Two Ethereum community members, Kevin Owocki and Devansh Mehta, proposed a dynamic fee structure for the Ethereum application layer to strike a balance between revenue generation for app builders and fairness in fee extraction.

The April 27 proposal outlined a simple equation that uses a square root function that proportionally lowers the percentage of fees as the funding capital allocated to a particular project grows. Owocki and Mehta explained:

“For smaller funding amounts, the fee follows a square root function (sqrt(1000 x N)), providing proportionally higher returns to make building mechanisms for smaller pools worthwhile. For example, if the funding pool is $170,000, then the root of 1000 x 170,000 equals $13,038.4 or 7% is taken as overhead.”

The authors of the proposal added that fees would be capped at 1% once a particular application’s funding pool crossed the $10 million level, ensuring that small app builders can develop decentralized applications without excess fees while also encouraging project and funding growth by capping fees as developers scale their applications.

A visualization of the proposed fee structure tapering off at higher project funding levels. Source: Ethereum Research

Owocki and Mehta’s proposal to balance revenue generation and profitability among Ethereum’s app builders reflects the growing calls to reform fee structures and value accrual mechanisms to maintain Ethereum’s economic viability against competing networks.

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Ethereum’s competitors ramp up heat as Ethereum faces revenue crunch

In 2024, the Solana ecosystem onboarded more developers than the Ethereum network, attracting 7,625 new developers compared with Ethereum’s 6,456.

Despite the surge in software developers building on the Solana network in 2024, Ethereum remains the dominant ecosystem for attracting developer talent, although the 2024 data shows that position is no longer uncontested.

The Solana network is now the number two choice for decentralized application developers and is catching up to Ethereum. Source: Electric Capital

According to onchain analytics firm Santiment, Ethereum fees dropped to five-year lows in April 2025 due to low activity on the Ethereum base layer resulting from reduced demand for smart contract operations like decentralized finance.

This reduced demand is leading to many institutions scaling back their Ether (ETH) holdings or selling off portions of their investment as investor sentiment toward the first-ever smart-contract platform continues to erode without any clear catalysts for a reversal.

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