Payment decoupling creates attack surfaces. When a sponsor pays the gas fee, the user's signature no longer protects against front-running or censorship. This separation enables sponsor-level MEV extraction, where the entity controlling the block space can reorder or drop transactions for profit.
wallet-wars-smart-accounts-vs-embedded-wallets
Blog
Why Transaction Sponsorship Creates New Attack Vectors
Paymasters are the killer feature of smart accounts, but they introduce a new attack surface: relay-level MEV, subsidy drain, and griefing vectors. This is the security manual for the next wallet war.
introduction
THE VULNERABILITY
Introduction
Transaction sponsorship, a core primitive for user onboarding, systematically introduces new MEV and security risks by decoupling transaction payment from authorization.
The sponsor is the new validator. In a sponsored flow, the economic security model shifts from the user's wallet to the sponsor's infrastructure. Protocols like Biconomy and Gelato become de-facto centralized sequencers, creating single points of failure and censorship.
Intent-based architectures amplify risk. Frameworks like UniswapX and CowSwap abstract execution further, relying on solvers. This creates a principal-agent problem where the solver's profit motive directly conflicts with the user's optimal outcome.
Evidence: The 2023 MEV-Boost relay attack demonstrated that centralized intermediaries controlling transaction flow can extract value and destabilize settlement, a model directly replicated by permissioned sponsorship pools.
thesis-statement
THE VULNERABILITY
The Core Argument
Transaction sponsorship introduces systemic risk by decoupling transaction execution from payment, creating new MEV and censorship vectors.
Sponsorship decouples execution from payment. This breaks the fundamental user-pays-for-computation model, creating a principal-agent problem where the sponsor's incentives dictate transaction ordering and inclusion.
This creates new MEV extraction surfaces. Sponsors like Pimlico or Biconomy become centralized sequencing points, enabling sandwich attacks and frontrunning on a protocol level, not just a block level.
It enables sophisticated censorship. A dominant sponsor like Ethereum's PBS builders can blacklist addresses or dApps by refusing to subsidize their transactions, bypassing decentralized validator sets.
Evidence: The EIP-4337 bundler market is already centralizing, with a few entities controlling most user operations, demonstrating the inherent centralizing pressure of sponsorship models.
key-trends
WHY SPONSORSHIP IS A DOUBLE-EDGED SWORD
The New Attack Surface: Three Vectors
Transaction sponsorship outsources gas and execution, creating new trust assumptions and failure points that didn't exist in the standard user-pays model.
01
The MEV Cartel's New Playground
Sponsorship concentrates transaction flow through a few relayers, creating a new centralization point ripe for exploitation. This enables censorship and value extraction at a network level, not just block level.
- Relayer Cartels: Can blacklist addresses or censor transactions by refusing to sponsor them.
- Enhanced MEV: Sponsors can front-run, sandwich, or reorder user intents before they hit the public mempool, capturing more value than traditional searchers.
- Example: A dominant ERC-4337 bundler or UniswapX filler becomes a mandatory, extractive gateway.
>60%
Relayer Dominance
$1B+
Annual MEV Risk
02
The Liveness Oracle Problem
User experience depends entirely on the sponsor's liveness. If the sponsor fails, the user's transaction is dead. This creates a single point of failure for entire application flows.
- Dependency Risk: DApps like Safe{Wallet} or Across Protocol become hostage to their chosen sponsor's uptime.
- No Fallback: Unlike a standard wallet where a user can simply increase gas, a sponsored tx has no user-controlled retry mechanism.
- Systemic Risk: A bug or attack on a major sponsor (e.g., Pimlico, Biconomy) could freeze thousands of pending intents simultaneously.
99.9%
Required Uptime
0s
User Recourse
03
Sovereignty & Protocol Capture
Sponsors become de facto protocol governors. They decide which transactions are economically viable, effectively setting policy for what can exist on-chain. This is regulatory capture by infrastructure.
- Policy Enforcement: A sponsor can refuse to process transactions for certain dApps or token types, acting as a regulator.
- Economic Censorship: They can impose arbitrary surcharges or minimum profit thresholds, making small-value transactions impossible.
- Architectural Lock-in: Protocols like LayerZero or Circle's CCTP that integrate sponsorship create vendor lock-in, reducing ecosystem composability and resilience.
1-of-N
Trust Assumption
Protocol Risk
New Attack Vector
TRANSACTION SPONSORSHIP IMPACT
Attack Vector Comparison: EOAs vs. Smart Accounts
Analyzes how the core abstraction of transaction sponsorship, a key feature of smart accounts, fundamentally alters the security landscape compared to Externally Owned Accounts (EOAs).
| Attack Vector / Metric | EOA (Externally Owned Account) | Smart Account (ERC-4337 / ERC-7579) | Mitigation Status |
|---|---|---|---|
Initial Trust Assumption | User's private key only | User + Bundler + Paymaster + EntryPoint contract | Inherently higher |
Paymaster Malicious Drain | Not applicable | Paymaster can front-run & drain funds via custom logic | UserOp validation & reputation systems |
Bundler Censorship | Miner/Validator only | Bundler can censor, reorder, or drop UserOperations | Permissionless bundler pools & p2p mempools |
Signature Verification Complexity | Single ECDSA secp256k1 | Multi-sig, social recovery, session keys increase attack surface | Formal verification of Account logic |
Gas Sponsorship Phishing | Not applicable | User lured to sign UserOp for 'free' tx that drains assets | User education & explicit sponsorship limits |
EntryPoint Contract Risk | Not applicable | Centralized upgradeability risk; bug could compromise all accounts | Immutable EntryPoint or robust governance (e.g., Safe{Core}) |
Average Time to Detect Compromise | Indefinite (until funds move) | < 24 hours (via social recovery alerts) | Active monitoring required |
Protocols Most Exposed | All | UniswapX, Across, layerzero (via sponsored gas) | Integrated paymaster audits |
deep-dive
THE VULNERABILITY
Anatomy of a Subsidy Drain Attack
Transaction sponsorship introduces a critical attack vector where malicious actors exploit subsidized gas to drain protocol incentives.
The subsidy is the target. Attackers use sponsored transactions to interact with protocols offering yield or rewards, paying zero gas while siphoning value. The sponsor's wallet funds the attack.
MEV bots are the primary vector. These automated systems scan for profitable subsidy opportunities, executing complex multi-step transactions via Flashbots bundles or Eden Network to maximize extraction before human users.
The attack pattern is standardized. Bots front-run legitimate users to claim Uniswap LP incentives or Aave liquidity mining rewards, converting them to a base asset in the same atomic transaction.
Evidence: Arbitrum's Odyssey event. Airdrop farmers spammed the network with sponsored mint transactions, congesting the chain and demonstrating how free gas creates perverse incentives that degrade network utility for all users.
protocol-spotlight
SECURING THE SPONSORED FUTURE
How Leading Protocols Are Responding
Transaction sponsorship introduces systemic risks; here's how top-tier protocols are architecting defenses.
01
The Problem: MEV Extraction via Sponsored Bundles
A malicious sponsor can front-run or sandwich user transactions they pay for, stealing value. This is a fundamental conflict of interest.
- Attack Vector: Sponsor acts as a centralized sequencer with perfect transaction visibility.
- Impact: Can extract >90% of potential user MEV in a naive implementation.
- Protocols at Risk: Any DEX or lending market using simple fee abstraction.
>90%
MEV Risk
1-of-N
Trust Model
02
The Solution: SUAVE by Flashbots
Decouples transaction ordering from execution, creating a neutral marketplace for block building. Sponsors compete in a sealed-bid auction.
- Core Mechanism: Users send encrypted intents to the SUAVE mempool; builders cannot see contents until after bidding.
- Key Benefit: Prevents sponsor-led front-running by design.
- Ecosystem Role: Aims to be a universal pre-confirmation layer for all chains.
Sealed-Bid
Auction
Cross-Chain
Scope
03
The Problem: Sybil & Spam Attacks
Free transactions invite spam, bloating the mempool and creating denial-of-service vectors. A sponsor's credit line becomes a target.
- Attack Vector: An attacker creates thousands of worthless sponsored transactions.
- Impact: Can increase base fee by 1000%+ for all users, negating sponsorship benefits.
- Protocols at Risk: EIP-4337 Account Abstraction bundlers and Polygon AggLayer.
1000%+
Fee Spike
EIP-4337
At Risk
04
The Solution: Starknet's Account Abstraction Model
Implements strict validation rules and rate-limiting at the protocol level before a sponsor pays. Treats the sponsor as a protected resource.
- Core Mechanism: Paymaster logic must validate a transaction's purpose before sponsoring.
- Key Benefit: Prevents infinite mint or spam loops by design.
- Ecosystem Role: Pioneering session keys for granular, time-bound sponsorship permissions.
Paymaster
Validation
Session Keys
Granularity
05
The Problem: Censorship & Centralization
A dominant sponsor (e.g., a wallet or dApp) becomes a centralized gatekeeper, able to blacklist addresses or transactions.
- Attack Vector: Sponsor refuses to process transactions to certain protocols or from flagged addresses.
- Impact: Recreates the banking exclusion problem on-chain.
- Protocols Enabling This: Any system with a single, whitelisted sponsor like some ERC-4337 bundler services.
1 Entity
Gatekeeper Risk
ERC-4337
Context
06
The Solution: CowSwap & UniswapX's Intents
Shifts from transaction execution to intent expression. Users specify an outcome; a decentralized network of solvers competes to fulfill it best.
- Core Mechanism: Sponsorship (fee payment) is bundled into the solver's reward for finding optimal execution.
- Key Benefit: Eliminates sponsor-level censorship; user gets the best path from an open market.
- Ecosystem Role: Intent-based architectures (see Across, Anoma) make sponsorship a competitive service, not a privilege.
Solver Network
Decentralized
Intent-Based
Paradigm
counter-argument
THE VULNERABILITY EXPANSION
The Optimist's Rebuttal (And Why It's Wrong)
Transaction sponsorship introduces systemic risks that undermine its user experience benefits.
Sponsorship centralizes trust in relayers, creating a new class of privileged intermediaries. Users delegate transaction construction and fee payment, reintroducing the custodial risk that account abstraction aims to eliminate.
Relayer censorship becomes trivial as these entities gain the power to filter or reorder transactions. This creates a vector for MEV extraction and regulatory compliance overreach, subverting network neutrality.
Standardized interfaces like ERC-4337 expose new attack surfaces. Malicious bundlers can front-run user operations or drain wallets through signature replay if validation logic is flawed.
Evidence: The 2023 WalletConnect phishing attack exploited a similar delegation model, draining millions by tricking users into signing malicious transactions for sponsored gas.
takeaways
ATTACK SURFACE ANALYSIS
TL;DR for Builders
Transaction sponsorship, while boosting UX, introduces systemic risks by decoupling payment from execution.
01
The MEV Cartel Problem
Sponsorship concentrates transaction ordering power. Builders and searchers can form cartels, using sponsored bundles to front-run and sandwich user transactions with impunity, as they bear no gas cost for the attack.
- Key Risk: Centralization of block building power.
- Key Metric: Top 3 builders control ~80% of sponsored blocks on major chains.
~80%
Market Share
0 Gas
Attack Cost
02
Resource Exhaustion & Spam
Free transactions remove the primary sybil resistance mechanism. Malicious actors can spam the mempool with sponsored junk, creating denial-of-service conditions for legitimate users and bloating chain state.
- Key Risk: Network congestion and state growth.
- Key Mitigation: Requires robust proof-of-work or stake at the application layer (e.g., Worldcoin proof-of-personhood).
100k+
Spam TPS
$0
Spam Cost
03
The Subsidy Rug Pull
Protocols like Pimlico and Biconomy subsidize gas to acquire users. When subsidies end or funds run dry, user transactions fail, breaking app functionality. This creates fragile, temporary ecosystems.
- Key Risk: User experience cliff and protocol insolvency.
- Key Metric: $50M+ in venture capital currently funding temporary gas abstractions.
$50M+
At Risk
100%
Failure Rate
04
Intent-Based Wrapping
Sponsorship enables intent-based architectures (e.g., UniswapX, CowSwap). Users sign intents, not transactions, ceding control to solvers. A malicious or compromised solver can steal funds while the user pays nothing, creating a false sense of security.
- Key Risk: Solver trust assumption and malicious fulfillment.
- Key Entity: Relies on solvers from Across, 1inch, LI.FI.
~500ms
Solver Window
High
Trust Required
05
Cross-Chain Bridge Poisoning
Sponsored gas on a destination chain (e.g., via LayerZero's OFT or Circle's CCTP) allows an attacker to fund malicious payloads. They can drain a bridge's liquidity on the target chain for the cost of gas on the source chain, a massive arbitrage.
- Key Risk: Asymmetric attack cost vs. bridge TVL.
- Key Metric: $10B+ in cross-chain TVL exposed to sponsored relay risks.
$10B+
TVL Exposed
Asymmetric
Attack Cost
06
The Verifier's Dilemma
With sponsored transactions, the entity verifying computational integrity (e.g., a zk-rollup sequencer) is not the one paying for it. This misalignment can lead to under-investment in security, allowing invalid state transitions if verification costs are high.
- Key Risk: Weakened cryptographic security guarantees.
- Key Entity: Impacts zkSync, Starknet, Polygon zkEVM rollup economics.
High
Verification Cost
Low
Payer Incentive
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Protocols Shipped
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