Smart accounts monetize user operations. ERC-4337 bundles and Paymasters let dApps sponsor gas fees, extracting value from the base layer's fee market. This creates a direct revenue stream for applications like Pimlico or Biconomy, bypassing native token stakers.
wallet-wars-smart-accounts-vs-embedded-wallets
Blog
Why Smart Account Tokenomics Will Cannibalize Native Tokens
Smart account protocols are launching tokens for governance and fee capture. This creates a direct economic conflict with the L1/L2 they run on, siphoning value from the base layer's security budget and user fees.
introduction
THE VALUE CAPTURE SHIFT
Introduction
Smart account fee models are redirecting transaction value away from L1/L2 sequencers and into application-layer tokens.
Application tokens become the settlement layer. Projects like EigenLayer AVSs or Polygon AggLayer validators will accept payment in app-specific tokens for execution and security. This commoditizes the underlying chain's token, reducing its monetary premium to pure block space.
The cannibalization is already measurable. On networks like Arbitrum, over 15% of gas is already sponsored via Paymasters, a figure that directly reduces demand pressure for the native ARB token from network usage.
thesis-statement
THE VALUE CAPTURE SHIFT
The Core Conflict: A Zero-Sum Fee Market
Smart accounts will redirect the primary economic value of transactions away from native L1/L2 tokens and toward the infrastructure that aggregates and executes user intents.
Smart accounts abstract gas. Users pay fees in stablecoins or any token, bypassing the need to hold the chain's native asset for transaction costs. This severs the fundamental utility link between network usage and token demand.
Value accrues to aggregators. The economic engine shifts from block producers to intent-solving networks like UniswapX, CowSwap, and Across. Their solvers and sequencers capture the fee market, not ETH or ARB validators.
Native tokens become governance-only. Without a fee capture mechanism, tokens like OP and MATIC devolve into pure governance instruments. This creates a weaker value accrual model compared to the direct revenue of intent infrastructure.
Evidence: On Arbitrum, over 30% of gas is already sponsored by apps via programs like Biconomy and Gelato. This is a precursor to full abstraction, where the chain's token is removed from the user's economic equation entirely.
key-trends
WHY SMART ACCOUNT TOKENOMICS WILL CANNIBALIZE NATIVE TOKENS
The Cannibalization Playbook: Three Emerging Patterns
Smart accounts shift value capture from L1/L2 sequencers to application-layer fee markets, directly threatening the utility and revenue of native chain tokens.
01
The Problem: Sequencer Revenue Leakage
Native tokens like ETH and SOL derive value from sequencer/validator fees. Smart accounts enable intent-based batching via solvers (e.g., UniswapX, CowSwap), which route transactions off-chain. This bypasses the public mempool, siphoning ~30-50% of high-value MEV and base gas fees away from the L1/L2's native fee market.
30-50%
MEV Leakage
$1B+
Annual Revenue at Risk
02
The Solution: Paymaster Staking & Fee Abstraction
Projects like Biconomy and Stackup are creating new staking surfaces. Paymasters sponsor gas fees in stablecoins, but their operators must stake the native token (e.g., ETH) as collateral for reliability. This creates a derivative demand sink, but one that is capped and controlled by the application layer, not the core protocol.
Capped Demand
Derivative Sink
App-Layer Control
Tokenomics Shift
03
The Endgame: Sovereign Fee Markets & L1 Commoditization
Frameworks like EIP-4337 and ERC-4337 standardize the user operation mempool. This allows sovereign fee markets (e.g., Pimlico, Alchemy) to emerge, competing directly with L1/L2 sequencers. The base chain becomes a commoditized settlement layer, while value accrues to the bundler and paymaster token staking pools.
ERC-4337
Standard Enabler
Commoditized L1
End State
SMART ACCOUNT TOKENOMICS
The Fee Diversion Matrix: Who Captures The Value?
Comparison of value capture mechanisms between native L1/L2 tokens and smart account infrastructure tokens, highlighting the emerging fee diversion.
| Value Capture Vector | Native L1/L2 Token (e.g., ETH, ARB, OP) | Smart Account Paymaster Token (e.g., STRK, PIMLICO) | Bundler/Infra Token (e.g., future) |
|---|---|---|---|
Primary Revenue Source | Base L1 gas / L2 sequencer fees | Paymaster service fees & sponsored transactions | Bundler priority fees & MEV |
Fee Capture from User Op | ~70-100% (if user pays in native gas) | 5-30% (via markup on sponsored gas) | 1-5% (bundler tip + MEV extraction) |
Staking/Securing Role | Validator/Sequencer security (PoS) | Service reliability & subsidy pool | Censorship resistance & ordering |
Demand Driver | Network usage (inelastic) | Smart account adoption (elastic) | Transaction volume & complexity |
Value Accrual Risk | High (competes with all L1s/L2s) | Medium (competes with other paymasters) | Low (becomes commodity infrastructure) |
Protocol-Owned Liquidity | No (treasury holds native token) | Yes (for gas abstraction subsidies) | Partial (for bonding/insurance) |
Cannibalization Target | N/A | Native gas token fees | Paymaster & sequencer fees |
deep-dive
THE VALUE CAPTURE SHIFT
The Slippery Slope: From Feature to Parasitic Layer
Smart accounts will redirect transaction value from L1/L2 native tokens to their own staking and governance tokens.
Smart accounts become the fee sink. Every user operation requires a fee paid to the bundler, which is likely denominated in the smart account's own token, not the underlying chain's gas token. This creates a direct value extraction mechanism from the base layer.
Protocols will subsidize adoption. Projects like Starknet (with its account abstraction SDK) and zkSync (with its native AA) will initially pay fees to bootstrap users. This subsidization drains value from their own treasuries and native tokens to feed a new parasitic economic layer.
The bundler is the new validator. In a world of ERC-4337 accounts, the entity ordering transactions (the bundler) captures the fee premium. This role mirrors a validator/sequencer but answers to the smart account protocol's token holders, not the L1/L2 stakeholders.
Evidence: Polygon's AggLayer and Avail's Nexus are building infrastructure explicitly for cross-chain smart accounts. Their success depends on capturing this new fee stream, directly competing with the settlement layers they connect.
counter-argument
THE VALUE ACCRUAL MISMATCH
The Bull Case (And Why It's Wrong)
Smart account tokenomics will not accrue value to L1/L2 native tokens, but will instead create new, protocol-specific fee markets.
Smart accounts abstract gas. ERC-4337 and AA wallets like Safe{Wallet} and Biconomy let users pay fees in any token via paymasters. This severs the direct link between user activity and the consumption of the underlying chain's native gas token.
Value accrual shifts to middleware. The fee market moves to the paymaster. Projects like Pimlico (bundler infrastructure) and Candide (smart wallet SDK) will capture fees for providing gas sponsorship, bundling, and user onboarding services, not the base layer.
Native tokens become commodities. L1/L2 tokens like ETH, MATIC, and ARB transform into back-end settlement assets. Their value is derived from validator/staker demand, not from end-user transaction volume, mirroring how AWS bills in dollars but uses underlying hardware.
Evidence: On Polygon, over 40% of Gas Station Network (GSN) relayed transactions use sponsored gas. This demonstrates the existing demand to decouple user payment from the native token, a trend smart accounts will institutionalize.
protocol-spotlight
TOKENOMICS DISRUPTION
Case Studies: The Cannibalis in Action
Smart accounts are not just UX upgrades; they are economic black holes that will absorb value from native protocol tokens.
01
The UniswapX Effect: Killing Bridge Tokens
UniswapX abstracts away the bridge by using a network of fillers to execute cross-chain swaps. This bypasses the need for users to hold or pay fees in native bridge tokens like Stargate's STG or Synapse's SYN.\n- Value Shift: Fees flow to filler networks and solver DAOs, not bridge token stakers.\n- Result: Bridge tokens become governance-only, with drastically reduced fee capture.
~$2B+
TVL at Risk
-90%
Fee Capture
02
The ERC-4337 Bundler Cartel
ERC-4337 introduces a new economic layer: Bundlers. They prioritize and submit UserOperations, extracting MEV and fees. This creates a cartel-like market that competes directly with L1/L2 sequencer revenue.\n- Fee Siphon: User pays the Bundler, not the base layer's native token.\n- Power Dynamics: Bundlers like Stackup or Pimlico become the new fee sinks, diminishing the value accrual of ETH or OP as pure gas tokens.
New $1B+
Market
Cartel
Structure
03
Account Abstraction Wallets as Loyalty Engines
Smart accounts like Safe{Wallet} and Biconomy enable sponsored transactions and session keys. Protocols can pay gas for users, making their native token irrelevant for network access.\n- Token Utility Erosion: Why hold a chain's token for gas if the dApp pays for you?\n- New Loyalty: Value accrues to the wallet's ecosystem and the sponsoring dApp's token, not the underlying L1.
0 Gas
For User
Shifted
Loyalty
04
Modular Security Stacks vs. Monolithic Chains
Smart accounts can plug into modular security providers like EigenLayer AVSs or AltLayer for faster finality. This lets them opt-out of a chain's native security model, directly cannibalizing its staking token demand.\n- Security as a Service: Users pay for security via the smart account, not by staking the chain's token.\n- Example: An app on a rollup could use EigenLayer for faster bridging, reducing need for the rollup's native staking token.
Modular
Security
Decoupled
Staking
future-outlook
THE VALUE CAPTURE SHIFT
The Inevitable Clash: L1/L2 Retaliation
Smart account fee abstraction will redirect transaction value away from native L1/L2 tokens, forcing a fundamental redesign of chain-level tokenomics.
Smart accounts abstract gas fees from the native chain token. Users pay in any ERC-20 token via a paymaster, bypassing the need to hold ETH, MATIC, or ARB. This severs the direct link between network usage and native token demand.
Value accrual shifts to application layers. The paymaster market (e.g., Pimlico, Biconomy) and the token used for payment (e.g., USDC, stablecoins) capture the economic rent. The underlying L1/L2 becomes a commoditized settlement layer with diminished token utility.
Layer 2s face existential pressure. Their sequencer fee model relies on users paying fees in the native token. With ERC-4337 account abstraction, protocols like Starknet and zkSync must either subsidize paymasters or watch their core economic flywheel break.
Evidence: On Polygon, over 50% of gas is already sponsored via Biconomy. On Arbitrum, Pimlico's bundler market processes millions of userops monthly, with fees settled in USDC, not ARB.
takeaways
TOKENOMICS DISRUPTION
TL;DR for CTOs and Architects
Smart accounts shift value capture from protocol-native tokens to infrastructure and service layers, creating new winners and losers.
01
The Problem: Native Token Utility Erosion
Protocols like Uniswap and Aave rely on governance tokens for fee capture and security. Smart accounts (ERC-4337) enable meta-transactions, where a third-party Paymaster pays gas fees in any token, bypassing the native chain asset (e.g., ETH, MATIC). This decouples economic activity from the base layer's monetary premium.
- Fee Abstraction: Users never need ETH on L2s, reducing demand pressure.
- Governance Dilution: Value accrual shifts from staking/securing L1 to service provision.
- Example: A user swaps on Uniswap on Arbitrum via a Biconomy Paymaster paying in USDC.
~0 ETH
User Balance
-100%
Native Gas Demand
02
The Solution: Paymaster as the New Fee Market
The Paymaster becomes the critical, extractive layer. Entities like Pimlico, Stackup, and Biconomy compete on subsidizing gas and bundling transactions. They capture value via:
- Service Fees: Taking a cut for gas sponsorship and user acquisition.
- Token Arbitrage: Accepting any ERC-20, swapping it for native gas, and keeping the spread.
- Bundler Revenue: Priority fees from ordering UserOperations in a block. This creates a $B+ B2B2C market detached from L1 token performance.
New $B+
Market
B2B2C
Model
03
The New Vertical: Intent-Based Abstraction
Smart accounts enable intent-centric architectures (e.g., UniswapX, CowSwap, Across), where users sign what they want, not how to do it. Solvers compete to fulfill the intent profitably. This:
- Cannibalizes Native Liquidity: Solvers route across chains and DEXs via bridges like LayerZero and Axelar, making the destination chain's token irrelevant.
- Creates Solver Tokens: New tokens (e.g., $ENS?) may emerge to coordinate solver networks, further diverting value.
- Abstracts Everything: The user's chain and asset become implementation details.
Intent
Paradigm
Multi-Chain
Liquidity
04
The Architect's Playbook: Bundler & Validator Stakes
To capture value, protocols must vertically integrate into the ERC-4337 stack. This isn't about dApps; it's about infrastructure.
- Run a Bundler: Capture ordering rights and MEV from user operation flows.
- Launch a Paymaster: Become the gas bank for your ecosystem, capturing fees and directing economic activity.
- Issue a Stake Token: Secure your bundler network with a new token, creating a circular economy separate from the L1. See EigenLayer AVS models for the blueprint.
Vertical
Integration
New Token
Required
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