Babylon proposes BTC-BABY co-staking to lower inflation

Babylon has proposed cutting BABY inflation and launching BTC-BABY co-staking, a system designed to align Bitcoin and BABY holders while reducing supply growth.

Babylon has put forward a governance proposal that would cut BABY inflation and introduce a co-staking system linking Bitcoin with the network’s native token.

According to the Sept. 29 forum post, the plan aims to lower annual inflation from 8% to 5.5%, reducing supply growth by approximately 30%. At the same time, a co-staking mechanism would allow Bitcoin (BTC) stakers to boost their rewards by also staking BABY, thereby strengthening demand for the native token.

Inflation adjustment for sustainability

Under the proposal, annual inflation would fall from the current 8%, which is evenly split between Bitcoin and BABY stakers, to a new breakdown of 1% for BTC stakers, 2% for BABY stakers, and 2.35% reserved for BTC-BABY co-stakers. Another 0.15% would be shared between validators and finality providers to maintain network security. 

This adjustment brings overall inflation down to 5.5% per year, slowing the growth of BABY’s supply while preserving incentives for participation. Babylon said the shift reflects a move from bootstrapping adoption to ensuring long-term sustainability, supported by the $6.38 billion in Bitcoin already staked through its protocol.

Co-staking to align holders

The proposed co-staking system ties Bitcoin staking more closely to BABY. For every 20,000 BABY staked, one BTC becomes eligible for extra rewards. A user pairing 6 BTC with 50,000 BABY would earn enhanced returns on 2.5 BTC, while staking 6 BTC with 150,000 BABY would make the entire position eligible.

Babylon said this design strengthens alignment between Bitcoin holders and BABY stakers, giving both groups a direct incentive to participate more deeply in the network. The team expects the mechanism to go live on testnet in late September, with mainnet deployment planned for October.

The proposal also sets the stage for further adjustments once trustless Bitcoin vaults are introduced. These vaults, still in development, will allow native BTC to interact with decentralized finance applications across chains without bridging or wrapping.

Babylon said its tokenomics will evolve alongside these launches, but the immediate step is to reduce inflation and integrate BTC and BABY through co-staking.