Many have argued that crypto is still in the dial-up era as far as usability is concerned, and I tend to agree. Blockchains are bound to get faster and cheaper. But an equally important upgrade will be the abstraction away of fees. Not via elimination—decentralized systems must always charge fees to avoid spam—but by moving them to a wholesale market where service providers, sequencers, or dApps cover them.

Users will still be affected by the existence of transaction fees—the cost will either be bundled into a suite of services or subsidized to sell another product—but the user flow will no longer be burdened by endless micro-decisions and disruptions. 

This is standard practice in many industries, such as flying, where airlines bundle the cost of jet fuel with other expenses and charge customers a single fee. There are several benefits to this wholesale approach:

• Wholesale buyers are more sophisticated and better at planning ahead

• Wholesale buyers have larger balance sheets and longer time horizons, so they can absorb temporary price hikes and smooth out fee volatility before passing it on

• Wholesale buyers can hedge fee exposure

• Wholesale buyers can use fee-free experiences as loss leaders for other on-chain activity

My guess is that on a long enough timeline, almost all fees will be covered by wholesale buyers.  We are already seeing experiments in this direction, such as no-fee USDC payments on Base, courtesy of Coinbase. The crypto exchange is likely doing this because:

• As the sequencer of its own rollup, it’s effectively buying blockspace at the wholesale price.

• No-fee payments increase demand for USDC, from which it earns interest

• No-fee payments lure new users, to whom it can sell other services 

Other types of companies like wallet providers or custodians may also begin to offer fee-free transactions, provided they can recoup the cost (and their profit on top) from selling other, related activities. Experience shows that consumers generally prefer fixed and periodic billing via a subscription rather than paying a la carte—even if they end up paying more in the long run. Humans like certainty. Combining this aspect of behavioral finance with the economic benefits of wholesale blockspace purchases enables new business models. 

Decentralized applications, like social media or gaming, are also likely to abstract away fees. They can’t go mainstream without doing so. Unlike major on-chain activities such as DeFi, most Web3 experiences require a series of microdecisions: like this video, buy that potion. Any disruption in the user flows, like having to pay fees, makes the activity not worth doing—even if the amount paid is tiny.

One way to abstract away fees is by keeping most components of a dApp off-chain. A second is to charge all users a recurring subscription fee and use that to cover transaction fees—with the general understanding that less engaged users will subsidize power ones. A third is to operate an app-specific rollup and use protocol revenues to cover sequencing/DA costs. All of these solutions will require some kind of Sybil resistance to prevent abuse, but this is easier to do with low-trust activities like gaming. 

Going one step further, there’s a world in which all decentralized applications with strong economics cover transaction fees, because doing so is good for business. There’s no technical reason why a lending protocol can’t cover the gas fees for depositing collateral and borrowing a stablecoin out of the interest from the loan. There would be size limits to make this economical, but most lending protocols already have dust limits. Blockchains that don’t support this sort of thing in their VM can be updated to accommodate. 

The abstraction away of fees will have important consequences to protocol design, such as:

• The average blockspace buyer, who is now buying in bulk, will be less price sensitive in the short run. 

E.g., a popular game won’t stop running just because fees are high.

• The average blockspace buyer will be more sophisticated in managing congestion cycles. 

E.g., low trust applications like social may only write periodically to the chain

• Modular chains will have the upper hand over monolithic ones due to their flexibility 

E.g., it’s easier to abstract away fees on your own rollup than a single-VM L1 

• Blockspace futures, fee derivatives, and other kinds of hedging mechanisms will be a major driver of, and driven by, crypto-economic policy.

E.g., cryptoeconomic security may be burdened by new derivative markets 

• Fee wars (or rather, “no-fee” wars) may accelerate adoption 

E.g., Web3 dApps do to Web2 apps what Uber/Lyft did to traditional taxicabs

All of this assumes that the general population views blockspace as being valuable and worth paying for. In other words, a Web3 game is preferred to the Web2 version, all else being equal. But if that weren’t true there’d be no point in doing anything on chain. 

The abstraction away of fees will make it easier for mainstream users to finally make the switch to more trustworthy upgrades of their favorite activities.