The State of AA

In March 2023, Account Abstraction, known as “ERC-4337,” emerged on Ethereum with bold promises to revolutionize user experience and security. This innovation introduced smart contract wallets with customizable verification logic, set to replace traditional externally owned accounts (EOAs). With ERC-4337, users could benefit from advanced features such as multi-signature approvals, meta-transactions, and batch transactions, enhancing both security and usability. At the time, it was heralded as a game-changer—poised to render off-chain wallet technologies obsolete and to establish Ethereum and EVMs as the gold standard.

Dfns was actively engaged, even sponsoring a hackathon prize at the Ethereum Community Conference in Paris. There, we encountered skepticism from Ethereum developers and maximalists, who felt that supporting alternatives to on-chain solutions was a deviation from the ‘right’ path. Vitalik Buterin himself envisioned a future fully on-chain, where account abstraction—leveraging smart contracts as versatile wallets—would help realize this vision.

The arrival of ERC-4337 sparked enthusiasm across the community. It seemed poised to resolve fundamental usability challenges that have long hindered broader adoption of blockchain technology, offering a leap in security, flexibility, and gas optimization that EOAs could not match. Today, a year and a half later, we find it timely to reflect on ERC-4337’s journey—assessing its successes, understanding where it may have fallen short, and considering what lies ahead.

The original bet behind account abstraction 

Traditionally, Ethereum users have two types of accounts: externally owned accounts (EOAs) managed by private keys, and smart contract accounts. ERC-4337 blurs this line, letting smart contracts function as fully capable wallets with features like customizable security, programmable access control, and gas fee management through "paymasters,” all designed to make Ethereum more user-friendly. Paymasters let users pay gas fees in tokens other than ETH, helping dapps onboard users with fewer technical barriers. By addressing these usability issues, ERC-4337 brings Ethereum closer to a more accessible web3, where managing accounts is simpler, security is stronger, and gas fees are easier to handle.

Another breakthrough in ERC-4337 is the introduction of "bundlers." Bundlers are specialized entities that aggregate multiple individual actions or transactions from different users into one onchain transaction. This reduces network congestion, cuts transaction costs, and increases efficiency. Here’s how it works:

1. User operations: Users initiate various actions, like sending tokens or interacting with dApps, structured as "UserOperations."
2. Aggregation by bundlers: Bundlers combine multiple UserOperations into a single transaction, reducing gas costs.
3. Submission to EntryPoint contract: The bundled transaction is submitted to a central EntryPoint smart contract, which processes each UserOperation in sequence. This contract manages the flow of operations, ensuring only authorized actions are executed.

Imagine Alice wants to send money to Bob. Here’s how ERC-4337 changes the transaction lifecycle:

• Without account abstraction (traditional flow)some text
  • Setup: Alice sets up a traditional wallet (EOA) using a private key, which she must keep secure to access her funds.
  • Initiation: To send funds to Bob, Alice manually approves the transaction with her private key.
  • Gas Fees in ETH: Alice needs ETH in her wallet to pay gas fees, even if she's sending another token like DAI or USDC.
  • Execution: Alice submits the transaction, which is validated and mined on the blockchain. This flow is rigid, requiring ETH for gas and offering limited customization.
• With account abstraction (ERC-4337 flow)some text
  • Smart Contract Wallet Setup: Alice sets up a smart contract wallet with ERC-4337, allowing features like multi-signature or social recovery if she loses access.
  • Initiation: Alice initiates the transaction, which can be approved through the smart contract’s rules, allowing for added security steps if needed.
  • Gas Fees in Any Token via Paymasters: With ERC-4337’s paymasters, Alice can pay gas fees in DAI or another token she holds. The paymaster covers the gas fees in ETH.
  • Bundled Execution: Bundlers aggregate Alice’s transaction with others, processing them together through the EntryPoint contract, reducing fees and speeding up execution.

This "before vs after" view shows how ERC-4337 was intended to streamline ETH transactions, enhancing flexibility with smart contract wallets, paymasters, and bundlers. These elements were designed to simplify onboarding for new users while offering advanced security and customization options for more experienced ones. However, the reality is that somewhere along the way, things went off course.

Ok, but just show me the numbers

Since its launch, ERC-4337 has demonstrated steady growth and adoption. Data from analytical platforms like Niftytable on Dune reveals that ERC-4337 has enabled the creation of over 20 million accounts, facilitated approximately 90 million user operations, and supported over 50 million transactions. These metrics could be seen as a rising demand for Account Abstraction (AA) solutions.

In the broader Ethereum ecosystem, the adoption of ERC-4337 remains limited. To put this in perspective, AA accounts make up ~2% of all accounts on Ethereum and EVMs, which has over a billion accounts to date when aggregating the numbers from to Etherscan, Polygonscan, Basescan and other EVM explorers. Growth has recently slowed. Coinbase’s Layer 2 blockchain, Base, attempted to boost adoption, but after peaking in the summer of 2024, usage fell back to levels seen in the summer of 2023. This indicates that, while ERC-4337 has a dedicated niche, it has yet to achieve widespread traction.

User engagement with ERC-4337-based accounts has also been notably low recently. Monthly retention for smart accounts is at a modest 6.89%, as reported by BundleBear, with users averaging only about five operations per account. This trend indicates that while ERC-4337 introduces valuable new functionalities, users may be hesitant to adopt the platform fully. Factors such as high gas fees and the complexity of smart contract wallets may be deterring users, creating barriers to understanding, trust, and effective use of these advanced account features.

Practical analysis from our customer base

Over the last year and a half at Dfns, we’ve seen some of our customers start their product architectures using ERC-4337. Initially, customers like payment service providers believed that leveraging on-chain signature verification would provide the flexibility and security they needed for account abstraction. However, as their operations scaled, the practical costs of this approach, particularly on Ethereum, became a major pain point. The expense of on-chain verification, driven by high gas fees, proved unsustainable for many applications running at scale.

In response, these customers began to shift away from 4337-based architectures, opting instead for Dfns’ multiparty computation (MPC) wallets. This transition has allowed them to maintain high security standards while avoiding the prohibitive costs of on-chain verification. Some clients still prefer to maintain the account abstraction paradigm using providers like Safe, Biconomy or ZeroDev, and in those cases, they’ve turned to Dfns to sign User Operations, providing a more cost-effective solution that balances security, flexibility, and economic efficiency.

As we worked closely with clients who were drawn to ERC-4337 for the versatility of smart contract wallets and the promise of cost savings through gas abstraction, we realized that most of them became disappointed and churned. As these projects scaled, the limitations became evident. First, when network activity surge can create transaction bottlenecks for bundlers, causing delays or shifts in transaction priority, issues that detract from user experience and erode trust in ERC-4337, especially among users who expect bundled transactions to process seamlessly.

The complexities of integrating ERC-4337 have proven challenging for many developers. Unlike traditional EOAs, AA introduces new components like "UserOperations," "Bundlers," and the "EntryPoint" contract. These structures require not only a deeper understanding but also careful and sometimes complex implementation strategies to maintain security and efficiency. For instance, bundlers need to carefully manage the bundling and submission of UserOperations without exposing the entire process to security vulnerabilities. Since bundlers interact directly with the EntryPoint contract, their operations can be targeted by potential exploits if not meticulously coded and audited. Ensuring this level of security adds extra development overhead and complexity.

In addition, bundlers often encounter profitability issues. Many projects inadvertently end up overpaying gas fees, which has discouraged the long-term sustainability of these services. Bundlers rely on a revenue model where they charge fees to aggregate transactions. Yet, due to Ethereum's fluctuating gas prices, bundlers often face scenarios where they inadvertently overpay for gas fees, making their operations unsustainable or even unprofitable. In the volatile Ethereum network, high gas costs can erode the small margins that bundlers typically rely on.

The long-term adoption and scalability of bundlers within ERC-4337 face significant hurdles, impacting user experience and making it challenging for many dApps to depend on ERC-4337 for essential operations. Here’s a breakdown of the main obstacles our clients encounter:

1. Implementation Complexity: The architecture of ERC-4337 introduces intricate components like UserOperations, Bundlers, and the EntryPoint contract, demanding a high level of technical understanding and meticulous implementation.
2. Bundler Profitability: Bundlers, which aggregate UserOperations, face profitability challenges. Certain projects inadvertently overpay in gas fees, making it harder to establish sustainable economic incentives to maintain these services.
3. User Engagement: Limited activity within smart accounts suggests that users may lack understanding or trust in the new functionalities, highlighting a need for improved education and more user-friendly interfaces.
4. Reliability Issues: During network surges, bundlers often experience backlogs, causing transaction delays and reprioritization. This unpredictability diminishes the user experience and erodes trust in ERC-4337, especially for those expecting seamless transaction execution.
5. Security Considerations: The addition of custom verification logic and new transaction types necessitates thorough security audits to identify and prevent potential vulnerabilities, thereby increasing both development time and costs.

These challenges collectively hinder the widespread adoption of ERC-4337, limiting its reliability for mission-critical applications and operations.

Can Petra and EIP-7702 fix this?

Looking ahead, Ethereum is gearing up for the Petra hard fork, expected in early 2025, which will bring EIP-7702 to life. Conceived by Vitalik Buterin, EIP-7702 seeks to embed key elements of ERC-4337 directly into the Ethereum base layer, elevating account abstraction from an add-on to a native feature. This integration is anticipated to streamline gas fee calculations and reduce reliance on application-level workarounds, targeting several persistent issues associated with ERC-4337.

EIP-7702 proposes a model where externally owned accounts (EOAs) can temporarily harness certain smart contract capabilities—such as transaction batching or gas fee sponsorshipwithout permanently converting into smart contract accounts. This approach should be able to simplify account management, making account abstraction more economically sustainable, particularly for larger-scale projects. However, as with any significant upgrade, full adoption of EIP-7702 will require time and a careful equilibrium among security, compatibility, and performance considerations.

EIP-7702’s arrival holds promise as a more integrated and cost-effective approach to account abstraction at the protocol level. Until then, ERC-4337 stands as a valuable but transitional experiment, highlighting both the potential and the remaining hurdles of account abstraction. The journey toward seamless account abstraction continues, driven by experimentation, community insights, and incremental progress. As Ethereum’s developers and stakeholders work to refine the user experience, the lessons from ERC-4337 will shape the next generation of standards. Perhaps one day, account abstraction will fully realize its promise, transforming Ethereum’s usability on a fundamental level. But for now, it’s not the right way.