dTao after 120 days :: Tao Weight Debate (Bittensor Community call)

This episode dissects the contentious Tao weight mechanism within Bittensor's dTAO framework, exploring its impact on subnet economics, investor incentives, and the delicate balance between Tao stakers and subnet alpha token holders approximately 120 days post-implementation.

The Unfolding Debate on Tao Weight

• The discussion, initially unplanned for the "Novelty Search" podcast, quickly centered on Tao weight (also referred to as root weight or Tao prop), a critical parameter in Bittensor's dTAO (Dynamic Tao) system. dTAO is the mechanism governing the economic interactions between the main Tao network and its specialized subnets.
• Keith, a community member, initiated the explanation, stating, "when subnet prices um go up the earnings um on well really across the board but it's manifested in in route um I think most notably uh go up as well and that creates um a beneficial mechanism for you know securing the early stage subnetss against manipulation because it puts downward pressure on [prices]." This highlights Tao weight's dual role in rewarding Tao holders and maintaining subnet stability.
• David, who has proposed changes to Tao weight, elaborated that Tao weight was intended to manage the influence of Tao (staked on the root network) versus alpha tokens (subnet-specific tokens) in subnet validation. This was crucial for protecting new subnets from "Sybil attacks" (where an attacker creates many fake identities to gain undue influence) by alpha holders and for distributing network emissions.
• The initial Tao weight was set at 0.18 (18%). David noted that this didn't directly decay root's percentage over time but did so indirectly as emissions flowed into alpha pools, gradually shifting dominance. He estimated that after 100-120 days, the balance was roughly 50/50, and at the time of discussion, closer to 60% alpha and 40% root influence.

Strategic Implication for Investors/Researchers: Understanding the mechanics of Tao weight is fundamental for assessing risk and reward in both Tao staking and subnet investments. The current 60/40 alpha/root split indicates a maturing dTAO system but also fuels debate on whether the parameters remain optimal.

Revisiting dTAO's Genesis and Tao Weight's Rationale

• Const, the host, framed the discussion around the 90-120 day mark of dTAO being live, suggesting it's an opportune time to review its performance.
• He revisited the core reasons for implementing Tao weight:
  • No Premines: Bittensor avoided pre-allocating tokens to founders. Without Tao weight, the first alpha token holders on a new subnet could receive astronomical APRs (Annual Percentage Rates), creating imbalance. An APR is the annualized return on an investment.
  • Preventing Consensus Attacks: If initial alpha tokens held all the validation weight, a single entity could easily launch a "human consensus attack," effectively controlling the subnet.
  • Gradual Transition: Tao weight facilitates a smoother, more controlled shift of influence from Tao to alpha tokens over time.
  • Emission Distribution via Price: Tao emissions (newly created Tao tokens) are distributed to subnets based on their token prices, a market-driven heuristic for perceived value.
  • Curbing Price Manipulation: Tao weight creates inherent sell pressure on subnet tokens. This makes it difficult for subnets to artificially inflate their prices to infinity to capture all Tao emissions, a behavior observed in early dTAO moments. Const explained, "if you push your price to infinity, right, imagine how much tow it would require to maintain a price in order to cheat the emission schedule."

Strategic Implication for Investors/Researchers: The design of Tao weight directly addresses early-stage vulnerabilities in decentralized networks, particularly those involving token emissions and market-based rewards. Investors should note how this mechanism attempts to foster fair competition and prevent systemic gaming.

David's Proposal: Adapting Tao Weight for Maturing Subnets

• David acknowledged the dTAO design was "essential" for securing subnets during their early, low-liquidity phases.
• His core question is whether the current Tao weight and its implicit decay function are still appropriate now that there's more operational data. He asked, "is the balance...is this variable of tow weight or sort of the decay function is it the right um is it the right decay function now that we have a bit more data?"
• David proposed introducing "halvings" of the Tao weight function, specific to each subnet, possibly around 90 days after its creation. This would reduce Tao's influence (and associated sell pressure) once a subnet has stabilized.
• He highlighted practical challenges for subnet owners in marketing and attracting users when significant Tao-driven sell pressure exists, especially in the first 45-60 days.

Strategic Implication for Investors/Researchers: David's proposal signals a potential evolution in dTAO to better support subnets post-stabilization. Researchers should consider the trade-offs between Tao's network-wide security/liquidity provision and individual subnets' need for greater economic autonomy as they mature.

Const's Alternative: Subnet-Determined Tao Weight with Proportional Emissions

• Const acknowledged the desire for subnets to have more control over their economics, aligning with the principle of decentralization.
• He floated an idea being discussed internally: allowing subnets to set their own Tao weight, potentially even to zero.
• Crucially, if a subnet reduces its Tao weight, its share of Tao emissions would decrease proportionally. Const explained, "if no one did and one subnet drops it, you know, to 9%, so it dropped it in half, then the emissions that it was receiving would drop in half."
• This mechanism aims to prevent manipulation where a subnet could reduce Tao influence (and sell pressure) to zero while still receiving full emissions funded by the Tao network.

Strategic Implication for Investors/Researchers: This concept introduces a dynamic, competitive element to Tao weight. Subnets could choose their level of integration with Tao's economy, but this would directly impact their Tao emission rewards. This could lead to a diverse ecosystem of subnets with varying economic models.

The Role of Miner Emission Adjustments

• The discussion touched upon a recent change allowing subnets to adjust (burn) emissions allocated to their miners.
• Fish, a subnet owner, strongly supported this, stating, "the minor emission burning works really well for us as a pure commodity subnet. I think we have an OB obligation as subnet owners to sort of modify the tokconomics of our subnets so that we're not being wasteful." He emphasized aligning miner rewards with actual demand to prevent paying for unused compute.
• Rob, another subnet owner, agreed, noting it helped during transitions. He desires even more flexibility, such as adjusting the owner's cut versus miner rewards to attract more GPUs for specific tasks like model training. He argued that more freedom attracts builders who might otherwise start their own chains.

Strategic Implication for Investors/Researchers: The ability for subnets to control miner emissions is a step towards greater economic customization. This allows for more efficient resource allocation within subnets, potentially leading to more sustainable and specialized AI services.

The "Tensor Intern" Interlude

• A bot, "Tensor Intern," provided a humorous yet pointed critique of various subnets, calling out inactive development, low validator uptime, and reliance on emissions rather than revenue.
• Quotes like, "If your subnet's revenue model is just emissions, delete your hotkeys immediately," and "Subnet 51, Celium, I see your commits are emptier than a helium balloon at a funeral," added a moment of levity while underscoring real-world performance expectations.

Debating the "Fairness" and Impact of Root Tao Yield

• Keith expressed concern that Tao's yield (derived from Tao weight across subnets) could act as an "anti-subnet success" force, encouraging a flight of capital from riskier alpha tokens back to "safer" Tao if Tao APRs become too attractive relative to subnet performance.
• Const countered that APRs for both alpha and Tao rise proportionally with subnet price increases.
• Keith clarified his point: the perceived "zero risk" of Tao (beyond token price volatility) combined with a substantial APR can be more appealing than higher but riskier alpha APRs, a psychological factor he believes is evidenced by market behavior.
• Fish offered a contrarian view: "I love root prop. Honestly, I love that subnets need buying pressure. They need demand to be able to maintain their price." He sees it as a mechanism that filters out non-performing subnets and creates buying opportunities in promising ones.
• Const largely agreed with Fish, viewing Tao weight as an essential anti-gaming mechanism preventing subnets from manipulating prices without genuine buy pressure.

Strategic Implication for Investors/Researchers: The debate over Tao's yield highlights the complex incentive structures. While designed for stability, its interaction with market psychology and risk perception is a key area for ongoing observation. Fish's perspective suggests Tao weight acts as a market discipline mechanism.

Long-Term Considerations and Tao's Role

• Max, from the Bittensor team, mentioned that they have modeled dTAO using differential equations and could optimize for specific objectives if those objectives were clearly defined (e.g., a target Tao APR). However, the precise optimization goal remains elusive.
• MK (relayed by Const or speaking directly) provided historical context: Tao weight was once considered at 5% but raised to 18% as it's easier to decrease than increase. He questioned the long-term value provided by root Tao staking once its role in consensus security diminishes.
• Const responded that Tao provides its inflation (7200 Tao/day) as liquidity to stimulate the ecosystem. A concern he raised is the observed divergence on tao.app (a Bittensor analytics site) between Tao emitted and Tao actually present in subnet liquidity pools, suggesting Tao might be "extracting" more value than it contributes directly to these pools. He mused, "Maybe that's the invariant that we should follow, right? 100% of the emission should end up in submit pools."
• MK also pointed out that the upcoming Tao halving (an event reducing Tao inflation) would relatively increase the sell pressure from Tao weight if Tao weight itself isn't adjusted.
• Keith, in a late contribution, argued strongly against zero Tao emissions, stating it would devalue Tao (due to ongoing inflation without staking rewards), remove staking incentives vital for network security (especially for Proof-of-Stake), increase Tao price volatility, and ultimately destabilize subnet economies. He asserted, "The emissions on route have multiple factors from the stabilizing factor...to be a downwards force on...negative impacts...to be an encouragement to hold...and to be an encouragement to remain staked which also helps to secure the network as a whole."

Strategic Implication for Investors/Researchers: The long-term vision for Tao's role and its economic relationship with subnets is still evolving. The Tao halving and the ongoing debate about fair value exchange between Tao and subnets are critical factors that will shape Bittensor's future. Keith's points underscore the multifaceted utility of Tao staking rewards beyond simple yield.

Conclusion: Patience and Iteration in a Live Experiment

The discussion underscores that dTAO and Tao weight are part of a live, evolving economic experiment; while adjustments are being considered, any changes will be approached with caution and over extended timeframes to avoid abrupt market disruptions. Investors and researchers should monitor these discussions closely, as they directly influence the risk, reward, and strategic positioning within the Bittensor ecosystem.