# Tokenomics The XYO and XL1 dual-token system powers the economic and security foundations of the XYO Layer One Blockchain. In this system, XYO functions as a staking and governance asset, securing network integrity through Validator Node and Block Producer Node commitments. When staked, XYO allows participants to earn XL1, the inflationary utility token used to pay gas fees, incentivize block production, and support data validation processes. 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. Meanwhile, decentralized data collectors and processors can be compensated in either token, supporting the network’s decentralized physical infrastructure (DePIN) capabilities. The architecture is designed for flexibility and sustainability, enabling slashing insurance, step-based rewards, and ongoing participation from validators and contributors. The following diagram illustrates the flow of tokens and incentives across the ecosystem. --- # Agent Instructions: Querying This Documentation If you need additional information that is not directly available in this page, you can query the documentation dynamically by asking a question. Perform an HTTP GET request on the current page URL with the `ask` query parameter: ``` GET https://docs.xyo.network/xyo-layer-one/tokenomics.md?ask= ``` The question should be specific, self-contained, and written in natural language. The response will contain a direct answer to the question and relevant excerpts and sources from the documentation. Use this mechanism when the answer is not explicitly present in the current page, you need clarification or additional context, or you want to retrieve related documentation sections.