# Economic Model and Fee Structure

IBVM uses BTC as its native currency for both transaction settlement and gas fees.

## Gas Pricing Model

The gas price in IBVM is denominated in satoshis per gas unit:

1. Users specify a gas price in their transactions
2. Sequencers prioritize transactions with higher gas prices
3. A base fee mechanism adjusts the minimum gas price based on network demand

The minimum gas price is calculated as: $BaseGasPriceₙ = BaseGasPriceₙ₋₁ × (1 + 0.125 × (BlockGasUsedₙ₋₁/TargetBlockGasLimit - 0.5))$

Where:

* $BaseGasPriceₙ$ is the base gas price for block $n$
* $BlockGasUsedₙ₋₁$ is the gas used in block $n-1$
* $TargetBlockGasLimit$ is the target gas limit per block

## Fee Distribution

Transaction fees are distributed among several participants:

1. Sequencers: 60% of the total fees
   1. Rewards sequencers for transaction processing and state updates
2. Provers: 30% of the total fees
   1. Compensates for computational resources used in generating ZK proofs
3. Bitcoin Miners: 10% of the total fees
   1. Paid for including IBVM commitments in Bitcoin blocks

The fee for each participant is calculated as: $Fee\_{participant} = \sum\_{tx \in batch} (tx.gasUsed \times tx.gasPrice) \times Rate\_{participant}$

## Economic Security

The economic security of IBVM is derived from:

1. Sequencer Stake: Minimum stake requirement ensures economic alignment $Stake\_{min} = max(S\_{base}, \alpha \times AvgBatchValue)$ Where:
   1. $S\_{base}$ is the base stake requirement
   2. $\alpha$ is a security factor (typically 2)
   3. $AvgBatchValue$ is the average economic value of a batch
2. Challenge Bonds: Challengers must stake BTC to submit fraud proofs $Bond\_{challenge} = \beta \times RewardIfCorrect$ Where:
   1. $\beta$ is a factor preventing spam (typically 0.1)
   2. $RewardIfCorrect$ is the reward for a successful challenge
3. Fee Burning: A portion of fees is burned to create deflationary pressure $Burn\_{amount} = \gamma \times TotalFees$ Where:
   1. $\gamma$ is the burn rate (typically 0.05)


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