Sponsored transactions eliminate user friction by allowing dApps to pay gas fees. This removes the primary onboarding barrier for new users who lack native tokens, enabling protocols like Pimlico and Biconomy to abstract wallet complexity.
wallet-wars-smart-accounts-vs-embedded-wallets
Blog
The Future of dApp Economics with Sponsored Transactions
Gas sponsorship is shifting from a marketing gimmick to a core operational cost. This analysis explores how protocols must redesign their tokenomics to compete in the era of smart accounts and embedded wallets.
introduction
THE USER ACQUISITION BREAKTHROUGH
Introduction
Sponsored transactions are shifting the economic burden of blockchain interaction from users to applications, fundamentally altering dApp growth strategies.
The economic model inverts traditional SaaS logic. Instead of charging users, dApps treat gas sponsorship as a Customer Acquisition Cost (CAC). This creates a direct link between marketing spend and on-chain user actions, a model pioneered by Aptos and Sui.
Evidence: Applications using ERC-4337 account abstraction with paymasters see a 300%+ increase in successful first transactions. This metric proves fee abstraction is a non-negotiable feature for mainstream adoption.
key-trends
DAPP ECONOMICS
Executive Summary: The New Cost of Doing Business
Sponsored transactions are shifting user acquisition costs from marketing budgets directly into protocol infrastructure, creating a new competitive landscape.
01
The Problem: The Onboarding Friction Tax
Every new user faces a ~$5-20 upfront capital requirement for gas, a conversion killer. This is a tax on growth, not a protocol fee.\n- >70% drop-off occurs at the wallet funding stage.\n- User acquisition cost (CAC) becomes a function of blockchain education, not product quality.
>70%
Drop-off Rate
$5-20
Friction Tax
02
The Solution: The Paymaster as a Growth Engine
Protocols like Pimlico, Biconomy, and Alchemy abstract gas, allowing dApps to sponsor user transactions. This turns a cost center into a strategic lever.\n- Pay-for-Action model aligns cost with real user engagement.\n- ERC-4337 Account Abstraction enables batched, sponsored, and gas-optimized user ops.
ERC-4337
Standard
0→1
User Onboarding
03
The New KPI: Cost Per Verified Action (CPVA)
Forget Cost Per Click. The new metric is the cost to acquire a user who completes a specific, valuable on-chain action. This is measurable, auditable, and directly tied to protocol revenue.\n- Enables L2-specific subsidy wars to capture liquidity.\n- Creates a direct link between infrastructure spend and protocol TVL/growth.
CPVA
Core Metric
TVL-Linked
Spend Efficiency
04
The Strategic Risk: Subsidy Dependence & Centralization
Sponsored gas is a powerful acquisition tool that can create vendor lock-in and unsustainable economic models. The entity controlling the paymaster holds significant power.\n- Risk of centralized points of failure in relay networks.\n- Long-term viability requires decentralized relayers and fee markets.
Vendor Lock-in
Key Risk
Decentralized
End-State
05
The Endgame: dApps as L2s, L2s as dApps
When user acquisition is just gas sponsorship, the line between application and chain blurs. dYdX moving to its own chain and Uniswap deploying on every L2 are early signals.\n- App-specific chains optimize economics for a single use case.\n- L2 rollups compete on dApp subsidy packages, not just TPS.
App-Chain
Trend
Subsidy War
L2 Competition
06
The Meta: Who Owns the User?
The wallet or paymaster that pays becomes the primary relationship. This battle is between Smart Account providers (Safe, ZeroDev), wallet giants (MetaMask), and infra players (Pimlico).\n- User identity and session keys become the new moat.\n- Cross-chain intents via UniswapX, Across, and LayerZero abstract this further.
Smart Account
Battleground
Intent-Based
Future UX
market-context
THE ECONOMIC REALITY
The Wallet Wars Are a Subsidy War
Sponsored transactions shift the economic battleground from user acquisition to developer acquisition, turning wallets into subsidized infrastructure.
Wallet competition is now API competition. The core product is no longer a UI but a gas sponsorship abstraction that dApps integrate. Wallets like Coinbase Wallet and Rabby compete by offering the most seamless, reliable, and cost-effective sponsored transaction APIs for developers to adopt.
The subsidy model inverts traditional economics. Instead of users paying for gas, wallets or dApps prepay for a pool of transactions. This creates a two-sided marketplace where wallet market share depends on attracting dApp integrations, not end-users directly. The war is funded by venture capital and token treasuries.
ERC-4337 Account Abstraction is the enabler, not the differentiator. The standard provides the technical rails, but the business logic of sponsorship—who pays, how rates are set, and how bundles are prioritized—is where wallets compete. Success requires deep integrations with paymasters like Stackup, Biconomy, and Alchemy.
Evidence: Coinbase's 'Base Gasless' campaign subsidized millions in fees to onboard dApps. Phantom's sponsorship on Solana drove a 40% increase in transaction volume from integrated applications within two months. The metric that matters is dApp integration count, not monthly active users.
DAPP ECONOMIC MODELS
The Subsidy Spectrum: From Acquisition to Retention
A comparison of transaction sponsorship models, mapping subsidy strategies to specific user lifecycle stages and business outcomes.
| Economic Metric / Capability | Paymaster Abstraction (Acquisition) | Session Keys (Engagement) | Account Abstraction Wallets (Retention) |
|---|---|---|---|
Primary Use Case | First-time user onboarding & gasless trial | Batch operations in gaming/DeFi sessions | Recurring subscriptions & automated payments |
User Pays Gas? | User or dApp (programmable) | ||
Typical Subsidy Cost per User | $0.10 - $0.50 | $1 - $5 (session) | $0.01 - $0.10 (recurring tx) |
Technical Implementation | ERC-4337 Paymaster, Gelato Relay | ERC-4337 Session Keys, ZeroDev | ERC-4337 Smart Accounts (Safe, Biconomy) |
Retroactive Fee Recovery | |||
Key Protocol Examples | Base, Polygon, Uniswap via Biconomy | Starknet dApps, Matchbox (Starkware) | Safe{Core}, Circle's Gas Station |
Lifetime Value (LTV) Focus | User Acquisition Cost (CAC payback) | Increasing Average Revenue Per User (ARPU) | Reducing Churn, Maximizing Retention |
deep-dive
THE PAYMASTER PRIMITIVE
Redesigning Tokenomics for a Gas-First World
Sponsored transactions shift the economic burden from users to applications, forcing a fundamental redesign of dApp token utility and user acquisition.
Gas sponsorship is user acquisition. The paymaster primitive transforms gas from a user tax into a dApp's customer acquisition cost (CAC). Protocols like EIP-4337 Account Abstraction and Polygon's Gas Station enable this, allowing dApps to subsidize onboarding for specific actions, directly linking token spend to measurable growth.
Token utility shifts to subsidization. Native tokens must now function as gas credits, not just governance slips. A token's value accrual depends on its ability to efficiently fund user transactions, creating a direct feedback loop where protocol revenue funds user growth. This model is proven by Starknet's fee market and zkSync's native account abstraction.
The counter-intuitive insight is that subsidizing gas increases net revenue. Absorbing a user's $0.10 gas fee to secure a $50 swap fee is rational. This turns MEV capture and protocol fees into the funding source for sponsored flows, a strategy central to UniswapX and CowSwap's intent-based architecture.
Evidence: 90% of Polygon zkEVM transactions use a paymaster. This metric from Polygon's deployment proves developers prioritize user experience over nominal fee revenue. The winning dApp tokenomics model will treat gas not as revenue, but as the core operational expense for growth.
risk-analysis
ECONOMIC FRAGILITY
The Bear Case: When Subsidies Fail
Sponsored transactions shift gas costs from users to dApps, but this model introduces new systemic risks and perverse incentives.
01
The Liquidity Siphon
Subsidy wars between dApps drain protocol treasuries without creating sustainable value. This is a race to the bottom where only the best-funded survive, not the best product.
- Treasury Drain: A top-tier dApp could burn $1M+ monthly on gas subsidies.
- Winner-Take-Most: Creates a moat for VCs and whales, stifling innovation.
- Value Extraction: Fees flow to validators/L1s, not back to the dApp's own token holders.
$1M+
Monthly Burn
0%
User Loyalty
02
The MEV Backdoor
Paymasters bundling user transactions become prime targets for maximal extractable value. This centralizes ordering power and can negate user privacy guarantees.
- Bundling Risk: A single paymaster controlling flow is a single point of failure for censorship and frontrunning.
- Privacy Illusion: While abstracting gas, the sponsor sees all transactions, creating data asymmetry.
- Architectural Debt: Contradicts the decentralized ethos, recreating the broker/dealer model from TradFi.
1
Point of Failure
100%
Tx Visibility
03
The Adoption Trap
Heavily subsidized onboarding creates users with no price sensitivity, who churn the moment subsidies end. This fails to build a real economic moat.
- False Growth: >90% churn rates are likely when free gas ends, as seen in Web2 coupon campaigns.
- No Sunk Cost: Users have no skin in the game; switching cost is zero.
- Protocol Capture: dApps become hostage to their own subsidy programs, unable to monetize.
90%+
Expected Churn
$0
Switching Cost
04
The Solution: Programmable Subsidies
The future is conditional, intent-based sponsorship via smart accounts and paymasters like Biconomy and Safe{Wallet}. Subsidies become a strategic tool, not a blunt instrument.
- Conditional Logic: Only pay for first-time users, high-value actions, or specific on-ramp flows.
- Intent-Based: Integrate with solvers like UniswapX and CowSwap to subsidize only the net outcome.
- Sustainable Sourcing: Fund subsidies via protocol revenue or partner staking, not treasury dilution.
-70%
Subsidy Waste
LTV/CAC
Positive Ratio
future-outlook
THE NEW STACK
The Endgame: Protocol-Owned Liquidity Meets Protocol-Owned Gas
Sponsored transactions enable a unified economic model where protocols own both user access and the liquidity they route to.
Protocol-Owned Liquidity (POL) is incomplete. Projects like OlympusDAO and Frax Finance pioneered treasury-owned assets, but they still cede user onboarding to wallet gas balances. Sponsored transactions complete the stack by enabling protocol-owned gas, removing the final user-side friction.
The new dApp is a self-contained economy. A protocol like Uniswap or Aave can now fund gas for swaps/borrows via a paymaster contract, directly capturing the full user journey. This mirrors how intent-based architectures (UniswapX, CowSwap) abstract execution but applies it to the base layer.
This shifts competition to subsidy efficiency. Protocols will compete on gas optimization algorithms and L2 partnerships, not just yield. The winning model subsidizes only profitable actions, turning gas costs into a customer acquisition cost with measurable LTV.
Evidence: Arbitrum’s permissionless gas sponsorship, used by Galxe and LayerZero, processed over 50 million sponsored transactions, proving users adopt apps that remove gas friction entirely.
takeaways
DAPP ECONOMICS
TL;DR for Builders
Sponsored transactions shift the gas cost burden from users to dApps, unlocking new growth vectors and user experiences.
01
The Problem: The Friction Tax
Every new user is a liquidity event. The need to acquire native tokens for gas creates a ~$50+ onboarding tax and kills conversion. This is the primary bottleneck for mainstream adoption, blocking the next 100M users.\n- Abandonment rates can exceed 90% at the wallet funding step.\n- User acquisition cost (CAC) becomes untenable for non-financial dApps.
90%+
Drop-off
$50+
Onboarding Tax
02
The Solution: Paymaster-as-a-Service
Abstract gas entirely. Services like Stackup, Biconomy, and Alchemy's Gas Manager let dApps sponsor transactions via ERC-4337 Account Abstraction. This turns gas into a controllable marketing expense.\n- Sponsor first 10 transactions to hook users.\n- Implement conditional logic (e.g., free swaps under $100).\n- Pay in any ERC-20 token via gasless relayers.
10x
Better Conversion
$0
User Gas Cost
03
The New Growth Loop: Subsidized Liquidity
Treat gas sponsorship as a liquidity mining incentive. Protocols like Uniswap and Aave can subsidize user actions that increase TVL and fee generation, creating a self-funding flywheel.\n- Subsidize margin openings to boost protocol revenue.\n- Waive fees for LPs to deepen pools.\n- ROI is measurable: Compare sponsorship cost to lifetime value (LTV) of acquired TVL.
LTV > CAC
Positive ROI
20-30%
TVL Growth
04
The Risk: Centralized Relayer Points
Most paymaster services rely on centralized relayers to broadcast sponsored transactions, creating a single point of failure and censorship. This reintroduces the trusted intermediaries crypto aimed to eliminate.\n- Relayer downtime halts your dApp.\n- Censorship risk if relayers blacklist addresses.\n- Solution: Use decentralized relay networks or EigenLayer AVS for relay security.
1
Failure Point
~99.9%
Uptime SLA
05
The Architecture: Intent-Based Abstraction
The endgame is moving beyond simple gas sponsorship to declarative intents. Systems like UniswapX, CowSwap, and Across let users sign a desired outcome (e.g., 'get me 1 ETH'), while solvers compete to fulfill it optimally.\n- Better execution via solver competition.\n- Maximal MEV extraction returned to the user/dApp.\n- Native cross-chain swaps without bridging.
5-10%
Better Price
0
Slippage
06
The Metric: Cost-Per-Onchain-Action (CPOA)
Forget CAC. The new core metric is CPOA: the fully-loaded cost to get a user to perform a valuable on-chain action. Track it against the Action LTV. This reframes marketing spend.\n- Benchmark CPOA across verticals (DeFi, Gaming, Social).\n- Optimize sponsorship rules to minimize CPOA.\n- A/B test gas policies like a landing page.
$0.10 - $5.00
CPOA Range
Key KPI
For Growth
ENQUIRY
Get In Touch
today.
Our experts will offer a free quote and a 30min call to discuss your project.
NDA Protected
Confidentiality24h Response
Time to ValueDirectly to Engineering Team
No Sales Fluff10+
Protocols Shipped
$20M+
TVL Overall