Berachain Proposes to Slash BGT Inflation to 5% in Maturity Push

Berachain, an EVM-compatible layer-1 blockchain, has proposed a reduction in BGT inflation from 8% to 5% annually. This decision reflects a move towards maturity and efficiency for the network. Initially, Berachain successfully launched with high inflation rates, but the new lower rates aim to align with competitors like Ethereum.

The proposal keeps the core Proof-of-Liquidity (PoL) mechanics unchanged while adjusting key emission parameters for sustainability. As a result, both validators and token holders will experience reduced yields. However, maintaining ecosystem liquidity remains a priority.

Proposal Mechanics and Rationale

On January 15, 2026, the Berachain team presented a proposal that aims to reduce emissions by adjusting specific parameters in the BGT formula. While the team plans to keep the base rate at its current level, the reward rate will decrease. However, other factors, such as the boost multiplier, the convexity parameter, and the minimum boosted reward, will remain the same.

These changes are anticipated to lead to an annual inflation rate of approximately 5%. Initial analysis indicates that some PoL reward vaults may not hold much value. As a result, by decreasing emissions, effective strategies can be used to encourage liquidity without incurring high costs.

This conclusion is supported by the observation that many Layer 1 networks have adopted lower inflation rates, initially high but crucial for rapidly expanding the validator set and encouraging application onboarding. However, as macroeconomic conditions evolve and the network stabilizes, maintaining high inflation rates no longer makes sense. 

Expected Impacts and Future Outlook

The proposed 5% reduction will impact stakeholders in the ecosystem in various ways. BGT holders and delegates anticipate lower yields because fewer new incentives will be available. In contrast, BERA holders will benefit as their gas token becomes scarcer. However, these stakers may experience lower overall staking rewards due to decreased Proof of Liquidity (PoL) incentives.

Furthermore, validators will continue to receive their base rewards; however, their total incentive payouts will decrease. Decentralized applications and liquidity providers will maintain their existing systems, but the yields measured in BGT units will drop. The proposal does not suggest any immediate changes to how incentives are bid or routed.

The proposed reduction aims to address concerns about dilution for token holders. Additionally, the Berachain team has outlined plans for further reductions through 2027, with the overall goal of enhancing value creation. 

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