IOTA Tokenomics
Tokenomics refers to the various concepts that shape the science and behavior of blockchain economies. In basic terms, tokenomics is 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 is based on sound financial concepts confirmed by extensive blockchain research. Designed for scale, the IOTA tokenomics structure is intended to support the financial needs of Web3 now and in the future.
The Actors in 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.
- Validators manage transaction processing and execution on the IOTA platform.
- IOTA token holders have the option of delegating their tokens to validators and participating in the proof-of-stake mechanism. Owners of IOTA tokens also hold the rights to participate in IOTA governance.
Tokenomics Overview
The following flowchart provides a high-level overview of the monetary flow within the IOTA's tokenomics. At its core, the IOTA economy is driven by the IOTA token, the native asset of the IOTA ecosystem.
When users submit transactions, they incur gas fees to pay for computation. A portion of this computation fee is burned to mitigate token inflation and users can include an optional tip to incentivize validators for faster processing during network congestion.
In addition to the tips from users, staking rewards are also include a validator subsidy. This subsidy of IOTA tokens is minted and distributed to well-behaving validators who contribute to the system's security. A portion of the overall staking rewards is allocated to delegators after deducting the validator's commission.
Additionally, some tokens are locked as a storage deposit when creating objects and are redeemable upon object deletion.
Referring back to this chart after the reader has learned the concepts in this section should provide additional clarity.
