Paymasters.

A critical part of the Account Abstraction stack.

Paymasters are responsible for covering the costs of submitting a transaction to a blockchain.

In the future, when Ethereum reaches global scale, there will be millions and maybe even billions of users onchain. But many, if not most of those users won't hold any ETH.

Users aren't going to pay for transactions.

Sooo who's going to pay for those transactions?

Paymasters.

Rollups, like Base, generate a tremendous amount of value. They're the shining star when it comes to demonstrating the long-term viability of opting into Ethereum rollup centric future.

It pays to be cypherpunk - and we're not talking peanuts here.

Most people who use credit cards end up with long-term balances i.e. high-interest payments.

Those high-interest payments are where a majority of credit cards earn their revenue, compared to merchant fees, and also how they fund points/rewards program.

Essentially a majority of credit card users are subsidizing the perks for a small minority of users.

Let me be clear, before going any further... generally speaking I think the credit cards rewards and points models are predatory and unscrupulous. And something we should avoid when bringing finance into the onchain era.

But, I do there think are elements in the credit card points/rewards systems worth observing.

Specifically economies of scale in relation to incentivizing desired consumer behaviors.

Have you ever asked yourself why do credit cards companies offer higher cash-back rewards for travel and restaurants?

Because they know people most want (not need) those things and they can incentivize a YOLO mentality that triggers people to go spend money they probably don't have. Increasing the revenue they earn from long-term debt holders and/or people who simply stack up late-payment fees. Which in-turn can be used to fund even more rewards/points incentives to continue the cycle forever, and ever, and ever, until we're all in debt... LoL JK!

What does this have to do with Paymasters though?

Blockchains are inherently financial. It's what makes blockchains, while... blockchains!

Want to create a valid state change in a the global computer? Pay a fee. Easy!

Unfortunately now on to the part where it gets hard.

I'll avoid getting deeply technical, but Ethereum is charging full speed ahead towards a rollup centric future. Whether you agree that's the right direction or not is another story, but ultimately what that means is lots and lots of L2 rollups and L3 services.

We're talking about 100s and maybe even 1,000's of operators competing for users and attention. Kind'of like the many different credit card processing networks. Each with their own unique value propositions and perks.

New Ethereum rollups face some serious challenges though.

Not every L2/L3 will have a Jesse Pollak (Base Contributor #001) to meme the ecosystem into life.

It's going to be very, very competitive. RIP to the Public Goods Network 🫡

And how will these operators compete?

Probably much in the same way credit card payment processors do. By incentivizing consumer behavior at scale. Driving traffic to applications/businesses, and increasing the bottom line indirectly through ongoing rewards/points systems.

It seems to be the leading consensus that applications should/will subsidize the transaction costs for users on an L2. And probably many will. But that's only one small piece of the puzzle.

As L2/L3 operators continue to get more sophisticated, potentially earning $1,000,000+ in revenue/profit each and every day, the case for L2s to abstract away the complexities of Paymaster for incoming protocols/businesses gets stronger and stronger.

It's the difference between a restaurant with a mailing list vs a large global payment processing network equipped with statistical analysis for how to incentivize consumer behaviors across every major economic sector.

Sure, the restaurant can run it's own promotions and it will probably bring in customers, but nothing beats incentivizing consumer behavior using economies of scale for the benefit of every single protocol/business in your network.

And that's the scale competitive L2s will need to operate at.