Beyond traditional transactions: the opportunities account abstraction brings

Authored by Kiwi Yao, researcher @OKX Ventures

The biggest obstacle to widespread crypto adoption is making the processes too complex. For instance, when a user's private keys are lost, their digital assets are gone forever. This could discourage many people from considering getting into crypto.

However, with account abstraction (AA) (ERC-4337) features like easy wallet retrieval, no-signature transactions, and shared wallets are being offered, making Web3 more secure and flexible. Another challenge is bridging Web2 to Web3, and account abstraction that offers a tangible solution through paymaster can help to onboard Web2 enterprises into Web3.

Thanks to AA, developers are inspired and motivated, making Web3 more accessible for users and showcasing innovative opportunities.

What is paymaster?

Paymaster is a smart contract that a decentralized application (DApp) deploys. It triggers paymaster through bundler to pay for gas for the specified user operation (user op). The contract is open source, but the backend is closed.

It's a standardized service that businesses can integrate with Web2 traffic. This can help Web3 businesses with the functional integration of Web2 traffic. Businesses that use payers include traffic entry, automatic conversion, and integration and diversion of decentralized finance (DeFi) gaming projects. This is similar to the innovation situation in the payment industry at a macro level.

Paymaster offers an innovative and stable solution. This makes it easy for Web2 users to enter Web3 and allows Web2 institutions to deploy paymaster services.

Use cases on paymaster's integration

Here's an overview of how paymaster can play a day-to-day part in your Web3 experience.

Fiat deposits

Users can use credit cards to subscribe to the paymaster service to pay for gas fees associated with their off-chain transactions, such as cash deposits and withdrawals.

• Biconomy, 0xPass, and Transak collaborate to provide fiat channels.

• Argent Vault collaborates with Moonpay, Transak, and Wyre to provide fiat channels with built-in DeFi protocol aggregators.

• Etherspot, UniPass, and Braavos support fiat channels.

Swaps and bridging

To mitigate gas fluctuations, paymaster can integrate swap functionality to pay gas fees at a specific time with agreed-upon rates.

• MetaMask has integrated cross-chain bridges through partnerships with third-party providers, which can further integrate with the paymaster contract for gas abstraction.

• Biconomy provides cross-chain bridges and cross-chain communication services.

• Etherspot,UniPass, and Braavos support swaps and cross-chain bridges.

Sessions

Paymaster can integrate session keys where users pre-approve transactions for an application based on a set of parameters, such as a specific duration, maximum gas limit, maximum transaction size for a particular token, or specific contract functionalities.

The benefits of sessions include:

• Seamless experience in full-chain games without the need for signing confirmation for every action.

• Setting multiple DeFi positions before confirmation.

• Filling multiple forms on-chain without confirmation for each entry.

• Reorganizing assets in wallets/inventories without confirmation for every change.

Multi-form and developer payment

By integrating multiple forms, gas can even be 'invisible' to users. App developers can easily subsidize fees for their users, such as a customer acquisition method. UniPass uses its own relayer node to pay for gas, with plans to add a 'watch ads for free gas transactions' mode in the future, alongside support for gas payments using cross-chain bridges.

• Sponsorship/advertisement fees: This can be integrated with advertisers to allow users to perform tasks and avoid gas fees, such as liking a video or retweeting a tweet.

• Centralized institutions: For example, by combining OKX exchange, and binding OKX Web3 accounts with exchange accounts, paymasters can deduct funds from the exchange account balance to help pay for gas on-chain addresses.

• Multi-currency/payment methods: Paymaster provides gas abstractions associated with off-chain processes. Users can pay gas fees using ERC-20 tokens, credit cards, or other subscription services as off-chain payment methods.

• Automatic payment: Visa implements a delegatable account solution on StarkNet to enable automatic payment functionality for self-custodial wallets.

• Customized payment logic: Users of StackUp can also customize the logic for gas payment. StackUp will charge users through a pay as you go model.

Integration with entry point

Paymasters need to deposit Ethereum on the entry point contract to pay for user op gas and stake additional Ethereum on the entry point contract to prevent malicious batch creation of paymasters by bots. This presents a series of integration opportunities with DeFi protocols, such as loans and liquidity pools, due to the staking behavior.

What is a bundler?

When it comes to Ethereum, in the traditional sense, externally owned accounts (EOAs) initiate transactions, pay for gas fees in ETH, and interact with smart contracts.

But with AA, the distinction between EOAs and contract accounts can be blurred. It means that contracts can pay for their own execution, and there's flexibility in transaction validation. A bundler is a tool that watches a separate pool of user instructions and combines instructions from many users into one action to be carried out on a blockchain.

Smart contracts can't start actions on certain blockchains by themselves. Instead, they create a user operation, which details the action they want done for them. A bundler can use their personal accounts to start these actions for the users.

Since bundlers start the actions, they pay a fee at the beginning. However, the original user or another party pays them back later, especially if someone else covers the transaction's cost.

Explore opportunities with bundlers

Here are some exciting opportunities and possibilities with bundler transactions.

Earning gas price difference

Bundler charges multiple transaction gas fees alongside the difference between submitted transactions. RPC and relayer protocols can quickly build bundler networks, while contract scanning tools and security audit protocols can protect the security of the bundler's submitted mempool. However, if the bundler selects transactions improperly and fails to package them successfully, it can lead to losses for the bundler.

Bundler participates in MEV distribution

The bundler's mempool will allow structures similar to maximal extractable value (MEV) market participants, and in the long term, it may combine with existing MEV market players to form a longer chain of bribes for MEV share. Bundler shares the income from MEV and PEV with Searcher, Bundler, Sequencer, and even Prover.

Bundler security

Bundlers can join any number of mempools, but ERC only guarantees the security of standardized ones. The security of others is up to the participants. If a bundler joins a malicious one, it will affect the security of the whole user op bundle.

Many believe it would beneficial if bundler projects incorporated anti-attack and security scanning mechanisms. Projects like CertiK and SlowMist can offer security auditing services and provide opportunities for contract address scanning tools like Cyberscan.

Blockchain RPC service

RPC is a decentralized infrastructure that connects DApps to the blockchain, which can help decentralize bundlers. Examples include RPC services provided by public chains themselves, centralized service providers like Alchemy and Infura, and decentralized service providers like Pocket Network.

The challenges with bundlers

It's important to understand the limitations of bundlers before you participate.

Early stages

The open-source bundler protocol is non-exclusive and non-competitive, and any RPC endpoint can replicate the open-source code to run a bundler. As a typical public good, Bundler can't obtain corresponding economic incentives, which is very similar to the current situation of Flashbots. The bundler protocol is still in its early stages and needs continuous optimization, as user op validation and execution require the participation of as many bundlers as possible to achieve better decentralization.

Centralization of bundler

There are only a few projects providing application interface services for running bundler programs, which leads to centralization. Bundlers may have to consider forming a monopoly due to the first-mover advantage, which will further rise centralization threats.

Changes to storage

Modifications to the storage of the contract can stop the bundler from obtaining the compensation that belongs to them. This problem doesn't have a sensible solution, and so amendments may be required to tackle it.

Advancements in the NFT market

The introduction of ERC-6551 has opened the doors to new possibilities for the NFT market. This protocol bridges NFTs with various applications, including full-chain games, Decentralized Identity (DID), and middleware.

The ERC-6551 underlying logic echoes the design of ERC-4337. Within this framework, an NFT can be leveraged as a wallet integration tool, capable of managing other NFTs. For game enthusiasts, the significance of this is profound.

Full-chain games now rely on the composability feature of ERC-6551. It allows them to deliver a multi-chain gaming experience where equipment accounts can be traded across various platforms. Several user-friendly features accompany this protocol, including options for wallet recovery, support for gasless transactions, and the possibility of account trading.

Analytically, market monitoring has been enhanced with tools that enable tracking indicators, timed minting, and analysis of minimum prices. These features empower users to set conditions where trades are automatically executed.

By merging full-chain games and NFTs, a novel gaming experience is born. Gamers can immerse themselves in multi-chain open worlds, unhindered by the constraints of a single game or blockchain. Game accounts have the flexibility of being transferable, which might stimulate the emergence of a dedicated market for game NFT account trading.

Beyond gaming, the integration of ERC-6551 has potential in DID and middleware. For instance, ERC-721 tokens can now function as user accounts, boasting the perk of transferability. These NFTs can also be merged with middleware architecture, allowing for customization based on user or developer needs.

A prime example is Cyberconnect's CyberID, an ERC-721 token symbolizing a unique account handle in the CyberConnect network. While it doesn't offer perpetual ownership, its operation relies on a demand-based fee model.

If a user ignores its renewal, the CyberID will be auctioned. Furthermore, platforms like CyberGraph extend opportunities to developers, granting them the freedom to tailor logic via middleware architecture.

The final word

AA continues to impress developers and users alike. Enhancing wallet capabilities paves the way for increased flexibility and scalability.

This enables smart contracts to have more autonomy over their interactions and encourages a more diverse set of applications on the platform. By streamlining and customizing transaction validation, processes can enhance the user experience, improve security measures, and reduce transactional frictions.

The ECR 4337 token standard has brought much excitement in 2023, opening up a world of innovation, inclusiveness, and making Web3 more adaptive to the crypto curious.