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Babylon has introduced a proposal to decrease BABY inflation while implementing BTC-BABY co-staking, aimed at enhancing alignment between Bitcoin and BABY holders, as well as curbing supply growth.
Summary
- The initiative seeks to reduce inflation from 8% to 5.5%.
- BTC-BABY co-staking creates alignment between Bitcoin and BABY holders.
- Testnet is scheduled for September, with the mainnet launch in October.
Babylon has put forth a governance initiative aimed at reducing BABY inflation and launching a co-staking feature that connects Bitcoin to the native token of the network.
As stated in the forum post from Sept. 29, the strategy aspires to lower annual inflation from 8% to 5.5%, cutting supply growth by around 30%. This co-staking mechanism would enable Bitcoin (BTC) stakers to enhance their rewards by also staking BABY, thereby increasing the demand for the native token.
Adjusting inflation for longevity
The proposal outlines that annual inflation would decrease from the current 8%—shared equally between Bitcoin and BABY stakers—to a new distribution: 1% for BTC stakers, 2% for BABY stakers, and 2.35% allocated for BTC-BABY co-stakers. An additional 0.15% will be distributed among validators and finality providers to ensure network security.
This realignment reduces overall inflation to 5.5% annually, slowing down the growth of BABY’s supply while still encouraging participation. Babylon expressed that this change represents a shift from merely fostering adoption to ensuring long-term stability, bolstered by $6.38 billion worth of Bitcoin already staked through its protocol.
Co-staking to unify holders
The suggested co-staking model improves the connection between Bitcoin staking and BABY. For every 20,000 BABY staked, one BTC qualifies for additional rewards. For instance, a user staking 6 BTC along with 50,000 BABY would receive enhanced returns on 2.5 BTC, whereas pairing 6 BTC with 150,000 BABY would make the entire amount eligible for these rewards.
Babylon noted that this mechanism enhances the alignment between Bitcoin holders and BABY stakers, providing incentives for both groups to engage more actively in the network. The team plans to launch this mechanism on testnet by late September, with the mainnet rollout expected in October.
The initiative also lays the groundwork for further enhancements once trustless Bitcoin vaults are ready. These vaults, currently in development, will enable native BTC to engage with decentralized finance applications across blockchains without needing bridging or wrapping.
Babylon stated that its tokenomics will adapt alongside these developments, with the immediate focus being on lowering inflation and integrating BTC and BABY through co-staking.
