# Dual-Token Model

XYO Layer One uses a dual-token model to create a powerful, scalable blockchain ecosystem optimized for DePIN, data, and AI applications. This structure separates the foundational and transactional layers of the network, ensuring long-term sustainability without compromising speed or usability. The two tokens—**XYO** and **XL1**—each serve a distinct purpose that contributes to the health and growth of the network.

**XYO** is a deflationary token with a fixed supply. It is designed for staking and securing the network, offering long-term value alignment and stability. Token holders who stake XYO contribute to the structural integrity of the blockchain, reinforcing trust and decentralization across the ecosystem.

**XL1**, by contrast, is the utility token that powers day-to-day activity on XYO Layer One. It is described as inflationary, but this inflation is deliberately restrained—capped at a **0.7% annual inflation rate**. XL1 is used for gas fees, smart contract execution, real-time rewards, and other core functions of the blockchain. Importantly, as the network scales, **transaction-based burning mechanisms** are expected to **offset or even exceed the token’s inflation rate**, making XL1 **effectively deflationary through active use**. This design ensures that XL1 maintains economic balance and long-term value alignment, even while supporting high-throughput applications.