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Economics

Taiko fee flow, proposer and prover bonds, and TAIKO token utility — the economic model behind the based rollup.

Taiko's economic model ensures fair compensation for the actors who operate the network -- proposers and provers. 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:

FunctionDescription
Proving bondsProposers deposit TAIKO tokens as a liveness bond when submitting a proposal. This bond ensures proposers are economically committed to seeing their proposals proved.
GovernanceTAIKO 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 ComponentAllocationRecipient
Priority fee100%Configured L2 fee recipient (block.coinbase)
Base fee100%Configured L2 fee recipient (block.coinbase)

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. Unlike on Ethereum, the L2 base fee is not burned.

Both fee components are credited to the configured L2 fee recipient (block.coinbase). For regular proposals, this address can differ from the account that submits the proposal on L1.

Proposer Economics

Proposers (or preconfers) bear costs for L1 operations and proving. They can receive L2 transaction fee income by controlling the configured fee recipient or through an agreement with that recipient.

Revenue

When the proposer controls the configured fee recipient or is entitled to all of its fee income, it receives:

  • Priority fees from all transactions in the blocks they propose.
  • Base fees (100%) from all transactions in the blocks they propose.

Costs

CostPaid ToDescription
L1 gas feeEthereum L1Gas cost of calling propose on the Inbox contract to submit the proposal on-chain.
Prover feeBlock proverCompensation to provers for generating validity proofs. This is negotiated off-chain between proposers and provers.
Liveness bondInbox (returned after proving)TAIKO tokens locked when submitting a proposal. Returned once the proposal range has been proved (which finalizes it).

Profitability Considerations

A proposer is profitable when:

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

Only fee income the proposer is entitled to receive counts as its revenue. If the configured fee recipient shares only part of its fees with the proposer, only that share enters this comparison.

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

CostDescription
ComputationGenerating SGX attestations or ZK proofs requires significant computational resources. SGX proofs are cheaper; ZK proofs are more expensive.
L1 gasSubmitting proofs to Ethereum L1 via Inbox.prove incurs gas fees. Proving a range of proposals in a single submission amortizes this cost.

Economic Cycle Summary

The full economic cycle flows as follows:

  1. Users pay ETH gas fees for L2 transactions.
  2. Configured L2 fee recipients (block.coinbase) receive the full transaction fees (priority fee and base fee). Proposers receive this income when they control the recipient or are entitled to it under an agreement.
  3. Proposers pay L1 gas to submit proposals, lock a TAIKO liveness bond, and pay provers.
  4. Provers generate proofs, earn prover fees, and pay L1 gas to submit proofs.
  5. 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.