Ethereum community members propose new fee structure for application layer

Ethereum (ETH) community members Kevin Owocki and Devansh Mehta have proposed a proposal for a dynamic fee structure for Ethereum’s application layer to strike a balance between revenue generation for application developers and fairness in fee extraction.

In their proposal dated April 27, they outlined a simple equation using a square root function, with the fee percentage decreasing as the project receives more funding. Owocki and Mehta explained: “For smaller funding sizes, the fee follows a square root function (sqrt(1000 x N)), providing relatively higher returns, making the mechanism for building small-scale funding pools more valuable. For example, if the funding pool is $170,000, the square root of 1000 times 170,000 equals $13,038.4, which is a 7% management fee.”

The proposal authors added that once the funding pool for a particular application exceeds $10 million, the fee will be capped at 1%. This ensures that small application developers can develop decentralized applications without incurring excessive fees, while encouraging project development and funding growth as developers scale their applications by setting a fee cap.

Owocki and Mehta’s proposal to balance revenue and profitability for Ethereum app developers reflects growing calls in the industry to reform fee structures and value accumulation mechanisms to maintain Ethereum’s economic viability among competing networks.

Competitors step up competition as Ethereum faces revenue pressure

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

Despite the surge in the number of software developers building on the Solana network in 2024, Ethereum remains the dominant ecosystem for attracting developer talent, but data from 2024 shows that this position is no longer undisputed.

According to data from on-chain analysis firm Santiment, Ethereum fees fell to a five-year low in April 2025 due to low Ethereum base layer activity and reduced demand for smart contract operations such as decentralized finance.

This reduction in demand has led many institutions to reduce their ETH holdings or sell some of their investments as investor confidence in the smart contract platform continues to weaken and there is no obvious catalyst for a reversal.