Ethereum Fee Proposal: A New Balance?

Ethereum Community Proposes Dynamic Fee Structure

Two Ethereum community members, Kevin Owocki and Devansh Mehta, have put forward a dynamic fee structure designed to balance the needs of application developers with the necessity of generating revenue for the Ethereum network. Their proposal, published on April 27, suggests a square root function to determine fees.

The formula proportionally lowers fees as a project's funding grows. As explained in their proposal: "For smaller funding amounts, the fee follows a square root function (sqrt(1000 x N)), providing proportionally higher returns. For example, if the funding pool is $170,000, then 7% (approximately $13,038.4) is taken as overhead."

Importantly, fees are capped at 1% once funding surpasses $10 million. This aims to support smaller app builders while incentivizing growth.

Source: Ethereum Research

This proposal addresses concerns about Ethereum's economic viability in the face of competition. The authors aim to create a fairer system while ensuring sufficient revenue generation.

Ethereum Faces Increased Competition

Solana saw 7,625 new developers in 2024, compared to 6,456 for Ethereum. While Ethereum maintains its lead, the gap is narrowing. This competition is occurring alongside a drop in Ethereum fees to five-year lows, according to Santiment. This is largely due to reduced activity on the Ethereum base layer, influenced by lower demand for DeFi smart contracts. As a result, some institutions are reducing their Ether (ETH) holdings.

Source: Electric Capital

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