diff --git a/src/protocol/tx_validity.md b/src/protocol/tx_validity.md
index 6f1f70d8..02f3129e 100644
--- a/src/protocol/tx_validity.md
+++ b/src/protocol/tx_validity.md
@@ -207,3 +207,14 @@ If change outputs are present, they must have:
 ### State Changes
 
 Transaction processing is completed by removing spent UTXOs from the state and adding created UTXOs to the state.
+
+### Coinbase Transaction
+
+The coinbase transaction is a mechanism for block creators to convert fees into spendable UTXOs.
+
+In order for a coinbase transaction to be valid:
+
+1. It must be a [Mint](../protocol/tx_format/transaction.md#TransactionMint) transaction.
+2. The coinbase transaction must be the first transaction within a block, even if there are no other transactions in the block and the fee is zero.
+3. The total output value of the coinbase transaction cannot exceed the total amount of fees processed from all other transactions within the same block.
+4. The `asset_id` for coinbase transaction outputs must match the `asset_id` that fees are paid in (`asset_id == 0`).