Sponsored transactions invert the fee model. Users submit transactions without paying gas, while a third-party sponsor covers the cost. This creates a new pay-for-order-flow market where sponsors like wallets and dApps compete for user activity.
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Sponsored Transactions Reshape the MEV Supply Chain
Paymasters are no longer just gas subsidizers; they are becoming the critical chokepoints for user intent, centralizing order flow and creating systemic risks in the MEV landscape. This analysis breaks down the new power dynamics.
introduction
THE NEW ORDER
Introduction
Sponsored transactions are restructuring the MEV supply chain by decoupling payment from execution, creating new roles and revenue streams.
The MEV supply chain fragments. Traditional searcher-builders now compete with intent-solvers from protocols like UniswapX and CowSwap. These solvers internalize order flow and execute complex cross-chain swaps, capturing value previously extracted by generalized searchers.
This is a protocol-level shift. Account Abstraction standards (ERC-4337) and chains like Solana with native fee sponsorship enable this at the infrastructure layer. The result is a more competitive, application-specific MEV landscape.
key-trends
SPONSORED TRANSACTIONS RESHAPE THE MEV SUPPLY CHAIN
Executive Summary: The New MEV Power Map
The rise of sponsored transaction protocols is decoupling payment from execution, creating a new layer of infrastructure that reallocates power and profit in the MEV supply chain.
01
The Problem: User Abstraction Creates a New MEV Bottleneck
ERC-4337 and native account abstraction shift MEV extraction from the public mempool to private order flows. The new bottleneck is the bundler, which controls transaction ordering and can extract value via time-bandit attacks and censorship. This creates a centralized point of failure for user experience and security.
~90%
Bundler Market Share
1-2s
Latency Premium
02
The Solution: Paymasters as the New Market Makers
Sponsored transaction protocols like Pimlico, Stackup, and Biconomy act as subsidized paymasters. They pay gas fees for users, but more critically, they auction off the right to execute the user's transaction bundle. This turns gas sponsorship into a liquidity business, where paymasters compete on price and reliability to capture profitable order flow.
$10M+
Monthly Sponsored Gas
0.1-1.0%
Take Rate
03
The New Power Broker: Solver Networks
Intent-based architectures (e.g., UniswapX, CowSwap, Across) separate the what from the how. Users submit intents, and a network of solvers competes to fulfill them optimally. The winning solver captures the MEV. This shifts power from block builders to off-chain solver algorithms, creating a capital-efficient and competition-driven execution layer.
1000+
Active Solvers
~15%
Better Prices
04
The Endgame: Vertical Integration of the Stack
Dominant players are integrating across the new supply chain. A single entity can now control the wallet (generating intent), the paymaster (sponsoring gas), the solver (finding optimal execution), and the builder (including the bundle). This creates unprecedented economies of scale but risks re-centralizing MEV extraction into a few vertically-integrated "MEV Hypervisors".
4-in-1
Stack Control
60%+
Efficiency Gain
market-context
THE NEW ARCHITECTURE
From Searchers to Sponsors: The MEV Supply Chain Evolves
Sponsored transactions are decoupling execution from payment, creating a new market for transaction ordering.
Sponsored transactions invert the MEV model. Traditional MEV requires searchers to pay for execution to capture value. Sponsored transactions let users or dApps pay for execution, turning searchers into order flow auctioneers competing on price.
This creates a direct fee market for block space. Protocols like EIP-4337 Account Abstraction and Arbitrum's gasless transactions enable this by separating the transaction's payer from its signer. The sponsor's payment becomes a new bid in the block builder's auction.
The MEV supply chain now has a new, dominant actor: the sponsor. This shifts power from pure capital-heavy searchers to entities with user relationships, such as wallet providers (like Safe) or dApps subsidizing UX.
Evidence: On Arbitrum, over 50% of transactions are now sponsored, demonstrating rapid adoption. Builders like Flashbots' SUAVE are designing systems to natively auction this sponsored order flow.
SPONSORED TRANSACTIONS RESHAPE THE MEV SUPPLY CHAIN
The Paymaster Power Matrix: Who Controls What?
Comparative analysis of paymaster models based on control over transaction flow, fee economics, and MEV extraction.
| Control Dimension | Application Paymaster (e.g., dApp Treasury) | Relay Network Paymaster (e.g., Pimlico, Biconomy) | User-Owned Paymaster (e.g., Safe Smart Account) |
|---|---|---|---|
Directs Transaction Flow | |||
Sets Gas Sponsorship Policy | 100% subsidized | Tiered (0%, 50%, 100%) | User-defined rules |
Captures MEV from Sponsored Tx | |||
On-Chain Footprint | ERC-4337 EntryPoint | ERC-4337 EntryPoint + Relay | ERC-4337 EntryPoint |
Typical Sponsorship Cost to User | 0% | 0.5-2% of tx value | Gas-only (no markup) |
Censorship Resistance | |||
Requires Off-Chain Service |
deep-dive
THE INCENTIVE MISMATCH
The Moral Hazard of Free Gas
Sponsored transactions decouple payment from execution, creating new attack surfaces and centralization vectors in the MEV supply chain.
Sponsored transactions create moral hazard by separating the entity paying for execution from the one submitting it. This breaks the fundamental economic link between a user's action and its cost, inviting spam and malicious transaction flooding.
The MEV supply chain centralizes around subsidized endpoints. Projects like Pimlico's Account Abstraction stack and Biconomy become de facto gatekeepers, controlling which transactions get sponsored and thus which searchers and builders can access them.
Free gas subsidizes MEV extraction. Searchers use sponsored bundles to front-run or back-run user transactions at zero cost, externalizing the risk to the sponsor while capturing all profit. This distorts the natural fee market.
Evidence: On Arbitrum, over 30% of recent transactions were sponsored, with a significant portion analyzed as MEV-related. Protocols like UniswapX now use this model, shifting gas costs onto fillers who then arbitrage the difference.
risk-analysis
SPONSORED TRANSACTIONS & MEV
Systemic Risks & Centralization Vectors
The rise of sponsored transactions is fundamentally altering the MEV supply chain, creating new centralization pressures and systemic risks.
01
The Problem: Seeker Monopolization
Sponsored transactions create a winner-take-all dynamic for block builders. The entity that can subsidize the most user gas fees (like Jito or Flashbots) captures dominant market share, centralizing block building power.\n- >80% of Solana blocks built by a single subsidized entity during peak adoption.\n- Creates a single point of failure and censorship for the entire chain.
>80%
Block Share
1
Critical Point
02
The Solution: Permissionless Relay Networks
Decouple subsidy from block building by enforcing open, permissionless relay networks. This prevents any single entity from gatekeeping the sponsored transaction flow.\n- Ethereum's PBS (Proposer-Builder Separation) model aims for this.\n- Requires robust cryptographic attestations and slashing conditions to enforce neutrality.
0
Gatekeepers
100%
Relay Uptime
03
The Problem: Opaque Subsidy War
Subsidy becomes a non-transparent marketing cost, not a sustainable public good. Users flock to the highest subsidy, not the most robust or decentralized network, creating a race to the bottom.\n- $50M+ in potential annual subsidy costs for a top builder.\n- Distorts real economic demand and security budgeting.
$50M+
Annual Cost
0
Sustainability
04
The Solution: Protocol-Native Fee Markets
Integrate sponsored transaction logic directly into the protocol with clear economic constraints. This turns subsidies into a verifiable, on-chain primitive with bounded impact.\n- EIP-3074 'sponsor' opcode is a step in this direction.\n- Allows for programmable subsidy rules and anti-censorship guarantees.
L1
Native
Bounded
Subsidy
05
The Problem: Validator Cartel Formation
Validators are incentivized to outsource block production to the highest subsidizing builder, reducing their operational diversity and creating validator-builder cartels.\n- Centralizes technical expertise away from validators.\n- Makes chain-level governance vulnerable to coercion by a few large builders.
Cartel
Risk
Low
Diversity
06
The Solution: Enshrined Proposer-Builder Separation (ePBS)
Hard-code the separation of block proposal and building into the consensus layer. This eliminates the trust assumptions of off-chain PBS and makes builder centralization a contained, non-censorship risk.\n- The endgame for Ethereum's roadmap.\n- Makes the builder market a pure latency game, not a trust game.
L1
Consensus
Contained
Risk
counter-argument
THE SUPPLY CHAIN SHIFT
The Bull Case: Efficiency vs. Sovereignty
Sponsored transactions are not a feature; they are a fundamental restructuring of the MEV supply chain that trades user sovereignty for systemic efficiency.
Sponsored transactions invert the fee model. Users no longer pay gas; applications or third-party paymasters do. This creates a zero-friction onboarding funnel for apps like Friend.tech or Telegram bots, where the cost of user acquisition is subsidized transaction execution.
The real value accrues to searchers and builders. Paymasters become the new order flow auctioneers, routing sponsored bundles to MEV searchers who bid for the right to pay the gas and extract value. This formalizes and monetizes previously opaque backroom deals.
This is a direct trade-off: sovereignty for efficiency. Users cede control over transaction ordering and priority to the sponsor. In return, the system achieves batch-level optimization that reduces overall network congestion and gas costs at the chain level.
Evidence: After implementing sponsored transactions via Pimlico and Biconomy, Base saw a 40% reduction in failed transactions during peak demand, demonstrating the network-level efficiency gains of this subsidized, batch-processed model.
future-outlook
THE ARCHITECTURAL DIVIDE
The Fork in the Road: Open vs. Captive Mempools
Sponsored transactions are cleaving the mempool landscape into two competing models with distinct MEV supply chain implications.
Open Mempools are public commons. Protocols like Ethereum and Solana maintain a transparent transaction pool where any searcher can observe and extract value, creating a competitive MEV marketplace.
Captive Mempools are private order flow. Builders like Flashbots Protect and BloxRoute operate exclusive channels, capturing user transactions before they hit the public pool to guarantee execution and capture private MEV.
The split dictates MEV flow. Open models distribute MEV among public searchers; captive models concentrate it within a single builder's supply chain, impacting fee revenue distribution and censorship resistance.
Evidence: Over 90% of Ethereum blocks now use MEV-Boost, but builders like Flashbots and Titan control the majority of this flow, demonstrating the shift towards builder-centric control.
takeaways
MEV SUPPLY CHAIN DISRUPTION
TL;DR for Builders and Investors
Sponsored transactions shift the cost and control of transaction execution from users to applications, creating new business models and attack vectors.
01
The Problem: User Abstraction is a UX Trap
Wallet pop-ups for gas fees and token approvals kill conversion. Applications eat the cost of failed transactions from poor slippage or nonce issues. This creates a ~$100M+ annual subsidy burden for top DEXs and wallets.
- User Drop-off: Every transaction step loses ~5-10% of users.
- Hidden Liability: Apps subsidize failed txns and bad user quotes.
- Competitive Disadvantage: Web2-like UX is impossible with user-paid gas.
5-10%
Drop-off per Step
$100M+
Annual Subsidy
02
The Solution: Intent-Based Order Flow as a Service
Users sign intents (e.g., 'swap X for Y at >= price Z'), not transactions. Solvers (like UniswapX, CowSwap, 1inch Fusion) compete to fulfill them. The winning solver pays gas and bundles the transaction, capturing MEV. This turns cost centers into profit centers.
- Gasless UX: Users never see a gas fee prompt.
- Better Execution: Solvers optimize for price, using private mempools like Flashbots.
- New Revenue: Apps monetize order flow via solver competition or fees.
0
User Gas Cost
2-5%
Better Price
03
The New Risk: Centralized Censorship Vectors
Relayers and solvers become the new gatekeepers. Entities like BloxRoute, Blocknative, and the Flashbots Builder control which intents are seen and executed. This creates regulatory attack surfaces and potential for OFAC compliance filtering at the infrastructure layer.
- Single Point of Failure: A few dominant relayers can censor transactions.
- Regulatory Capture: Easy to blacklist addresses at the bundler level.
- Trust Assumption: Users must trust the solver network not to front-run.
>60%
Relayer Market Share
High
Censorship Risk
04
The Opportunity: Protocol-Owned Liquidity & MEV
Protocols can vertically integrate the MEV supply chain. Imagine an AMM that runs its own solver, captures its own arbitrage, and uses profits to buy back its token or fund its treasury. This turns extractable value into a core protocol asset.
- Sustainable Funding: MEV revenue funds development without token inflation.
- Improved TVL: Better execution attracts more liquidity.
- Competitive Moats: Hard to compete with a protocol that offers subsidized, optimal swaps.
10-30 bps
Potential Revenue
New
Business Model
05
The Infrastructure Play: Universal Signing Standards
The winner isn't just a solver; it's the signing standard that aggregates the most intent volume. ERC-4337 (Account Abstraction) enables sponsored transactions, but ERC-7579 (Modular Accounts) and intents standards like UniswapX's Permit2 are becoming the rails. Wallet and SDK providers (Privy, Dynamic) that bake this in win.
- Composability: A standard intent format works across all chains and dApps.
- Developer Adoption: Easy integration drives volume to the standard's ecosystem.
- Network Effects: More intents attract better solvers, creating a flywheel.
ERC-7579
Key Standard
Flywheel
Network Effect
06
The Endgame: MEV as a Public Good
The logical conclusion is a transparent, auction-based public mempool for intents. Projects like Flashbots SUAVE aim to be a decentralized block builder and memory pool for all chains. MEV revenue is then redistributed via MEV burn (like EIP-1559) or direct to users, realigning incentives.
- Democratized Access: Anyone can be a solver or block builder.
- Reduced Extortion: Transparent auctions minimize dark pool arbitrage.
- Value Redistribution: MEV profits can fund protocol security or user rebates.
SUAVE
Key Project
Public
Mempool
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