Economics

Fees, bonds, and token economics on Taiko.

Taiko's economic model ensures fair compensation for the actors who operate the network -- proposers and provers -- while sustaining long-term protocol development through the Taiko DAO Treasury. The model is designed around the based rollup architecture, where fees flow through a transparent on-chain cycle.

TAIKO Token

The TAIKO token serves two primary functions in the protocol:

Function	Description
Proving bonds	Proposers deposit TAIKO tokens as a liveness bond when submitting a proposal. This bond ensures proposers are economically committed to seeing their proposals proved.
Governance	TAIKO token holders participate in protocol governance through the Taiko DAO, controlling smart contract upgrades, network parameters, and treasury allocation.

Transaction Fee Flow

When a user submits a transaction on Taiko L2, they pay a standard EVM gas fee denominated in ETH. This fee has two components, allocated as follows:

Fee Component	Allocation	Recipient
Priority fee	100%	L2 block proposer
Base fee	75%	L2 block proposer
Base fee	25%	Taiko DAO Treasury

The priority fee incentivizes faster transaction inclusion -- transactions with higher priority fees are more likely to be picked up by proposers (or preconfers). The base fee is determined by EIP-1559 dynamics on L2.

Proposer Economics

Proposers (or preconfers) earn revenue from L2 transaction fees and bear costs for L1 operations and proving.

Revenue

Priority fees from all transactions in the blocks they propose.
75% of base fees from L2 transactions.

Costs

Cost	Paid To	Description
L1 gas fee	Ethereum L1	Gas cost of calling `propose` on the Inbox contract to submit the proposal on-chain.
Prover fee	Block prover	Compensation to provers for generating validity proofs. This is negotiated off-chain between proposers and provers.
Liveness bond	Inbox (returned after proving)	TAIKO tokens locked when submitting a proposal. Returned once the proposal range has been proved (which finalizes it under Shasta).

Profitability Considerations

A proposer is profitable when:

L2 fee revenue > L1 gas cost + prover fee + opportunity cost of bond

Under Shasta, a single proposal can carry many L2 blocks, amortizing the L1 gas cost across all included blocks. This makes small, frequent blocks economically viable -- an important property for preconfirmations.

Prover Economics

Provers generate validity proofs (SGX, ZK) for contiguous proposal ranges and submit them to Ethereum L1.

Revenue

Prover fees paid by proposers. The fee amount is determined by the market -- proposers and provers negotiate off-chain, and competitive dynamics drive fees toward the cost of proof generation.

Costs

Cost	Description
Computation	Generating SGX attestations or ZK proofs requires significant computational resources. SGX proofs are cheaper; ZK proofs are more expensive.
L1 gas	Submitting proofs to Ethereum L1 via `Inbox.prove` incurs gas fees. Proving a range of proposals in a single submission amortizes this cost.

Taiko DAO Treasury

The Taiko DAO Treasury receives 25% of the L2 base fee, providing sustainable funding for:

Protocol development and research
Security audits and bug bounties
Ecosystem growth and partnerships
Governance operations

The treasury is managed by the Taiko DAO, which controls fund allocation through on-chain governance.

Economic Cycle Summary

The full economic cycle flows as follows:

Users pay ETH gas fees for L2 transactions.
Proposers collect transaction fees, pay L1 gas to submit proposals, lock a TAIKO liveness bond, and pay provers.
Provers generate proofs, earn prover fees, and pay L1 gas to submit proofs.
Taiko DAO Treasury receives 25% of the base fee for protocol sustainability.
Ethereum L1 receives gas fees from both proposers and provers, plus MEV revenue from proposal ordering.

This creates a self-sustaining cycle where each participant is economically incentivized to perform their role, and the protocol itself accumulates resources for long-term development.