Why Gasless Transactions Are a Subsidy Bubble

Gasless transactions are a subsidy. Protocols like Biconomy and Gelato abstract gas fees to onboard users, but the underlying network fee is still paid by a centralized relayer, creating a hidden cost center.

This model inverts blockchain economics. Users are shielded from market signals (gas price), which distorts demand and encourages spam. The paymaster model externalizes costs to VCs or token treasuries, not the end-user.

The bubble bursts when subsidies end. Projects like Polygon initially offered gasless minting to drive adoption; activity collapsed when free transactions stopped. This is a customer acquisition cost, not a protocol feature.

Evidence: An analysis of ERC-4337 bundler economics shows relayer profitability requires >$0.10 per user op at scale. Current zero-gas implementations operate at a 90% loss, funded by token emissions.

Gas sponsorship is a CAC. Protocols like Biconomy and Gelato abstract gas fees to onboard users, but this is a marketing expense, not a technical breakthrough. The cost is merely shifted from the user to the protocol's treasury, creating a hidden liability.

This model distorts product-market fit. Users engage with dApps because transactions are free, not because the product is superior. This creates a false-positive signal for growth, similar to early DeFi yield farming incentives that masked real usage.

The subsidy is unsustainable at scale. As transaction volume grows, the protocol's gas bill scales linearly. No protocol, not even those backed by a16z or Paradigm, possesses infinite capital to fund this perpetual subsidy for millions of users.

Evidence: Layer-2 networks like Arbitrum and Optimism initially sponsored gas to bootstrap activity. Their programs were temporary and have largely sunset, proving the model is a tactical growth hack, not a permanent feature of the stack.

Gasless transactions are a subsidy. Protocols like Biconomy and Etherspot abstract gas by paying for it themselves, creating a user acquisition cost that scales linearly with usage. This model is a marketing expense, not a protocol-level innovation.

The subsidy creates economic misalignment. The entity funding the gas (the 'sponsor') bears all cost volatility, while users and dApps receive a free ride. This centralizes risk and creates a single point of financial failure, mirroring the flaws of early cloud computing credits.

Sustainable abstraction requires cost internalization. The endgame is account abstraction (ERC-4337) and Paymasters that enable dApps to programmatically sponsor user ops from their own revenue streams. This shifts the cost from venture capital subsidies to sustainable business logic.

Evidence: The 2022-23 bear market saw multiple 'gasless' services deprioritized or shut down as VC funding dried up, proving the model's dependency on external capital rather than protocol-generated fees.

Gasless transactions are a subsidy. Protocols like Biconomy and OpenZeppelin's Defender relay user transactions, paying the gas fee themselves to create a 'free' user experience. This is a customer acquisition cost, not a technical breakthrough.

This creates a misaligned incentive. The protocol subsidizes spam and inefficiency, while users develop expectations that are economically impossible for public blockchains. It's the Web2 'free tier' model applied to a system with hard, per-op costs.

The endgame is fee abstraction, not elimination. Solutions like EIP-4337 (Account Abstraction) and ERC-4337 Bundlers shift who pays and how, but the gas cost remains. The sustainable model is sponsorship (e.g., a dApp pays for its users) or paymasters using stablecoins.

Evidence: Major L2s like Arbitrum and Optimism have multi-million dollar subsidy programs for new users. When Polygon's gasless relayer scaled, its monthly relay costs hit seven figures, forcing a strategic pivot.

Gasless UX is subsidized. Users do not pay; protocols like Biconomy and Gelato pay the gas on their behalf. This cost is covered by protocol treasuries, which are funded by inflationary token emissions or venture capital, not sustainable revenue.

The subsidy creates false demand. Projects like Pimlico and ZeroDev measure success by transaction volume, but this volume evaporates when subsidies end. This distorts metrics for VCs and creates a Ponzi-like dependency on new user inflows.

Sequencer profits are the real engine. On L2s like Arbitrum and Optimism, the sequencer captures MEV and transaction ordering rights. Protocols use these future profit projections to justify current subsidies, a model that fails if rollup competition intensifies.

Evidence: The 2023 dYdX v3 to v4 migration showed a 90%+ drop in activity when its gas subsidy program ended, proving the activity was subsidy-driven, not organic.