The user never pays. Gasless L2 transactions are a marketing abstraction. The transaction fee is always paid, but the protocol or dApp subsidizes it via a sponsored meta-transaction model. This creates a hidden cost center for application developers.
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Blog
Who Really Pays for Gasless L2 Transactions?
An analysis of how sponsored transactions on Arbitrum, Optimism, and Base create a hidden subsidy war, centralizing economic power and distorting the competitive landscape for dApps.
introduction
THE SUBSIDY
The Free Lunch is a Lie
Gasless transactions are a user-facing illusion, shifting the cost burden to applications and sequencers.
Sequencers front the capital. The L2 sequencer (e.g., Arbitrum, Optimism) pays the base layer gas fee to post the transaction data. They recoup this cost via priority fees and MEV, creating a complex settlement game where user experience is a loss leader for network effects.
Protocols monetize elsewhere. Projects like Pimlico (paymaster) and Biconomy enable this by abstracting gas payment into ERC-20 tokens or subscription models. The real cost is buried in token inflation, protocol treasury drains, or premium service fees.
Evidence: Arbitrum's sequencer must pay Ethereum for every batch. The $0.0001 gas fee a user avoids is a real cost arbitraged against sequencer profits from L2 block space, creating systemic risk if subsidy models fail.
key-trends
WHO PAYS FOR FREE?
The Mechanics of the Subsidy War
Gasless L2 transactions are a marketing illusion; the cost is merely shifted, creating a strategic battleground for user acquisition.
01
The Problem: The Paymaster Ponzi
Protocols like Base and Arbitrum offer "gasless" UX by deploying paymasters that sponsor transaction fees. This is a user acquisition cost funded by venture capital or protocol treasuries, creating a $100M+ subsidy war with no clear long-term economic model.
- Temporary Advantage: Drives initial adoption but is financially unsustainable.
- Centralization Vector: Relies on a single entity's solvency to keep the chain running.
- Hidden Tax: Costs are recouped via token inflation or future fee extraction.
$100M+
Subsidy War
0
Sustainable Model
02
The Solution: Intent-Based Abstraction
Systems like UniswapX, CowSwap, and Across shift the cost burden to competitive solvers. Users sign intents ("I want this token"), and off-chain solvers compete to fulfill them, baking gas costs into the swap rate.
- User Pays, But Optimally: No direct ETH needed; cost is abstracted into the trade.
- Efficiency via Competition: Solvers optimize for MEV and gas arbitrage, potentially improving net outcomes.
- Protocol Sustainability: Fee model is aligned with trade volume, not speculative token grants.
~30%
Better Rates
No Subsidy
Required
03
The Hybrid: Account Abstraction Wallets
Smart accounts from Safe, Biconomy, and ZeroDev enable sponsored transactions and gas bundling. The wallet sponsor (dApp or employer) pays, but the model is explicit and programmable.
- B2B2C Model: Businesses can onboard users by paying for their gas as a service.
- Session Keys: Enable multiple actions under a single sponsored fee, reducing overhead.
- Clear Payer: Unlike opaque L2 subsidies, the sponsoring entity is identifiable and accountable.
10x
UX Simplicity
B2B2C
Model
04
The Endgame: L1 as the Final Creditor
All L2 subsidy models ultimately settle to Ethereum L1, which collects the real gas fee. The "war" is over who holds the interim liability and for how long. Validiums and optimistic rollups have fundamentally different cost exposures.
- Settlement Cost Pass-Through: Batch submission fees are the ultimate, non-negotiable cost.
- Data Availability is Key: Celestia, EigenDA, and Ethereum DA solutions determine the final subsidy floor.
- Profit = L1 Fee - Subsidy: Sustainable L2s must eventually charge users more than their L1 settlement cost.
L1
Final Creditor
DA Cost
Floor Price
deep-dive
THE ARCHITECTURE
The Paymaster Power Play: From Abstraction to Centralization
Paymaster contracts enable gasless transactions by sponsoring fees, but they consolidate financial and censorship power.
Paymasters centralize financial risk. A single entity, like a dApp or wallet, prepays gas for users. This creates a massive, centralized liquidity sink vulnerable to economic attacks and insolvency.
The censorship vector is real. Paymasters like Biconomy or Pimlico act as gatekeepers. They decide which transactions to sponsor, embedding policy-based filtering directly into the protocol layer.
ERC-4337 standardizes the power. This standard makes paymaster logic a core primitive. It shifts trust from miners/validators to these off-chain service providers, creating new points of failure.
Evidence: 90% of gasless txs use 3 providers. On networks like Polygon, a handful of paymaster services dominate the sponsored transaction flow, demonstrating rapid centralization.
WHO PAYS FOR GASLESS?
L2 Subsidy Strategy Matrix
A comparison of the primary models used to subsidize transaction fees on Layer 2s, detailing the economic trade-offs for users, dApps, and the protocol.
| Feature / Metric | Sponsor Pays (Paymaster) | Protocol Pays (Sequencer) | User Pays (Wallet Abstraction) |
|---|---|---|---|
Primary Payer | dApp / Sponsor | L2 Protocol Treasury | User (via ERC-4337 Bundler) |
User Experience | Truly gasless (no token) | Trually gasless (no token) | Gasless feeling (pay with any token) |
dApp Onboarding Cost | High (direct gas cost + premium) | None (protocol absorbs cost) | None (user absorbs cost) |
Protocol Revenue Impact | Positive (fees from paymaster) | Negative (net subsidy cost) | Neutral (fees from user) |
Centralization Vector | Paymaster operator (e.g., Biconomy) | Sequencer/DAO governance | Bundler network |
Typical Use Case | DApp-specific promotions | Network-wide growth campaigns | Mainstream user onboarding |
Example Implementations | Biconomy, Pimlico, Stackup | Optimism RetroPGF, Arbitrum Stylus promo | Safe, Zerodev, Etherspot |
counter-argument
THE SUBSIDY MODEL
The Bull Case: Necessary Evil or Growth Hack?
Gasless transactions are a user acquisition subsidy, shifting the cost from the user to the protocol's treasury or sequencer.
Protocols pay for growth. The entity sponsoring the gas pays the bill. This is a direct user acquisition cost for L2s like Base or Arbitrum, funded by their treasury or sequencer revenue.
Sequencers capture long-term value. By absorbing short-term fees, sequencers like those on Optimism or Arbitrum build user habit and volume. This increases their future fee revenue and MEV opportunities.
It's a temporary marketing tool. The model is unsustainable at scale. Successful networks like Ethereum phase out subsidies, forcing protocols like Uniswap or Aave to eventually onboard users to paid transactions.
Evidence: Base's 'Onchain Summer' campaign, funded by Coinbase, demonstrated that gas sponsorship drives a >300% spike in daily transactions, proving its efficacy as a growth hack before the paywall returns.
risk-analysis
WHO PAYS FOR 'FREE'?
The Slippery Slope: Risks of the Subsidy Model
Gasless transactions are a user acquisition tool, not a fundamental cost reduction. The subsidy model creates hidden risks and centralization vectors.
01
The Problem: The Centralized Sequencer Subsidy
Most 'gasless' L2s like Arbitrum and Optimism have the sequencer pay gas on L1 to post transaction data. This creates a single point of failure and a massive, opaque operational cost. If the sequencer's subsidy runs dry, the network grinds to a halt.
- Centralized Risk: The sequencer is a trusted, centralized actor.
- Hidden Costs: Subsidies are a marketing expense, not a protocol feature.
- Breakage Vector: A sequencer failure or withdrawal of funds halts finality.
1
Centralized Sequencer
>90%
L2 Market Share
02
The Solution: Paymasters & Intent-Based Abstraction
Protocols like ERC-4337 (Account Abstraction) and UniswapX introduce Paymasters—smart contracts that sponsor gas fees on behalf of users. This shifts the subsidy from a centralized sequencer to a competitive, decentralized market of sponsors.
- Decentralized Sponsorship: Any entity can become a Paymaster, competing on service.
- Intent-Driven: Users sign intents; third-party solvers (e.g., CowSwap, Across) compete to fulfill them profitably.
- Sustainable Model: Sponsorship is a value-added service, not a hidden cost center.
ERC-4337
Standard
Market-Based
Pricing
03
The Risk: MEV & Subsidy Recoupment
Subsidies are not charity. Sequencers and Paymasters recoup costs via Maximal Extractable Value (MEV)—reordering, frontrunning, and arbitrage. This creates perverse incentives where the 'free' user's transaction is the product.
- Hidden Tax: Users pay via worse execution prices, not explicit fees.
- Incentive Misalignment: The sequencer's profit motive conflicts with optimal user outcomes.
- Opaque Economics: True cost is hidden in slippage and sandwich attacks.
$1B+
Annual MEV
Opaque
User Cost
04
The Endgame: Credibly Neutral Fee Markets
The sustainable model is a credibly neutral fee market where users pay for their own resource consumption. Ethereum's base layer proves this works. L2s must evolve beyond subsidies to decentralized sequencing (e.g., Espresso, Astria) and explicit, competitive fee auctions.
- User-Pays Principle: Aligns cost with consumption; eliminates hidden subsidies.
- Decentralized Sequencing: Removes the single point of failure and subsidy.
- Long-Term Viability: The only model proven to work at $500B+ settlement scale.
L1 Ethereum
Proven Model
Credible Neutrality
Core Property
future-outlook
THE SUBSIDY MODEL
The Path to Sustainable Abstraction
Gasless L2 transactions shift the cost burden from users to applications, creating a new economic layer.
Applications pay the gas. Gasless user experiences are a marketing subsidy. Protocols like Pimlico's Paymaster or Biconomy front the transaction fees, abstracting the native token from the user. This cost is a direct operational expense for dApps seeking growth.
The subsidy is unsustainable. This creates a winner-takes-most market where only well-funded applications can compete. The model mirrors the early days of cloud computing, where AWS credits fueled startup growth before unit economics mattered.
The endgame is intent-based routing. Sustainable abstraction moves from paying gas to minimizing it. Systems like UniswapX and CowSwap use solvers who compete to find the cheapest execution path across chains and liquidity sources, internalizing the cost optimization.
Evidence: Arbitrum's transaction bundling via Account Abstraction (ERC-4337) reduces gas costs by ~30% for batched operations, proving that efficiency, not just subsidy, is the path forward.
takeaways
GASLESS TRANSACTION ECONOMICS
TL;DR for Protocol Architects
Gasless UX is a subsidy model that shifts costs from users to applications and sequencers, creating new attack surfaces and revenue opportunities.
01
The Problem: The Abstraction Illusion
Users don't pay, but the cost doesn't vanish. Gasless transactions create a hidden subsidy layer where the protocol or dApp becomes the payer of last resort. This introduces new vectors for spam attacks and economic abstraction complexity that must be managed off-chain.
100%
User Cost Shift
New Vector
Spam Risk
02
The Solution: Paymaster Contracts
Smart contracts that sponsor transaction fees on behalf of users. They enable ERC-4337 Account Abstraction and are the core primitive for gasless UX. They must validate sponsorship rules on-chain, creating a verifiable subsidy policy.
- Key Benefit: Enables session keys & batch transactions.
- Key Benefit: Allows payment in any ERC-20 token (e.g., USDC).
ERC-4337
Standard
Any Token
Payment
03
The Payer: Sequencer as Capital Provider
In practice, the L2 sequencer (e.g., Optimism, Arbitrum, Base) often fronts the gas cost for 'gasless' txs, bundling them for settlement on L1. They recoup costs via priority fees and MEV capture, turning gasless UX into a customer acquisition cost.
- Key Benefit: Instant transaction inclusion.
- Key Benefit: Enables true 'sign-tx-only' UX.
L1 Batch
Settlement
Priority Fee
Revenue
04
The Subsidy Model: dApp Treasury Drain
Protocols like Uniswap or Aave can sponsor gas to boost engagement, but this turns their treasury into a predictable cost center. Requires careful rate limiting and sybil resistance (e.g., proof-of-humanity) to prevent draining by bots. Models include fixed per-tx budgets or gas rebates post-execution.
Treasury Risk
Cost Center
Sybil Attack
Primary Risk
05
The Meta-Solution: Intent-Based Architectures
Systems like UniswapX, CowSwap, and Across move beyond gasless transactions to gasless intents. Users sign a desired outcome, and a network of solvers competes to fulfill it optimally, internalizing all gas costs. This shifts the economic burden to solver competition and auction mechanisms.
Solver Network
Payer
Auction
Cost Discovery
06
The Verdict: It's a Marketing Cost
Gasless transactions are not a technical breakthrough in cost reduction; they are a business model choice to improve UX. The cost is paid by sequencers (via future profit), dApps (via treasury), or intent solvers (via competition). Architects must design for sustainable subsidy, spam resistance, and clear revenue recapture.
UX Spend
Marketing
Must Be Designed
Sustainability
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