers (e.g., Biconomy, Gelato) control the gateway.\n- MEV Surface: Relayers can front-run or censor user intents for profit.
>70%
Market Share
1-3
Dominant Players
02
The Problem: Subsidy Time Bomb
Protocols subsidize gas to acquire users, burning through treasuries to fund unsustainable growth. This creates a ponzi-like dynamic where new user fees must pay for old user onboarding.\n- Treasury Drain: Protocols like Friend.tech and Base have burned millions in temporary subsidies.\n- Cliff Risk: When subsidies end, user activity collapses, revealing hollow engagement.
$50M+
Subsidy Burn
-80%
Post-Subsidy Activity
03
The Problem: Intent-Based Fragility
Systems like UniswapX and CowSwap that separate intent from execution introduce new failure modes. Complex solver networks must compete on execution, creating liquidity fragmentation and settlement risk.\n- Solver Centralization: A few sophisticated players (1inch, ParaSwap) dominate the solver market.\n- Failed Settlement: Intents can revert, leaving users with a poor experience and no transaction.
~15%
Solver Failure Rate
2-5s
Added Latency
04
The Solution: Verifiable Fee Markets
The sustainable path is transparent, auction-based fee markets where users or their agents pay, but with cryptographic proof of fair execution. This aligns incentives without centralization.\n- Account Abstraction (AA): Smart accounts (e.g., Safe, ZeroDev) enable sponsored transactions with user-signed fee payments.\n- Proof of Solver: Protocols like Across use optimistic verification to ensure relayers are paid only for valid execution.
~0%
Protocol Subsidy
Auditable
Cost Structure
future-outlook
THE REAL COST
The Inevitable Pivot: From Subsidy to Utility
Gasless onboarding is a user acquisition subsidy that shifts the cost burden to the protocol, creating unsustainable economic models.
Gasless onboarding is a subsidy that protocols like Particle Network and Biconomy offer to attract users. This cost is not eliminated; it is transferred from the user's wallet to the protocol's treasury, creating a hidden liability.
The subsidy model is unsustainable because it decouples user activity from direct cost. Unlike EIP-4337 Account Abstraction, which enables flexible payment logic, blanket sponsorship lacks a clear path to monetization, leading to treasury drain.
Utility-driven models will replace subsidies. Protocols like Avail and EigenLayer demonstrate that users pay for verifiable utility—data availability or security. Onboarding must be a gateway to a service worth paying for, not the product itself.
Evidence: Layer 2 networks spent over $100M on user incentives in 2023, a cost that scales linearly with user growth without a corresponding revenue model, proving the subsidy trap.
takeaways
GAS ABSTRACTION ECONOMICS
TL;DR for Protocol Architects
Gasless onboarding shifts costs from users to protocols and solvers, creating new economic and security vectors.
01
The Problem: The Solver Subsidy Trap
ERC-4337 and intent-based systems like UniswapX and CowSwap outsource transaction execution to solvers who front gas. Their profit is the spread between user's max fee and actual cost, creating misaligned incentives.
- Hidden Cost: Protocol must attract solvers with volume, often subsidizing via token incentives.
- Centralization Risk: Solver networks can become oligopolies, controlling flow and extracting value.
10-30%
Solver Margin
$1B+
Annual Subsidy
02
The Solution: Intent-Based Auctions
Protocols like Across and UniswapX use a competitive auction model for execution. Users submit signed intents (e.g., 'swap X for Y'), and solvers bid to fulfill them.
- Cost Discovery: Market competition theoretically drives solver margins to efficient lows.
- No Protocol Wallet: User never delegates asset custody; solver only gets a fee for a specific, signed action.
~500ms
Auction Time
-70%
vs. Quote Slippage
03
The Reality: MEV is the Real Payer
In many 'gasless' models, the true payer is extracted MEV. Solvers aggregate user intents, reorder transactions, and capture arbitrage, backrunning, or sandwich profits.
- Sustainability: This model works only in high-MEV environments (DEX swaps, NFT mints).
- Fragility: In low-MEV scenarios (simple transfers), protocols must directly subsidize gas or solvers exit.
$500M+
Annual MEV Extracted
>50%
Txs MEV-Funded
04
The Architect's Checklist: Paying for 'Free'
Designing a gasless system requires explicit answers to these economic questions.
- Who is the ultimate payer? (User via spread, Protocol via subsidy, MEV via extraction)
- What is the solver SLA? (Execution speed, success rate, cost ceiling)
- How is trust minimized? (Use Ethereum's native security, not off-chain promises).
3
Core Models
0
Free Lunches
05
The Competitor: Layer 2 Native Abstraction
Networks like zkSync and Starknet bake gas sponsorship into protocol design. Accounts can designate paymasters, and L2 sequencers can abstract fees entirely.
- Structural Advantage: No need for separate ERC-4337 bundler network; cost is a native L2 opcode.
- Vendor Lock-In: User experience is siloed to that specific L2, losing composability with Ethereum L1.
~0.01¢
L2 Tx Cost
1
Ecosystem
06
The Verdict: It's a Feature, Not a Product
Gasless onboarding is a powerful acquisition tool but a terrible standalone business. It must be a loss leader for a core protocol with high lifetime value (LTV).
- Successful Pattern: Uniswap uses it to capture swap volume; LayerZero uses it for omnichain messaging.
- Failed Pattern: Standalone gasless relayers that don't own the end-user application or liquidity.
>100x
LTV Required
100%
Acquisition Play
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