Tokenomics Chart

Disclaimer: The below information is based on the draft version of the XYO Layer One White Paper.

In the XYO Layer One ecosystem, incentives are designed to reward meaningful contributions to data integrity, availability, and processing. Whether collecting, validating, or storing data, participants are economically compensated through the network’s dual-token model using $XYO and $XL1.

A portion of XL1 fees—such as base fees—is burned, ensuring long-term supply control. Slashing mechanisms protect the network from dishonest behavior, with slashed XYO Tokens also permanently removed from circulation by burning.

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Block Producers, Validators, and Step Rewards

Block Producers earn XL1 rewards for each successfully completed block. A portion of these rewards is automatically allocated to the Step Reward Pool, which accumulates over time and is distributed to both Block Producers and Validator Nodes at predefined block height intervals known as Steps. These steps not only regulate large-scale incentive payouts but also tie into XYO Layer One’s Step Hashing System, which improves long-range blockchain indexing and performance. While the per-block reward decreases gradually every 1,000,000 blocks, the Step Reward Pool continues to grow, offering long-term incentives for persistent network participants.

Block Rewards

• Earned by: Block Producers

• Distribution: Directly assigned to the producer's configured address

• Purpose: Encourages ongoing block creation and secures the network

• Frequency: Every block

Step Reward Pool

• Earned by: Block Producers, Chain Validators, Pending Transaction Validators, System Stakers

• Distribution: From the Step Reward Pool at milestone blocks

• Purpose: Incentivizes long-term protocol engagement and decentralized network health

• Frequency: Milestone Blocks (Step Triggers)

Transaction Fees and Burning

Users pay XL1 in the form of Base Fees, Gas Fees, and Priority Fees when submitting transactions to the Transaction Pool. Base Fees are burned, removing XL1 from circulation. Gas and Priority Fees are sent directly to Block Producers as compensation for processing and including transactions in blocks. To discourage spam or invalid transactions, the protocol allows fees to be burned or redistributed when validation fails.

Data Collectors

Data Collectors receive XYO tokens as rewards for collecting and submitting high-quality data. These tokens can be staked into the Staking Pool, which supports two key node types: Block Producer Nodes and Validator Nodes. Block Producer Nodes help generate XL1 tokens, while Validator Nodes are responsible for validating blocks and transactions, resolving disputes, and finalizing blocks. Validator Nodes earn both XYO and XL1 for their efforts, particularly when they validate blocks correctly or participate in consensus through the Dispute Resolution Layer.

When a Validator Node behaves dishonestly or fails protocol checks, Arbitration can trigger a slashing event. In these cases, XYO tokens may be slashed and permanently removed from the system (Burned XYO), reinforcing economic accountability and deterring malicious behavior. A portion of slashed tokens may also be redistributed or transferred as restitution to other parties, depending on the infraction.

This dynamic incentive structure is designed to balance inflationary rewards with deflationary burns, encouraging active, honest participation while preserving token value over time.