IOTA Tokenomics
The collective ideation that the term tokenomics encompasses includes a wide range of concepts that define the science and behavior of blockchain economies. In basic terms, tokenomics are the financial foundation of blockchains. Much the same way a building with a poor foundation is doomed to fail, a blockchain without a well-researched, extensively planned, and painstakingly implemented token economy eventually crumbles.
IOTA tokenomics are based on sound financial concepts informed by extensive blockchain research. Designed for scale, the IOTA tokenomics structure is designed to support the financial needs of web3 now and into the future.
The IOTA Economy
Three main types of participants characterize the IOTA economy:
- Users submit transactions to the IOTA platform to create, mutate, and transfer digital assets or interact with more sophisticated applications enabled by smart contracts, interoperability, and composability.
- IOTA token holders have the option of staking their tokens to validators and participating in the proof-of-stake mechanism. IOTA owners also hold the rights to participate in IOTA governance.
- Validators manage transaction processing and execution on the IOTA platform.
Core components
The IOTA economy is composed of four core components:
- IOTA: The IOTA token is the IOTA platform native asset.
- Gas fees: Gas fees are charged on all network operations, consisting of a computation fees which are burnt and a fully rebated storage deposits.
- Staking rewards: Staking rewards are provided to users participating in the delegated proof-of-stake mechanism, namely delegators and validators. This incentivizes honest behavior by IOTA Validators and the IOTA token holder that delegate to them.
- Voting: On-chain voting is used for governance and protocol upgrades.
Tokenomics Visualized
The following flowchart presents the tokenomic flow of IOTA at a high level. Referring back to this chart after you learn concepts in this section should provide additional clarity.
