Account abstraction (ERC-4337) decouples wallets from keys, enabling sponsored transactions, social recovery, and batched operations. This shifts the fee payment burden from users to applications, creating a new business model for dApps on chains like Arbitrum and Optimism.
mev-the-hidden-tax-of-crypto
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Account Abstraction and MEV Compression on L2s
Native account abstraction on L2s like Starknet and zkSync isn't just UX. It's a new MEV compression engine. Sequencers batch and reorder user intents, creating amplified, opaque extractable value within their domains. This analysis breaks down the mechanics and risks.
introduction
THE FRONTIER
Introduction
Account abstraction and MEV compression are converging to redefine L2 economics and user experience.
MEV compression is the systematic reduction of extractable value. On L2s, sequencers like those from Arbitrum and Optimism internalize ordering, enabling protocol-level solutions like Flashbots' SUAVE or shared sequencer networks to capture and redistribute value.
The convergence creates a new economic layer. Sponsored transactions via AA subsidize user onboarding, while compressed MEV from intent-based systems (UniswapX, CowSwap) funds these subsidies. This forms a closed-loop economy where improved UX directly finances itself.
Evidence: Over 3.5 million ERC-4337 smart accounts exist, and L2s like Base now process over 80% of AA gas. MEV capture on Optimism via its sequencer generates millions in monthly revenue eligible for redistribution.
key-trends
FROM SEARCH TO EXECUTION
The New MEV Compression Stack
Account abstraction on L2s is shifting MEV from a public auction to a private negotiation, compressing value extraction into the execution layer.
01
The Problem: Public Mempools Are MEV Buffets
On-chain transactions broadcast to a public mempool are free for the taking. This creates a negative-sum game for users who lose value to front-running and sandwich attacks. The resulting latency wars between searchers waste ~$1B+ annually in gas and infrastructure costs, creating systemic inefficiency.
$1B+
Annual Waste
~500ms
Latency War
02
The Solution: Private Orderflow via Account Abstraction
ERC-4337 smart accounts enable users to sign intents, not transactions. This private orderflow can be routed directly to specialized execution networks like EigenLayer, SUAVE, or Anoma. By removing the public auction, it compresses the MEV supply chain, allowing value to be shared back with the user via intent-based bridges like Across and UniswapX.
90%+
Orderflow Private
User Rebates
New Revenue
03
The Enforcer: Programmable Pre-Confirmation (preconf)
Pre-confirmations are cryptographically guaranteed execution promises from block builders. On an L2 with a centralized sequencer, they are trivial to implement. This allows:
- Guaranteed inclusion and maximum extractable value (GMEV) for users.
- Atomic composability for cross-domain intents via protocols like LayerZero.
- A shift from probabilistic to deterministic settlement, the final step in MEV compression.
100%
Inclusion Guarantee
Atomic
Cross-Chain
04
The Arbiter: Centralized Sequencing as a Feature
On most L2s today, sequencing is centralized. This is not a bug for MEV compression—it's the enabling constraint. A single sequencer can:
- Act as the clearing house for all private orderflow, optimizing execution.
- Enforce fair ordering rules at the protocol level, eliminating toxic MEV.
- Provide the trust anchor required for instant, enforceable pre-confirmations, creating a superior user experience.
1
Canonical Queue
0 Gas
Priority Auctions
05
The Architect: Intents Over Transactions
The stack's foundation is the shift from transaction-based to intent-based design. Users specify a desired outcome (e.g., "swap X for Y at best price"), not a rigid instruction set. This abstraction enables:
- Parallel execution by solvers competing on fulfillment quality.
- Native batching of thousands of user intents into single L2 blocks.
- MEV recapture where competition shifts from latency to optimization, benefiting end-users.
10x+
Efficiency Gain
Solver Competition
New Market
06
The Endgame: L2 as the Ultimate MEV Sink
The compressed MEV stack turns the L2 into a black hole for extractable value. With private orderflow, enforceable pre-confs, and intent-based execution, the vast majority of value is internalized and redistributed. The L2 state becomes the single source of truth for execution, relegating L1 to a pure data availability and settlement layer. The result is cheaper, faster, fairer DeFi for users.
-99%
Leakage to L1
User-Owned
Value Flow
deep-dive
THE ARCHITECTURAL SHIFT
From Transaction Searchers to Intent Bundlers
Account abstraction on L2s is transforming MEV extraction from a public mempool race into a private, intent-based negotiation layer.
Account abstraction inverts the MEV game. Traditional searchers compete in public mempools, but ERC-4337 and native AA L2s like Starknet and zkSync move user logic into smart accounts. This creates a private order flow market where users express desired outcomes, not raw transactions.
Intent bundlers are the new searchers. Projects like UniswapX and CowSwap pioneered this model for swaps. On L2s, specialized bundlers like Biconomy and Stackup will compete to fulfill complex user intents (e.g., 'swap X for Y across Arbitrum and Optimism') by sourcing the best execution across private solvers and bridges like Across.
MEV compression is the efficiency gain. Public mempool MEV is a wasteful race. Private intent auctions compress this into a single, optimized execution bundle. The winning solver captures the MEV, but users get better prices and guaranteed outcomes, shifting value from wasteful competition to efficient fulfillment.
Evidence: Arbitrum's adoption of ERC-4337 via its native account abstraction support has catalyzed bundler infrastructure, with over 3.5 million UserOperations processed, demonstrating the scalable demand for intent-based transaction models.
ECONOMIC & SECURITY IMPLICATIONS
MEV Landscape: L1 vs. Native AA L2
Compares the MEV extraction environment and user-level security guarantees between traditional L1s (e.g., Ethereum) and L2s with native Account Abstraction (e.g., zkSync, Starknet).
| Feature / Metric | Traditional L1 (Ethereum) | Native AA L2 (e.g., zkSync Era) | Hybrid L2 (EVM-Equivalent) |
|---|---|---|---|
Native MEV Compression | |||
User-Level Atomic Bundles | |||
Searcher Competition Layer | Public Mempool | Private P2P Network | Public Mempool |
Avg. Time to Finality | ~12 minutes | < 1 hour | ~15 minutes |
User Op. Revert Protection | |||
Single Tx Multi-Operation | |||
Dominant MEV Type | Arbitrage, Liquidations | Sponsored Gas, Intents | Arbitrage, Liquidations |
Avg. Searcher Profit per Block | $1K - $50K+ | < $100 (estimated) | $100 - $5K |
risk-analysis
THE ARCHITECTURAL CONSEQUENCE
The Centralization and Opacity Trap
Account abstraction and MEV compression on L2s consolidate power in sequencers, creating systemic risk and hidden costs.
Sequencers become systemic chokepoints. Account abstraction (ERC-4337) and MEV compression (via SUAVE or private mempools) centralize transaction ordering power. This creates a single point of failure and censorship for protocols like Arbitrum and Optimism.
MEV is compressed, not eliminated. Compression via Flashbots SUAVE or CowSwap's solver network hides MEV from users but concentrates its economic value. This shifts profits from public searchers to a few privileged operators.
User intents create opaque execution. Systems like UniswapX and Across that process user intents rely on centralized solvers. This obscures final execution paths and creates hidden rent extraction layers.
Evidence: Over 95% of Arbitrum and Optimism transactions are ordered by a single sequencer. This centralization enables maximal value extraction from compressed MEV bundles before batch submission to Ethereum.
protocol-spotlight
ACCOUNT ABSTRACTION & MEV COMPRESSION
Protocol Responses: Mitigation and Capture
As MEV migrates to L2s, protocols are building infrastructure to either protect users or capture value directly.
01
The Problem: L2s are a MEV Gold Rush
Rollup sequencers have become centralized MEV extractors, creating a ~$1B+ annual opportunity for value capture. The lack of a public mempool on many L2s (e.g., Arbitrum, Optimism) hides auctions, forcing searchers to pay the sequencer directly and centralizing profits.
~$1B+
Annual L2 MEV
1-3
Dominant Sequencers
02
The Solution: Intent-Based Private Order Flow
Protocols like UniswapX and CowSwap use account abstraction to let users sign intents, not transactions. This outsources execution to a competitive network of solvers, compressing MEV by ~90% and returning it to the user as better prices. It's a direct attack on sequencer rent-seeking.
~90%
MEV Compression
1000+
Solver Network
03
The Solution: Shared Sequencer as a Public Good
Networks like Espresso and Astria propose a decentralized, shared sequencer layer. This creates a permissionless mempool for L2s, enabling fair MEV auctions and preventing a single entity from capturing all value. It's the infrastructure play for a multi-rollup future.
Sub-Second
Finality
Multi-Chain
Rollup Support
04
The Solution: MEV-Aware Smart Accounts
AA wallets like Safe{Wallet} and Biconomy integrate MEV protection directly into the account logic. They can route transactions through private RPCs (e.g., Flashbots Protect), use ERC-4337 bundlers for censorship resistance, and sign intents for optimal execution, making protection the default.
Zero
Frontrun Risk
ERC-4337
Native Standard
05
The Problem: Cross-Chain MEV is Unchecked
Bridges like LayerZero and Across are massive MEV vectors, with arbitrage opportunities often exceeding $100k per bundle. Without abstraction, users are exposed to sandwich attacks on the destination chain, and value is captured by a small set of professional searchers.
$100k+
Per Bundle Value
Multi-Chain
Attack Surface
06
The Solution: Cross-Chain Intent Orchestration
Protocols like Across and Socket are evolving into intent-based cross-chain routers. They use a solver network to fulfill complex user intents (e.g., "swap USDC on Arbitrum for ETH on Base"), compressing cross-chain MEV and guaranteeing a net outcome, abstracting away the underlying bridge mechanics.
Guaranteed
Net Outcome
Single Signature
User Experience
future-outlook
THE ARCHITECTURAL SHIFT
The Intent-Solver War is Coming to L2s
Account abstraction on L2s will shift the competitive battleground from raw throughput to the efficiency of intent-based transaction execution.
Account abstraction enables intent-based transactions. Users express desired outcomes (e.g., 'swap X for Y at best price') instead of signing rigid, step-by-step transactions. This creates a new market for solver networks like UniswapX and CowSwap to compete on execution quality.
MEV compression is the primary prize. On L1, MEV is extracted per transaction. On L2s, solvers will aggregate thousands of user intents into a single, optimized batch, compressing and internalizing MEV. The winning intent-centric rollup will offer the most efficient solver marketplace.
The war is infrastructure, not UX. The competition shifts from TPS leaderboards to who builds the most attractive solver execution layer. Protocols like EigenLayer and Across are already positioning as universal solvers, while L2s like Arbitrum and Base must decide to build or integrate these systems.
Evidence: UniswapX, which routes swaps via off-chain solvers, already processes over $10B in volume, proving the demand for intent-based execution. L2s that fail to architect for this will cede value to third-party solver networks.
takeaways
ACCOUNT ABSTRACTION & MEV COMPRESSION
TL;DR for Builders and Investors
The convergence of Account Abstraction and MEV compression is redefining L2 user experience and economic efficiency.
01
The Problem: Native L2 UX is Still a Wallet Hellscape
Users face seed phrases, gas payments, and batch confirmations. This kills mainstream adoption.
- Onboarding Friction: Non-crypto users can't grasp gas tokens or mnemonic backups.
- Session Keys & Sponsorship: Enables gasless, batched transactions via ERC-4337 Bundlers.
- Paymaster Dominance: Projects like Starknet, zkSync, and Polygon are subsidizing fees to onboard users.
~90%
Drop-off Reduced
0 Gas
For Users
02
The Solution: MEV Compression as an L2 Scaling Primitive
L2 sequencers bundle user intents off-chain, creating a single, optimized settlement transaction.
- Intent-Based Flow: Users sign what they want, not how to do it. See UniswapX and CowSwap.
- Cost Efficiency: Compresses ~1000 user ops into one L1 settlement, slashing overhead.
- Revenue Stream: Captured MEV from compression can fund public goods or subsidize AA gas.
10-100x
Ops per Tx
-70%
Avg. Cost
03
The Arbiter: Shared Sequencers & Cross-Chain Intents
Centralized sequencers are the next bottleneck. The fight is for the intent routing layer.
- Shared Sequencer Networks: Espresso, Astria, and Radius are building decentralized sequencing for rollups.
- Cross-Chain Intent Markets: Solvers on Across and LayerZero will compete to fulfill complex, cross-domain user intents.
- Builder Play: The winning L2 will be the one with the most efficient intent settlement layer, not just the lowest nominal gas.
$1B+
Market Cap
~500ms
Finality Target
04
The Investment Thesis: Vertical Integration Wins
The stack from AA wallet to MEV-optimized sequencer will be owned by a single ecosystem.
- Sticky Users: AA wallets (e.g., Safe{Wallet}, Biconomy) create unbreakable user lock-in.
- Captured Value: The L2 that controls bundling, sequencing, and MEV redistribution captures the full stack margin.
- Look at Starknet: Native AA, a dominant wallet (Braavos), and a sequencer roadmap. This is the blueprint.
10x
LTV Increase
>50%
Margin Capture
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