In a notable move aimed at enhancing the Ethereum ecosystem, community members Kevin Owocki and Devansh Mehta have put forth a new proposal for a dynamic fee structure within the Ethereum application layer. This initiative seeks to establish a fairer system that balances the needs of app builders with the demand for revenue generation.
On April 27, the duo introduced an innovative formula that employs a square root function to adjust fees based on the funding allocated to projects. As explained by Owocki and Mehta, the structure ensures that smaller projects benefit proportionally higher from funding, making it easier for developers of modest means to create decentralized applications (dApps). For instance, if a funding pool totals $170,000, the calculated fee would amount to roughly 7%, capped at 1% for projects surpassing the $10 million mark. This strategic tiering aims to alleviate the financial burden on smaller developers while fostering growth as their applications scale.
“For smaller funding amounts, the fee follows a square root function, providing proportionally higher returns to make building mechanisms for smaller pools worthwhile,”
This proposal arrives at a critical time as Ethereum faces increased competition from networks like Solana, which has recently welcomed a significant influx of developers. In 2024, Solana attracted 7,625 new developers, edging closer to Ethereum’s 6,456—marking a shift in the landscape of decentralized application development. While Ethereum still holds the position as a leading ecosystem for developer talent, the competition has intensified.
Moreover, on-chain analytics from Santiment highlight that Ethereum fees have plummeted to five-year lows as of April 2025, a trend attributed to dwindling activity on the Ethereum base layer and a weakening demand for decentralized finance (DeFi) operations. This has prompted some institutions to reassess their Ether (ETH) holdings, as the market sentiment toward Ethereum softens amidst a lack of clear catalysts for recovery.
Owocki and Mehta’s proposal reflects a growing consensus within the Ethereum community that reforming fee structures is crucial for maintaining economic viability against an increasingly competitive landscape. As the industry evolves, innovative solutions like this could play a pivotal role in ensuring the sustainability and attractiveness of the Ethereum network.
Proposed Dynamic Fee Structure for Ethereum Applications
Kevin Owocki and Devansh Mehta have introduced a new dynamic fee structure aimed at benefiting Ethereum app developers while promoting fairness. Here are the key points:
- Dynamic Fee Equation:
The proposed fee model utilizes a square root function to adjust fees based on the funding pool size, allowing for a more equitable distribution of fees.
- Incentives for Smaller Projects:
Projects with smaller funding pools will experience higher percentage fees, encouraging development among smaller app builders.
- Fee Cap at $10 Million:
Once an application reaches a funding pool of over $10 million, fees will be capped at 1%, fostering growth and fair revenue sharing for larger projects.
- Response to Competition:
The proposal is a response to increasing competition from platforms like Solana, which onboarded more developers than Ethereum in 2024, reflecting the need for Ethereum to improve its fee structures to retain talent.
- Impact of Low Activity:
As fees on Ethereum have decreased due to waning interest in decentralized finance, many institutions are reducing their Ether (ETH) holdings, signifying a potential decline in investor confidence.
“For smaller funding amounts, the fee follows a square root function, providing proportionally higher returns to make building mechanisms for smaller pools worthwhile.”
This proposal and the dynamics of Ethereum’s fee structure have significant implications for developers and investors in the network. The emphasis on equitable fees could enable a diverse range of applications to thrive, promoting a more competitive ecosystem. Additionally, the shifting sentiment toward Ethereum due to rising competition may encourage developers to adapt to these new fee models or consider alternative platforms for their projects.
Ethereum’s Dynamic Fee Proposal: A Game-Changer or Just a Band-Aid?
The recent proposal by Kevin Owocki and Devansh Mehta for a dynamic fee structure on the Ethereum application layer presents a strategic attempt to navigate the ever-evolving landscape of decentralized applications (dApps). By introducing a fee model that diminishes as project funding escalates, the duo aims to create a more equitable environment for emerging developers, particularly catering to those with smaller capital. This concept echoes a broader trend in the crypto world where developers seek more favorable conditions amidst intensifying competition from alternative networks like Solana, which has recently attracted a surge of new talent.
One of the primary competitive advantages of this proposal is its focus on lowering barriers for smaller projects. The adoption of a square root function for fee calculation can unlock a new wave of innovation, especially among those just starting out or operating on a limited budget. This model could significantly reduce operational overhead, allowing budding app creators to reinvest their earnings back into development rather than relinquishing a large portion in fees. Furthermore, by capping fees at 1% for projects exceeding $10 million, the proposal encourages scalability and sustainable growth, which is essential in a market where the longevity of projects often hinges on financial viability.
However, the proposal does come with notable disadvantages. As Ethereum’s transaction and operational fees have historically posed a challenge for users and developers alike, the question arises whether this new structure can genuinely address the fundamental issues or if it merely postpones the inevitable. Competitors like Solana have shown impressive growth in attracting developers, potentially overshadowing Ethereum’s recent attempts to adapt. The declining activity on the Ethereum network, as evidenced by five-year low fees, suggests that even with structural changes, there may be more deep-rooted issues impacting developer sentiment and engagement in the long term.
For small app builders, this proposal could serve as a breath of fresh air, granting them a more forgiving financial landscape. However, larger developers, who may have scaled significantly and benefit from existing fee structures, might perceive this fee reduction as a threat to their revenue streams. As competition in the dApp development arena intensifies, the implications of this proposal will likely resonate beyond just the developers; users, investors, and even institutional players will feel the ripple effects as the Ethereum network navigates its path forward in a landscape rich with alternatives.
