The Future of On-Chain Advertising: Paymasters as the New Ad Network

Today's dApps monetize via protocol fees or MEV, not user attention. Acquiring users is a pure cost center with no direct on-chain revenue attribution. This misalignment stifles sustainable growth.

• Acquisition Cost: L1/L2 user acquisition can cost $50-$500+.
• Revenue Leak: User's first transaction is often a bridge-out to another chain.
• Zero Attribution: Marketers can't track on-chain funnel efficiency.

Paymasters allow sponsors (dApps, protocols, brands) to pay gas fees for users. Each sponsored tx is a targeted, performance-based ad impression settled on-chain.

• Performance-Based: Advertiser only pays if the user completes the specific, sponsored action.
• Full Funnel Data: On-chain settlement provides perfect attribution from ad view to conversion.
• Native Integration: Becomes a core primitive in wallets (like Safe{Wallet}) and SDKs (like Biconomy, Stackup).

The real value accrues to the routing layer. Users express intents (e.g., 'swap X for Y'), and solvers compete to fulfill them, bundling sponsored transactions to subsidize cost.

• Market Dynamics: Similar to UniswapX or CowSwap but for general tx flow.
• Key Players: Infrastructure like Stackup, Biconomy, Candide become the new ad exchanges.
• Monetization: Solvers extract value via sponsor fees and MEV, sharing savings with users.

On-chain ads risk creating a public surveillance nightmare. The winning solution will use zero-knowledge proofs to enable private, compliant targeting.

• zk-Proofs: Prove user is in a target segment (e.g., 'Uniswap LP') without revealing identity.
• Regulatory Shield: Enables compliance (e.g., KYC'd users only) without leaking data.
• Competitive Edge: Protocols like Aztec, Espresso Systems could provide the infrastructure.

Smart accounts like Safe{Wallet} and Biconomy embed paymaster logic directly, making sponsored transactions a native user experience. They control the client and can route demand.

• Direct Demand Aggregation: Control the user's transaction flow and sponsorship decisions.
• Bundling Power: Can batch sponsored user ops for efficiency, similar to EIP-4337 bundlers.
• First-Party Data: Own the user relationship, enabling precise, permissioned ad targeting.

Protocols like Ethereum's Pimlico and Stackup operate as neutral paymaster networks. They don't own wallets but provide the routing and auction infrastructure for sponsors.

• Intent-Based Routing: Automatically finds the optimal sponsor (advertiser) for a user's transaction, maximizing subsidy.
• Liquidity Network: Aggregate sponsor capital across multiple chains and dApps.
• Fee Market Dynamics: Introduce competition among sponsors, driving down effective costs for users and dApps.

Major dApps like Uniswap (via UniswapX) and Base (with its native paymaster) are building their own sponsorship rails. They monetize their own traffic and user intent.

• Captive Audience: Direct access to high-intent, in-protocol user actions (e.g., swaps, mints).
• Intent Fulfillment: Sponsor fees can be baked into the core product mechanics (e.g., better swap rates).
• Walled Garden Risk: Creates vertically integrated ad ecosystems that could fragment liquidity, reminiscent of Google and Facebook.

Networks like Aztec and Espresso Systems are building paymaster services for private transactions. This enables sponsored transactions without exposing user data or on-chain patterns.

• Programmable Privacy: Sponsors can pay for batches of private transactions without seeing underlying details.
• Regulatory Arbitrage: Enables compliant advertising subsidies in jurisdictions with strict data laws.
• Technical Moats: Heavy cryptography (ZKPs) creates significant barriers to entry for general-purpose players.

Paymasters like Stackup, Biconomy, and Ethereum's P4337 become mandatory intermediaries. They can censor transactions, enforce KYC, and create walled gardens by subsidizing only specific dApps (e.g., Uniswap) or chains (e.g., Arbitrum).

• Centralized Relays: Most rely on centralized relayers for speed, creating single points of failure.
• Whitelist Power: They decide which contracts and users get sponsored, dictating on-chain flow.

Paymasters see the full intent of every sponsored transaction before it hits the public mempool. This creates a privileged MEV extraction position far beyond public searchers.

• Frontrunning Goldmine: They can front-run user swaps on Uniswap or liquidations on Aave.
• Data Monetization: User transaction graphs become a product, sold to data aggregators like Nansen or Dune Analytics.

Advertisers pay paymasters to target users, creating a toll booth economy. The value flow bypasses the user and the underlying chain, accruing to the ad-tech middleman.

• Gas Auction Dynamics: Paymasters could auction subsidy slots to the highest-bidding dApp, raising costs for all.
• Protocol Revenue Drain: Fees that could go to L2 sequencers (e.g., Optimism, Base) or Ethereum validators are diverted.

Mitigate centralization by creating permissionless networks of paymaster operators, similar to DVT for validators. Users or dApps can choose pools based on policies.

• Staking Slashing: Operators are slashed for censorship or MEV theft.
• Redundant Relays: Leverage decentralized relay networks like SUAVE or Flashbots Protect.

Move from transparent transaction sponsorship to private intent fulfillment. Users submit signed intents (e.g., "swap X for Y") to a network like UniswapX or CowSwap, which are then fulfilled by a decentralized solver network.

• MEV Resistance: Solvers compete on price, not priority gas auctions.
• User Sovereignty: The paymaster/solver never sees a rejectable transaction, only a final settlement.

Base-layer protocols like Ethereum or L2s must implement rules to prevent capture. This could include mandating open sponsorship markets or taking a protocol fee on paymaster revenue.

• Anti-Discrimination: Mandate that paymasters cannot discriminate based on contract address.
• Revenue Sharing: Enforce a split of ad revenue with the public goods fund of the underlying chain.