How Circle Paymaster Works

Intro: What problem does Paymaster solve?

How does Circle Paymaster work? And why is this such a powerful on chain primitive for developers? Let's take a look. Welcome back to Stablecoin one hundred one, a series by Circle where we break down the foundations of Stablecoins and how they are powering the new internet financial system.

If you are just joining, my name is Blessing and I work on Circle's Developer Relations team.

Context: ERC-four thousand three hundred thirty seven and account abstraction

Circle Paymaster is built on Ethereum's latest account abstraction standard, ERC-four thousand three hundred thirty seven, and this introduces the concept of Paymasters. But before we dive in, let's set the stage with a bit of context on how ERC-four thousand three hundred thirty seven works. In traditional wallets, users send raw transactions directly to the blockchain.

But in the world of account abstraction, users instantly send something called a user operation, which is a flexible, modular payload that describes what they want to do, for example, send USDC or call a smart contract.

These user operations get routed through a shared smart contract on chain, and this is called the entry point. This acts as the central router and validator for all account abstraction actions.

Bundlers: Getting user ops on chain

But who actually gets these user operations on chain?

And that's the job of bundlers. Think of them like Relayers or Corriers. They listen for user ops, bundle them together, and submit them to the entry point contract in exchange for a gas fee, which they are reimbursed for during execution.

This old pipeline's user ops to bundlers to entry points enables rich features like session keys, sponsored transactions, and of course, paymasters.

What is a paymaster?

Now, what is a paymaster? A paymaster is a smart contract that steps in during a user operation to handle gas fees on behalf of the user.

In the case of Circle Paymaster, it allows users to pay gas fees using USDC instead of native tokens like ETH, AVX or MATIC. And here's what that flow looks like in practice.

Example flow: Alice pays gas in USDC

Using our favorite developer, Alice and her application as an example.

In the first step, the user initiates a transaction in Alice's application. For example, they might want to send ten USDC to another user. Their wallet knows it doesn't have the native token for gas, so it will leverage the paymaster.

Then the user smart wallet signs a permit, essentially granting the Circle Paymaster contract permission to use a small amount of their USDC to pay for the gas fee.

Then Circle Paymaster's smart contract takes over. It receives the user USDC just enough to cover the gas, and it pays the blockchain's native fee on the user's behalf. Secoo maintains liquidity and swaps in the background, so there's always enough native token available for the transaction.

The user's USDC effectively fills the transaction.

As a final step, the transaction executes successfully on chain, and the recipient gets the full amount of USDC that was intended, and the gas is all paid without the user ever touching a native token.

From the user's perspective, in addition to paying the recipient, they also spent a bit of USDC for fees.

All this happens within the blockchain's normal operation, thanks to the magic of account abstraction.

Trust model: Permissionless, on-chain, no off chain tricks

There are no off chain tricks or centralized custody here. Paymaster is a permissionless on chain smart contract that any developer can integrate into their application.

You don't even need a Circle account or API key to use it.

If your wallet supports ERC-four thousand three hundred thirty seven, and many smart wallets do, it can work with Circle Paymaster out of the box.

This open approach means that our developer, Alice, can simply plug Paymaster into our application's wallet logic without asking users to sign up for anything extra.

It is as trustless and composable as any DeFi contract. And our app just points to Circle's Paymaster contract when creating transactions and users opt in by signing that one permit.

From a developer's perspective like Alice's, Circle Paymaster is simple yet powerful.

Developer value: Multi-chain support + reduced user friction

It works across multiple chains, so you get unified solutions for gas fees on whatever EVM compatible networks your application supports.

For Alice, it helps eliminate the user friction that curates problems in beta testing, and it paves the way for a successful launch.

So, as of now, Paymaster is available on Arbitrum, Avalanche, Base, Ethereum, Optimism, Polygon with more changes expected in the future.

Closing: Where to see code

If you are itching to see how this works in code, we'll have a full technical walkthrough on our YouTube channel, where we tie it all together with a quick demo of how to integrate Circle Paymaster into an application.

Do check it out, you'll find the link below. Thanks for watching.