Babylon Genesis, the Bitcoin staking protocol built with the Cosmos SDK, has officially implemented a new co-staking reward mechanism following the approval of the latest governance proposal and its activation on the mainnet today, November 13.
The approved proposal reduces BABY inflation by 30% and introduces BTC–BABY co-staking, rewarding participants who stake both assets. The update is now fully live on mainnet.
In this article, we take a closer look at this new mechanic and estimate its effect on Babylon Genesis’ staking ecosystem.
A Quick Refresher
Babylon Genesis is a Bitcoin staking ecosystem without wrapped tokens or bridges. BTC remains on the Bitcoin network as stakers delegate to Finality Providers (FPs), who sign checkpoints to secure proof-of-stake chains. Simultaneously, the native token BABY is staked to CometBFT validators to secure Babylon Genesis itself and power governance. In a nutshell, the principal mechanics of Babylon Genesis look as follows.
- Delegators receive BABY tokens by supporting Finality Providers.
- Token holders receive staking rewards, participate in governance, and back validators.
- BABY can be unstaked in roughly two days (after Bitcoin checkpoint verification), far faster than traditional Cosmos chains.
Until now, inflation has been set at 8% annually and is split roughly evenly between BTC and BABY stakers.
For more details on BABY and how Babylon works, be sure to check out our earlier overview.
The Co-Staking Reward Mechanism
The new system reduces inflation by 30%, bringing it down to approximately 5.5% per year, and redistributes rewards as follows.
- 1% to BTC stakers (with commission by finality providers).
- 2% to BABY stakers (with commission by CometBFT validators).
- 2.35% to BTC stakers who also stake BABY (co-staking rewards). Every 20,000 BABY staked makes 1 BTC eligible.
A key feature is the 20,000 BABY per 1 BTC ratio requirement. For every 20,000 BABY staked, one BTC becomes eligible for co-staking rewards. Eligibility is calculated with the formula:
w=min(Bbaby/R, Bbtc),
where R=20,000.
More specifically, if WW is the total co-staker weight across the network, the reward for each participant is as shown below.
Reward=C⋅wWReward=C⋅Ww
where CC is the co-staking reward pool (the 2.35% allocation).
Because of Cosmos SDK limitations, no commissions can be charged on this pool. Instead, small fixed portions are automatically distributed to infrastructure providers:
- 0.075% to active finality providers (by delegation size).
- 0.075% to active CometBFT validators (by delegation size).
For more details, there is a detailed discussion on the matter on the Babylon Genesis’ official forum.
How It Compares
The new system marks a notable departure from Babylon’s original reward model.
| Feature | Previous Mechanism | Co-Staking Proposal |
| Total annual inflation | 8% | ≈5.5% (30% reduction) |
| Reward split | ~4% BTC stakers, ~4% BABY stakers | 1% BTC, 2% BABY, 2.35% co-staking |
| Dual participation incentive | None | BABY required to unlock co-staking yield on BTC |
| Commission | Commission possible on both pools | Commissions blocked on co-staking rewards |
| Complexity | Simple allocation | More complex eligibility, ratio requirements, and fixed provider cuts |
How Would a BTC Staker With and Without BABY Fare?
To illustrate the mechanics, consider a user staking 2 BTC under the new system. Now that the co-staking model is officially live, here’s how it affects BTC stakers depending on whether they also hold BABY tokens.
- Case 1: BTC-only staker (no BABY)
- Eligible only for the 1% BTC staker pool.
- Earns rewards proportionally, subject to FP commissions.
- No share of the 2.35% co-staking pool.
- Case 2: BTC staker with 20,000 BABY
- According to the formula, 20,000 BABY covers 1 BTC.
- Co-staking weight = min(20,000/20,000, 2) = 1 BTC.
- This staker earns:
- Standard 1% BTC rewards on 2 BTC.
- Plus a proportional share of the 2.35% co-staking pool for 1 BTC.
- Case 3: BTC staker with 40,000 BABY
- BABY covers both BTC.
- Co-staking weight = min(40,000/20,000, 2) = 2 BTC.
- This staker earns:
- Standard 1% BTC rewards on 2 BTC.
- Plus co-staking rewards on the full 2 BTC.
So, a BTC staker with no BABY gets rewards only from the 1% pool, while one with sufficient BABY gets rewards from both pools.
What to Watch Now
With the co-staking proposal now approved and officially live on mainnet as of today, November 13, BABY demand among BTC stakers is expected to rise as dual staking becomes more attractive. This is only the first of several planned adjustments to BABY tokenomics, as Babylon prepares to launch Trustless Bitcoin Vaults designed to further expand BABY’s utility.
- Co-staking rewards may be widely distributed if many BTC stakers also acquire BABY.
- If BABY uptake among BTC stakers is limited, rewards could concentrate among a smaller group of dual stakers.
- Reduced inflation may improve BABY’s tokenomics in the long term but could lower yields unless offset by broader participation.
As the testnet deployment draws nearer, the most crucial question for the community is whether co-staking can deliver stronger alignment between its dual communities of stakers.
Conclusion
The approval of the co-staking mechanism isn’t just a numbers update but a real shift in how Babylon Genesis distributes incentives across its two core communities. Lower inflation creates a leaner, more sustainable model, while BTC–BABY dual staking provides participants with a more compelling reason to engage with the ecosystem on both layers, rather than treating them as separate tracks.
And this is only the beginning. With Trustless Bitcoin Vaults already in the pipeline, BABY’s role is likely to expand further, bringing a more integrated staking experience and a tighter connection between Bitcoin security and Babylon’s own network growth. The coming months will reveal how quickly the community adapts, but the direction is unmistakable: Babylon is building a more aligned and intentional tokenomics model than before.
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