This episode breaks down how Chutes, Bittensor's top subnet, is building a decentralized AI compute powerhouse that undercuts major cloud providers by 85%, creating a compelling but complex investment case driven by a unique tokenomic model.
Introducing Chutes: The "Squarespace for AI"
- The host introduces Chutes as the number one subnet on Bittensor, a decentralized network for AI. Chutes provides compute-as-a-service, allowing users to run popular AI models like DeepSeek and Mistral with push-button simplicity, bypassing the complex setup required on platforms like AWS.
- Core Value Proposition: The host compares Chutes to Squarespace, highlighting its user-friendliness for deploying AI models without needing specialized IT staff.
- Market Dominance: Chutes has become a major provider of decentralized compute, serving the majority of the free version of the DeepSeek model available on OpenRouter, a popular AI model aggregator.
- Cost Advantage: A key draw for users is its cost-effectiveness. The host states, “it costs 85% less than what you would pay elsewhere which is absolutely mind-blowing.” This massive discount presents a significant competitive advantage over centralized incumbents.
Use Cases and Performance at Scale
- Chutes supports a wide array of AI applications, demonstrating its versatility. The platform's performance metrics indicate significant adoption and processing power, rivaling established centralized players.
- Supported Applications:
- Text-to-video generation and image editing.
- Model Training: This process allows users to create specialized AI by training a base model on company-specific data, such as for a custom customer service bot.
- AI transcription, music generation, and content moderation.
- Building custom user interfaces and AI workflows.
- Performance Metrics: Chutes processes nearly 160 billion AI tokens per day. An AI token is a fundamental unit of information processed by a model, conceptually similar to a neuron firing. This throughput is massive, placing Chutes at a scale comparable to where Google was just a year ago.
- Explosive Growth: Demand for Chutes' compute has grown 250x since January, signaling rapid market traction and validation of its decentralized model.
Revenue Model and Alpha Token Buybacks
- Chutes has evolved its business model from offering free AI to a sophisticated revenue system that directly benefits its token holders. This model now includes fiat payment options, broadening its accessibility beyond the crypto-native community.
- Payment Flexibility: Users can now pay with a credit card, removing the need to acquire or handle cryptocurrency. This strategic move allows non-crypto AI developers to seamlessly use the network.
- Value Accrual Mechanism: All revenue, whether in fiat or Bittensor's native TAO token, is used to buy back the Chutes Alpha Token.
- Alpha Tokens Explained: In the Bittensor ecosystem, each subnet has its own unique token, called an Alpha Token, which represents a share in that specific project. The buyback mechanism creates direct demand for the Chutes Alpha Token, linking the platform's revenue directly to the token's value.
Analyzing the Tokenomics: Buy Pressure vs. Emissions
- The host presents a critical analysis of Chutes' tokenomics, drawing on insights from Siam, a prominent hedge fund manager in the Bittensor space. The core challenge lies in balancing the buy pressure from revenue against the sell pressure from new token emissions.
- Emissions Pressure: The Bittensor blockchain constantly creates, or emits, new Alpha Tokens as rewards, similar to how Bitcoin mining generates new BTC. This creates inherent, ongoing sell pressure as recipients may sell these new tokens.
- The Math:
- To counteract emissions and keep the price stable, Chutes requires approximately $80,936 worth of buy pressure daily.
- However, Chutes' weekly revenue of $61,000 generates only $8,714 in daily buybacks.
- The Gap: This analysis reveals that revenue-driven buybacks currently offset only about 10% of the sell pressure from token emissions. The remaining 90% of buying must come from organic market demand for the Chutes token.
Future Outlook and Market Catalysts
- Despite the token's recent underperformance, the host notes that its price appears to be stabilizing. Several upcoming catalysts could significantly increase buying pressure and drive future growth for Chutes and other Bittensor subnets.
- Strategic Considerations for Investors:
- The host points to the potential for the price to be bouncing off of a bottom, suggesting a possible entry point for investors who believe in the long-term thesis.
- Upcoming integration of subnet tokens on the Solana blockchain is expected to improve liquidity and accessibility.
- Anticipated institutional investment from new crypto hedge funds and treasuries could bring significant capital into the ecosystem.
- Market Size: The AI inference market, which Chutes serves, is currently a $106 billion industry projected to grow to $255 billion, indicating a massive addressable market for decentralized solutions.
Conclusion
Chutes presents a powerful case for decentralized AI compute with its impressive growth and cost advantages. However, investors must weigh its operational success against the significant token emissions. The key variable for future growth will be whether organic market demand and new catalysts can outpace this inflationary pressure.
