Bittensor's first TAO halving ignites a fierce debate over subnet economics, challenging the "revenue myth" and reshaping liquidity dynamics for AI-driven decentralized networks.
Bittensor's Formative Years & Early Adversity
- Bittensor's nearly five-year journey has been marked by significant technical and community challenges, shaping its current decentralized structure.
- The project launched in November 2020, intentionally matching Bitcoin's software release date.
- Early "catastrophes" included a week-long chain unupdatability due to an accidental block size reduction.
- The current Bittensor (2.0) operates as a fork of the original "Kusanagi chain," necessitated by a 51% Yuma attack from an early miner.
- “The first catastrophe was done by me and you about a week into the launch in November. we uh decided to bring down the weight of the um extrinsic blocks and accidentally made it so that you it's so small that you can't even pass code to actually update the chain and so the chain became unupdatable for like what is it a week after that we were trying to fix it.” Speakers recount early technical failures, with Jake (implied) detailing the chain unupdatability.
The Halving's Bullish Catalyst
- The community anticipates the first TAO halving, drawing parallels to Bitcoin's scarcity model and projecting positive long-term impacts.
- The halving reduces TAO emission by half, mirroring Bitcoin's scarcity mechanism to enhance value.
- Historical data shows every prior reduction in TAO earned per miner (due to increased network participation) positively impacted project growth.
- The halving is expected to create a "much more dynamic version of dTAO" by adjusting liquidity levels.
- “Anytime a basically over the last 5 years every time like the in Kusanagi because there was only like a few people you could make a lot of tow and now that there's way more people the amount of TA that you make is way less as a miner and so with the happening that's going to continue to increase and every time that's happened in Bed Tensor um it's been positive for the growth of the project so I imagine that the havinging will be no different to that than that.” Arash expresses strong bullish sentiment, while an unnamed speaker connects past emission reductions to project growth.
TAO Flow & Asymmetric Liquidity Pools
- Core developers detail recent and upcoming changes to Bittensor's economic model, focusing on TAO Flow and Automated Market Maker (AMM) enhancements.
- TAO Flow (a mechanism tying subnet emissions to the Exponential Moving Average (EMA) of net staking) increases kurtosis of emission, rewarding subnets that attract and hold TAO.
- Current subsidization conditions are "awkward," where price exceeding emission triggers subsidization due constrained price ratios in existing AMMs.
- Upcoming Balancer-style pools will provide asymmetric liquidity, allowing the chain to subsidize subnets more sensibly when prices are too low, rather than when they exceed emissions.
- Research explores biasing liquidity towards TAO to facilitate price increases and resist decreases.
- “What we're going to do is we're going to introduce ideally um balancer style pools where we can provide liquidity asymmetrically. So we can move away from this subsidization condition where price is greater than emissions which is a very strange thing.” Max, leading the research team, outlines AMM improvements; Rob notes TAO Flow's "snappier" response and better incentives.
Debunking the "Revenue Myth"
- A critical discussion emerges regarding the necessity of external revenue for subnet sustainability, particularly for research-focused projects.
- Commodity subnets (e.g., Celium 51, Targon) provisioning expensive resources do require revenue to offset high operational costs.
- Research subnets (e.g., Red Team, Yanise, Ridges) with lower development costs have less immediate need for external revenue, relying more on investor speculation and community engagement.
- Sam argues that an overemphasis on immediate revenue can stifle innovation, pushing projects towards "Web2 equivalent of Bittensor" (SaaS models) rather than groundbreaking research.
- Michaela emphasizes long-term vision, comparing subnet potential to "trillion-dollar deals" and offering "VC-level money as an average person" through early investment.
- “If you're focused on revenue month, you're just going to build a [expletive] SAS. So I'm not and I'm not saying like it's a bad thing, but revenue shouldn't drive us because once you once you see that revenue, then what?” Sam challenges the "revenue fetish"; Arash highlights the importance of storytelling and KPIs for growth; Michaela advocates for long-term, speculative investment in research subnets.
Alpha Token Dynamics & Market Elasticity
- Speakers analyze the halving's impact on alpha token liquidity and pricing, addressing concerns about miner emissions and market stability.
- The halving reduces TAO emission by half, but also the growth rate of alpha tokens, leading to higher volatility in subnet liquidity pools post-halving.
- Subnets currently exhibit "too much liquidity relative to market caps," making price increases difficult. The halving will shift this to "much less liquidity relative to market cap," fostering a more elastic market.
- Miners are paid in alpha, and alpha prices are tied to TAO. If TAO pumps, alpha tokens pump equivalently, mitigating direct negative impact on miner rewards.
- The "myth" that subnets must halve miner emissions post-halving is dispelled; existing liquidity (e.g., Shoots having more liquidity than the USDC/USDT pool on Ethereum) suggests this is unnecessary.
- “One of the things that's that's really overlooked about the having is that even though tow mission is now dropped in half so is the growth rate of alpha in right so subnets subnet liquidity pools are now more constrained and will have higher volatility when when purchases occur.” T-Slice predicts short-term bearishness on alpha denominated in TAO but long-term bullishness for TAO itself; Mark Jeffrey voices concerns about hard-cost subnets but acknowledges current stability.
Investor & Researcher Alpha
- Capital Movement: Capital shifts from overly liquid subnets to more elastic, potentially higher-volatility subnets. Investment flows towards subnets effectively sequestering TAO (TAO Flow winners) and into TAO itself as a primary asset, with alpha tokens following its price action. VC-level conviction is required for early-stage research subnets.
- New Bottleneck: For new subnets, bootstrapping initial liquidity and achieving positive TAO Flow without established community or revenue presents a challenge. For all subnets, demonstrating compelling product-market fit and a clear "up and to the right" growth story (KPIs, margins) becomes crucial for attracting long-term holders over short-term traders.
- Obsolete Research Direction: The singular focus on immediate external revenue generation for all subnet types, especially for research-oriented projects, is challenged. This opens space for innovation-first approaches.
Strategic Conclusion
The TAO halving marks a critical juncture for Bittensor, moving towards a more capital-efficient and innovation-driven ecosystem. The industry must now prioritize long-term value creation and community-driven stake sequestration over short-term revenue metrics, fostering a new era of decentralized AI development.
