Conditional Sponsorship

The core mechanism uses smart contracts to encode specific, measurable conditions that must be met before funds are disbursed. Common triggers include:

• Milestone Completion: Reaching a specific TVL, user count, or transaction volume.
• Technical Achievement: Successfully passing a security audit or achieving mainnet launch.
• Governance Outcome: A successful on-chain vote from the sponsor's community or DAO.
• Time-Based Vesting: A hybrid model where funds unlock over time, contingent on continued performance metrics.

Sponsor capital is held in a smart contract escrow, not by the recipient. This creates a trust-minimized structure where:

• Funds are secured: Capital is immutable and cannot be accessed by either party until conditions are met.
• Transparency is enforced: The escrow contract's state and balance are publicly verifiable on-chain.
• Automated execution: Upon condition fulfillment, the release is permissionless and automatic, removing manual processes and counterparty risk.

Conditions are not based on subjective reports but on objective, on-chain data. The system relies on oracles (like Chainlink) or direct state proofs to verify outcomes.

Example: A condition might require "Protocol X achieves $10M in Total Value Locked (TVL)." An oracle or a verifiable query to the protocol's smart contracts provides the proof, which the escrow contract validates before releasing funds.

This model aligns incentives between sponsors (investors, grants DAOs) and builders by de-risking the funding process.

• For Sponsors: Capital is protected and only deployed upon proven traction or delivery, reducing the risk of funding underperforming projects.
• For Builders: Provides a credible commitment of future capital, which can be used to signal legitimacy and plan development roadmaps with certainty.
• For the Ecosystem: Promotes accountable growth by tying capital influx to tangible, measurable outcomes.

Escrowed capital is not idle; it can be integrated with DeFi to generate yield or provide liquidity while awaiting condition fulfillment.

Potential integrations include:

• Yield-Generating Strategies: Depositing funds into lending protocols (Aave, Compound) or stablecoin pools.
• Liquidity Provision: Supplying liquidity to DEX pools, with the generated fees accruing to the sponsor or being shared with the recipient.
• This turns escrowed capital from a sunk cost into a productive asset, improving capital efficiency for all parties.

DApps can sponsor gas fees for new users, removing the initial requirement to hold native tokens. This is critical for:

• Fiat-on-ramp flows where a user buys an app-specific token but has no ETH for gas.
• Social logins or account abstraction wallets where the user's first interaction is gasless.
• Promotional campaigns offering free mints or trial transactions.

Protocols can subsidize specific actions to improve capital efficiency and user experience.

• Liquidity provisioning: A DEX sponsors the gas for adding liquidity to a new pool.
• Limit order execution: A protocol pays the gas for executing a profitable limit order on behalf of a user.
• Debt repayment: A lending protocol sponsors the gas for a user to repay a position nearing liquidation, protecting the health of the protocol.

Paymasters (ERC-4337) are smart accounts that implement conditional sponsorship logic. Common patterns include:

• Fee payment in ERC-20 tokens: Users pay fees in USDC or the app's token, while the paymaster converts and pays the network in ETH.
• Sponsored transaction bundles: A relayer (bundler) submits a batch of user operations, with a paymaster contract sponsoring the fees for the entire bundle based on a whitelist or stake.

Sponsorship is gated by on-chain or off-chain conditions for regulatory or security purposes.

• KYC-gated actions: A sponsor only pays for transactions from verified identities (e.g., via a zero-knowledge proof).
• Geofencing: Sponsorship is enabled only for users in permitted jurisdictions.
• Anti-sybil measures: Rules limit sponsored transactions per wallet or require a minimum token balance to prevent spam.

Conditional sponsorship is a foundational primitive for appchains and Layer 2 rollups seeking to offer a seamless user experience.

• Fixed-cost economics: An appchain can sponsor all gas, baking the cost into its business model.
• Developer subsidies: A rollup's sequencer sponsors gas for contracts in its ecosystem to encourage development.
• Cross-chain sponsorship: A sponsor on Ethereum Mainnet can pay for a user's gas on an affiliated Layer 2 via a unified paymaster system.

Often used interchangeably with conditional sponsorship, a gasless transaction is a user experience where the end-user does not pay gas fees. Technically, this is achieved through:

• Meta-transactions: A user signs a message, a relayer submits it and pays the fee.
• Sponsored Transaction Types: Native support on chains like Starknet (sponsored transaction flag) or Solana (priority fee sponsored by another account).
• The key distinction is that conditional sponsorship defines the rules under which a third party pays.

A Conditional Sponsorship is a smart contract or protocol-level rule where a sponsor's funds are escrowed to cover gas fees for transactions that satisfy a verifiable condition. The transaction is only executed (and fees paid) if the condition passes; otherwise, it reverts at no cost to the user or sponsor. This is distinct from general fee abstraction, as it is predicate-based.

• Onboarding & Promotions: Sponsoring gas for first-time users or specific promotional actions (e.g., first NFT mint).
• Session Keys: Sponsoring all transactions within a gaming or dApp session that meet gameplay rules.
• Compliance & Security: Only sponsoring transactions that pass KYC checks or originate from a verified device.
• Protocol Incentives: Paying fees for users who provide liquidity or perform other protocol-beneficial actions.

Implementation often relies on a paymaster contract in account abstraction (ERC-4337) or similar systems. The sponsor deploys a contract with the business logic defining the sponsorship condition. When a user submits a transaction, the EntryPoint or relayer validates it against the sponsor's contract. If the condition (e.g., userIsWhitelisted or txIsFirstOfSession) returns true, the sponsor's staked funds pay the fee.

• ERC-4337 (Account Abstraction): The standard framework enabling paymaster contracts for conditional fee sponsorship.
• Stackup, Biconomy, Candide: Infrastructure providers offering managed paymaster services with conditional logic.
• Polygon's Gasless Transactions: Early example of sponsored transactions, often with conditions like whitelisted dApps.
• zkSync Era & Starknet: Native account abstraction architectures with built-in support for paymaster-conditioned fee payment.

• User Experience: Removes the friction of needing native tokens for gas, crucial for onboarding.
• Developer Flexibility: Allows dApps to design complex business models around who pays for transactions and when.
• Cost Control for Sponsors: Sponsors only pay for transactions that deliver verified value, preventing abuse.
• Interoperability: When standardized (e.g., via ERC-4337), it works across different wallets and frontends.

• Sponsor Risk: Poorly designed conditions can lead to financial drain or exploitation.
• Centralization Pressure: Reliance on a few sponsor services could create central points of failure.
• Protocol Support: Not all L1s or L2s natively support the required account abstraction features.
• Condition Verifiability: Conditions must be efficiently verifiable on-chain, limiting complexity to prevent high gas overhead for validation.

A sponsor pre-signs a transaction or a meta-transaction that pays fees on behalf of a user's operation. The sponsorship is only valid if the transaction's execution satisfies a verifiable condition, such as a successful token swap above a minimum output or a specific state change in a smart contract. This is enforced by the sponsor's validation logic, often deployed as a verifying contract.

The most common application is protecting users from paying for failed transactions. A sponsor agrees to pay gas only if the user's intended action (e.g., a DEX swap) succeeds. If it reverts due to slippage, insufficient liquidity, or other on-chain conditions, the sponsor's commitment is invalidated and the user pays no fees. This improves the user experience for DeFi interactions.

Security shifts from the user to the sponsor's conditional logic. Users must trust that:

• The sponsor's verification contract is correctly implemented and audited.
• The sponsor has sufficient funds and won't front-run or censor transactions.
• The defined conditions are transparent and cannot be manipulated to drain the sponsor's funds. This introduces a new oracle problem for off-chain condition verification.

Sponsors are not altruistic; they are incentivized by economic models such as:

• Subscription Fees: Users pay a flat rate for sponsorship services.
• Revenue Sharing: The sponsor takes a percentage of the user's successful transaction value.
• Protocol Growth: Wallets or dApps sponsor fees to reduce friction and attract users, capturing value elsewhere in their ecosystem.

In Account Abstraction (ERC-4337), conditional sponsorship is implemented via paymasters. A paymaster is a smart contract that can pay for a UserOperation's fees if its validatePaymasterUserOp function returns successfully. This function contains the sponsor's business logic to verify custom conditions before committing funds.

Key risks include:

• Sponsor Insolvency: If the sponsor's wallet is drained, sponsored transactions will fail.
• Logic Bugs: Flaws in the condition-checking contract can lead to sponsor fund theft or unauthorized sponsorship.
• Centralization: Reliance on a few major sponsors creates systemic risk and potential censorship.
• MEV Opportunities: The structure of conditions can create new Maximal Extractable Value (MEV) vectors for bots.

A User Operation is a pseudo-transaction object used in Account Abstraction (ERC-4337). It represents a user's intent and is bundled for execution, with fees potentially paid by a Paymaster.

• Structure: Contains the target, calldata, signatures, and paymaster data for a transaction.
• Flow: User Operations are sent to a mempool, where Bundlers package them into a single on-chain transaction, enabling Conditional Sponsorship to be applied.

A Bundler is a network participant in the ERC-4337 ecosystem that collects User Operations from the mempool, packages them into a single blockchain transaction, and submits it to the network.

• Role: Acts as a transaction relay, handling gas economics and ensuring Paymaster rules are satisfied before inclusion.
• Critical for Sponsorship: Enables the Conditional Sponsorship model by being the entity that actually invokes the Paymaster contract to pay fees on-chain.

Signature Aggregation is a cryptographic technique that combines multiple signatures into a single, compact proof. It is often used with Conditional Sponsorship to reduce gas costs and verification complexity for batched transactions.

• Benefit: Allows a Bundler to verify a batch of User Operations sponsored by a Paymaster with one on-chain check instead of many.
• Protocols: Implemented using schemes like BLS signatures, which are natively supported in some Account Abstraction frameworks.

Gas Abstraction is the broader concept of decoupling the entity that pays for transaction fees from the entity that signs the transaction. Conditional Sponsorship is a primary implementation of this concept.

• Mechanisms: Includes Paymaster sponsorship, ERC-20 token gas payment, and subscription models.
• User Benefit: Eliminates the need for end-users to hold the network's native token (e.g., ETH) solely for paying gas, improving UX and onboarding.