The Hidden Cost of Subsidizing Gas for User Onboarding

Protocols like Blast and zkSync Era have demonstrated that subsidized gas attracts low-value, high-volume bot activity, not real users. This inflates TVL and transaction metrics, creating a phantom economy that collapses when subsidies end.

• >90% of sponsored transactions are often MEV bots or airdrop farmers.
• Real user retention post-subsidy is typically <5%.
• Creates a false signal for VCs and integrators, misallocating capital.

Shift from paying for arbitrary gas to paying for outcomes. Intent-based systems let users sign a desired result (e.g., 'swap X for Y at best price'), delegating routing and execution to a competitive solver network.

• User never holds gas tokens or approves infinite allowances.
• Solvers compete on execution quality, absorbing gas volatility.
• Eliminates the subsidy 'blank check' and aligns incentives with user success.

Most gas sponsorship relies on a centralized relayer (e.g., Biconomy, Gelato) holding the private key to a sponsor wallet. This creates a single point of failure and censorship.

• Relayer downtime halts the entire dApp.
• Relayer can be forced to censor transactions by regulators.
• $100M+ in sponsor wallet funds are honeypots for exploits.

Account Abstraction (ERC-4337) enables programmable sponsorship policies via smart contract wallets (Safe, ZeroDev). Sponsorship becomes a finite, rules-based allowance, not an open faucet.

• Sponsor sets limits: max gas per user, total budget, allowed ops.
• User operations are bundled and paid for post-execution, reducing front-running.
• Decentralizes the relayer layer via a permissionless bundler network.

Subsidizing gas is a linear cost for sub-linear growth. As user count grows, the subsidy bill grows proportionally, with no native protocol revenue to offset it. This leads to unsustainable token emissions or VC capital burn.

• $0.50 average cost per user onboarding with no guaranteed LTV.
• Creates a ponzi-esque dependency on new user subsidies to pay for old ones.
• Protocols like Avalanche and Polygon have spent >$100M on such programs with questionable ROI.

The endgame is L2s where transaction fees are so low that sponsorship is unnecessary. Arbitrum and Starknet are building ecosystems where a $0.01 swap is feasible. The focus shifts to building apps where the native fee is the marketing cost.

• ~$0.001 per transaction target makes subsidies irrelevant.
• Real growth is driven by utility, not artificial fee removal.
• Aligns long-term protocol sustainability with user experience.

A massive NFT mint event with subsidized gas caused the Arbitrum One network to congest and crash for hours, spiking gas prices for all users. The subsidy created a classic tragedy of the commons, where 'free' access destroyed the shared resource.

• Hidden Cost: Network downtime and degraded UX for the entire ecosystem.
• Lesson: Unmetered subsidies attract spam and overwhelm shared state capacity.

Polygon's native gas sponsorship program, which allowed dApps to pay fees for users, was exploited by arbitrage bots and spam transactions. The protocol was effectively subsidizing extractive MEV activity instead of genuine user onboarding.

• Hidden Cost: ~20-30% of sponsored transactions were identified as bot-driven spam.
• Lesson: Subsidies must be bounded and context-aware (e.g., tx type, user reputation) to avoid becoming a public good for bots.

zkSync Era's native Paymaster infrastructure enables sponsored transactions but shifts the paradigm from 'gasless' to 'abstracted payment'. dApps can pay in any token, set custom rules, and absorb costs only for targeted actions (e.g., first swap).

• Solution: Programmable subsidies prevent blanket free rides. ERC-4337 Account Abstraction enables this at the protocol level.
• Result: Sustainable onboarding where dApps bear calculated CAC instead of the L2 footing an infinite bill.

Starknet's STRK token was used to subsidize transaction fees for users. However, the airdrop's eligibility criteria and subsequent governance decisions created confusion, leading to user backlash and accusations of subsidizing inactive wallets over real network participants.

• Hidden Cost: Governance debt and community alienation when subsidy distribution is perceived as unfair.
• Lesson: Subsidy strategy is a communication and governance challenge, not just a technical one. Value accrual must be clear.

Optimism Collective inverts the model: instead of subsidizing end-user gas, it uses Retroactive Public Goods Funding (RetroPGF) to reward developers and infrastructure providers who create long-term ecosystem value. This funds sustainable growth from the supply side.

• Solution: Capital efficiency. $OP grants target proven value creation, not speculative transaction volume.
• Result: A $700M+ funding pool that incentivizes public goods, not transient user spikes.

Coinbase's Base L2 avoided open-ended subsidies by running Onchain Summer, a limited-time campaign with sponsored transactions for specific, curated interactions (mints, swaps on partner dApps). The subsidy had a clear budget, duration, and purpose.

• Solution: Scarcity and focus. A $2M fund for a one-month campaign drove targeted engagement without long-term liability.
• Result: 1M+ NFTs minted and sustained developer activity post-campaign, proving temporary boosts can catalyze organic growth.

Protocols compete on free gas to attract users, creating a zero-sum race to the bottom. This burns VC runway without building sustainable revenue, leading to a collapse when subsidies stop. The model only works if subsidized users convert to paying ones, which rarely happens.

• Ponzi Dynamics: Growth is funded by new capital, not protocol fees.
• Low Conversion: <5% of sponsored users become fee-paying.
• VC Burn Rate: Millions spent monthly for ephemeral engagement.

Open gas subsidies are a free buffet for bots. They enable low-cost spam and MEV extraction, congesting the network and degrading the experience for real users. This forces protocols to implement complex fraud detection, adding overhead and centralization.

• Bot Dominance: >70% of sponsored transactions can be malicious bots.
• Network Pollution: Spam increases base gas costs for everyone.
• Centralized Censorship: Fraud filters become a required, trusted blacklist.

Subsidies are a direct drain on protocol treasuries or token reserves. Sustaining them requires continuous token emissions or dilution, which devalues the native asset and alienates long-term holders. This creates a fundamental misalignment between user growth and tokenholder value.

• Treasury Drain: Direct conversion of assets to ETH for gas.
• Inflationary Pressure: New tokens minted to fund subsidies.
• Holder Exit: Token sell pressure outweighs utility demand.

Gas sponsorship is typically walled within specific wallets (e.g., Smart Wallets from Stackup, Biconomy) or chains. This fragments liquidity and user identity, creating an interoperability tax when users move assets. It's a user acquisition cost masquerading as infrastructure.

• Vendor Lock-In: Users are captured within a sponsor's ecosystem.
• Fragmented Liquidity: Assets stuck in sponsored wallets/rollups.
• Cross-Chain Friction: Moving assets incurs real gas costs, breaking the illusion.

The entity paying the gas (dApp/Protocol) has different incentives than the end user. This leads to suboptimal transaction construction—payers minimize their cost, not the user's execution quality. Users suffer from failed tx, slow inclusion, or worse, censorship if their actions aren't profitable for the payer.

• Cost-Optimized Execution: Payers use low-fee, low-priority RPCs.
• High Failure Rates: Transactions drop during volatility.
• Censorship Risk: Payers filter unprofitable user actions.

At scale, the numbers become absurd. Bringing 100M users onchain via subsidies could require over $1B annually in pure ETH burn for base layer security. This is not a scalable user acquisition channel; it's a wealth transfer to miners/validators, creating a hard ceiling on mainstream adoption.

• Linear Cost Scaling: User growth has a 1:1 relationship with gas spend.
• ETH Drain: Billions in value extracted from ecosystem to L1.
• Adoption Ceiling: Model breaks before reaching 100M users.