- Trending
- Comments
- Latest
Babylon has introduced a governance proposal to reduce token inflation and launch a BTC-BABY co-staking mechanism, a move designed to strengthen demand for its native token while rewarding Bitcoin holders.
Announced on September 29 in a forum post, the plan lowers annual inflation from 8% to 5.5% which a 30% supply reduction while incentivizing users to pair BABY with Bitcoin for enhanced staking yields.
Under the proposal, inflation across Babylon’s ecosystem will be redistributed. Current annual inflation stands at 8%, split evenly between Bitcoin and BABY stakers. The new system would reduce that figure to 5.5% with the following breakdown:
Babylon said this shift represents a transition from an early bootstrapping phase to a model focused on sustainability. The protocol already secures $6.38 billion in staked Bitcoin, according to its official dashboard, giving the network room to recalibrate incentives without losing traction.
This reduction ensures token supply growth slows while still rewarding participation, the Babylon team wrote in its proposal. It reflects our evolution toward a more durable economic framework.
The centerpiece of the proposal is the BTC-BABY co-staking system, which links staking rewards to the pairing of BABY tokens with Bitcoin. For every 20,000 BABY staked, one BTC becomes eligible for boosted rewards.
For example:
By requiring BABY to unlock higher yields, Babylon aims to increase demand for its native token and encourage deeper participation from Bitcoin holders.
“BTC-BABY co-staking is about creating stronger alignment between two key communities as Bitcoin holders and BABY stakers,” said Lina Zhang, a research analyst at Messari. “It transforms BABY from a passive staking asset into an active driver of Bitcoin yield.”
The team plans to launch the feature on testnet in late September, with mainnet activation expected in October.
The BTC-BABY co-staking proposal also lays the foundation for Babylon’s broader roadmap. Once trustless Bitcoin vaults are deployed, native BTC will be able to interact with decentralized finance (DeFi) applications across multiple blockchains, without relying on bridges or wrapped assets.
Babylon noted that its tokenomics will evolve as these vaults roll out, but the immediate priority is to reduce inflation and launch the BTC-BABY co-staking mechanism.
“Aligning Bitcoin with BABY strengthens security and user engagement,” said David Porter, DeFi strategist at Blockworks Research. “If the vaults succeed, Babylon could position itself as a gateway for BTC-native DeFi.”
Initial community reactions to the BTC-BABY co-staking proposal have been largely positive, with stakeholders pointing to the balance between reducing inflation and preserving incentives. Some, however, expressed concerns about whether BABY demand can keep pace with the growing volume of staked Bitcoin.
BABY’s price has remained relatively stable since the announcement, though analysts caution that the impact will depend on adoption once the system goes live.
“Cutting inflation by 30% is significant,” said Zhang of Messari. “But the key question is whether BTC-BABY co-staking generates enough demand to offset reduced baseline rewards.”
If successful, the framework could serve as a model for other blockchain networks seeking to tie their native tokens more closely to Bitcoin’s liquidity.
Babylon’s governance proposal combines two major adjustments: slowing inflation from 8% to 5.5% and introducing BTC-BABY co-staking to align incentives between Bitcoin and BABY holders. By linking token demand directly to Bitcoin yield, Babylon is betting that long-term sustainability will outweigh short-term supply growth.
With testnet deployment imminent and mainnet launch planned for October, the coming weeks will show whether this tokenomics shift strengthens Babylon’s positioning in the fast-evolving staking landscape.
