This episode unpacks the burgeoning BitTensor subnet ecosystem through the lens of SwordScan, revealing how social mindshare and on-chain data can signal early investment opportunities in decentralized AI projects before they hit the mainstream radar.
Introducing SwordScan: A New Lens on the BitTensor Ecosystem
- Mark Jeffrey introduces Nick from SwordScan, a new tool designed for the BitTensor (TAO) ecosystem. Nick explains SwordScan's core philosophy: moving beyond simple on-chain data or market cap charts to gauge subnet activity based on social discussion, development buzz, and overall "mindshare." It aims to provide a qualitative, sentiment-driven view of which subnets are generating the most attention and activity within the community. Nick states, "Our philosophy really is what's being the most talked about, who's building what, and just to give you kind of an outlook on... things that you're not going to see from staring at a chart."
Decoding BitTensor: Subnets, Miners, and Validators Explained
- To set the stage for listeners less familiar with BitTensor, Mark provides a high-level overview. He describes BitTensor as an "AI incubation meets blockchain thing," where the TAO blockchain incentivizes the creation of AI applications through subnet tokens.
- Subnets: These are framed as decentralized, open-source AI companies competing within the TAO ecosystem, analogous to venture-backed AI startups but currently at much lower valuations.
- Miners & Validators: Nick offers an analogy to clarify roles within a subnet. Miners perform the core AI work (e.g., making predictions), while Validators act as judges, assessing the miners' outputs and distributing rewards (TAO emissions) based on performance. This creates an incentive-driven system for AI development. Mark adds his "Hunger Games" analogy, where miners are contestants and validators are judges within each subnet's competitive arena.
The Subnet Market: Growth, Valuation, and Early Opportunities
- The conversation highlights the rapid growth and current state of the subnet market. Mark notes the total market cap recently surged from roughly $50 million to $270 million across approximately 88 subnets. Nick emphasizes the perceived undervaluation, pointing out that the entire subnet ecosystem's market cap is less than some individual tokens on other chains. He suggests, "...the quality of the work being produced and... the achievements that these companies are... doing is severely undervalued." This presents a potential opportunity for investors who understand the space.
Spotlight on Shoots (SN21): Dominance and Innovation
- Shoots (Subnet 21), developed by Rayon Labs, is discussed as the current market leader, boasting a ~$50 million market cap and capturing a significant share (around 17-18%) of TAO emissions due to its high valuation. Mark reads a recent update from Rayon Labs mentioning exponential user growth (15,000 new users in 24 hours) and processing over 30 billion "tokens" (AI processing units, not crypto tokens) in a day, primarily via OpenRouter.
- AI Tokens Explained: Nick clarifies that these "tokens" relate to the computational units consumed when users interact with AI models (e.g., prompting ChatGPT). The high number indicates significant usage and platform adoption.
- Business Model: Shoots' success isn't driven by direct user fees but by earning substantial TAO emissions, effectively subsidizing their free model hosting service.
- Squad Platform: Nick introduces Squad, Rayon Labs' new no-code AI agent builder. This platform integrates Shoots, Gradians (SN1, for inference/training), and Subnet 19, allowing users to easily assemble custom AI agents without coding. Nick anticipates this will be a key monetization strategy and highlights its potential impact: "...creating something that 3 years ago would have taken somebody three, four, five weeks to code out in... probably 10 minutes."
Navigating the Subnet Landscape: Valuations and Potential
- Using Backdrop Finance as a visual aid, Mark walks through the market cap rankings, showing Shoots at the top ($50M), followed by Targon (~$26M), Gradians, Templar, etc., down to subnets with much lower valuations. He specifically points out Hippius (SN30), a decentralized storage solution analogous to Filecoin, valued at only ~$3 million compared to Filecoin's multi-billion dollar valuation. This stark difference exemplifies the potential valuation gap between BitTensor subnets and their centralized or VC-backed counterparts, suggesting significant room for growth if these subnets gain traction.
Introducing SwordScan: Gauging Subnet Mindshare
- Mark transitions back to SwordScan, framing it as a crucial tool for investors trying to navigate the ~100 subnets and identify promising ones early. Nick elaborates on its function as a "subnet mindshare and data aggregation platform."
- Methodology: SwordScan scrapes data primarily from X (Twitter), analyzing interactions (likes, retweets, comments) related to subnet accounts. Custom algorithms score subnets based on visibility, engagement, and discussion volume, providing a dynamic ranking of which projects are capturing the most attention. Nick emphasizes the goal: "...make it a lot easier for people to stay in the know."
SwordScan Deep Dive: Features and Functionality
- Nick provides a brief demo of the SwordScan interface:
- Heatmap: The main page displays a dynamic heatmap where the size of each subnet's box corresponds to its current mindshare ranking. Shoots and Gradians (both Rayon Labs) are shown prominently. This offers a quick visual overview of trending subnets.
- Individual Subnet Pages: Clicking on a subnet (e.g., Templar) reveals detailed information:
- Price chart and market cap data.
- Liquidity pool statistics (TAO and Alpha token amounts).
- Emissions data (work in progress).
- Mindshare Tab: This core feature shows a chart tracking the subnet's interaction score over time, alongside rankings for volume and engagement relative to other subnets. Nick clarifies the engagement score (e.g., 37/100) is a calculated metric based on relative activity, adjusted for follower count differences.
- Holder Analysis (Premium): A feature (requiring Shogun token holding for access) breaks down holders into Shrimps (<$1k), Dolphins ($1k-$10k), and Whales (>$10k). It shows holder counts, distribution percentages, and a chart overlaying price action with buying/selling activity from each group. Nick notes, "You can really see... who's affecting the chart."
Applying SwordScan: Identifying Investment Signals
- The discussion highlights how SwordScan's data can surface potential investment opportunities or trends:
- Massa (SN11): Mark notes Massa consistently ranks high on SwordScan's mindshare heatmap but has a lower market cap ranking, suggesting a potential disconnect where attention hasn't yet translated into price action – a possible leading indicator.
- Synth (SN50): Nick explains Synth, linked to the Mode L2 on Optimism, recently jumped significantly in mindshare (from ~50th to 14th) and saw its market cap quadruple after Mode began actively promoting and developing it. This demonstrates how shifts in attention, tracked by SwordScan, can precede price movements.
- Templar (SN18): Discussed as a decentralized AI training network aiming to aggregate distributed GPU power. Its high mindshare is partly attributed to mentions by BitTensor founder Const. Nick sees it as having strong potential for mainstream adoption. The holder analysis for Templar shows a high concentration of whales (~90%), typical for higher-ranked, more established subnets.
- Shoots Entry Example: Nick shares how he used the holder analysis chart for Shoots. He observed whales selling off (driving price down) while shrimps and dolphins were consistently accumulating. Recognizing this pattern of supply distribution, he signaled a buying opportunity via Twitter shortly before Shoots began a major price ascent. Mark confirms the value of such insights during the chaotic early days of subnet launches.
Understanding Subnet Tokenomics: AMM, Liquidity, and Fair Launch
- Mark explains the unique nature of the BitTensor Automated Market Maker (AMM). It's built into the base layer of the TAO chain, not a separate application.
- Single Point of Access: Currently, it's the only place to buy subnet Alpha tokens, requiring TAO.
- Bootstrapped Liquidity: When a subnet launches, the chain itself seeds the initial, very small liquidity pool. Alpha tokens are gradually emitted into this pool daily.
- High Initial Slippage: This low initial liquidity means early large buys incur massive slippage (e.g., 30-400%), effectively preventing whales from dominating new launches and promoting a fairer distribution. Nick confirms, "It defeats the whales so everybody has a fair shot."
- Dilution vs. Growth: Mark addresses the ~2.5% daily emission/dilution rate, noting that while high, it has been vastly outpaced by the market cap growth of successful subnets due to their extremely low starting valuations.
Investment Strategy: Fortune Favors the Bold in Early Subnets
- The conversation touches upon the investment philosophy required for the early subnet market. Mark recounts the uncertainty during the initial launch phase, contrasting voices advising caution with those advocating for early, bold moves. He draws parallels to early Ethereum investing and Warren Buffett's advice to bet large on high-conviction opportunities. Both agree that early investors who navigated the uncertainty and took calculated risks have been significantly rewarded so far. Nick adds that many who initially advised waiting are likely reconsidering, as TAO staked in Root yields less than potential subnet gains.
Technical Breakthrough: Transferable Staked Subnet Tokens
- Mark shares a recent discovery: contrary to his previous understanding, staked subnet Alpha tokens can be transferred directly between wallets using a tool found on TOstats.io. He verified this himself, transferring tokens without incurring slippage, proving it wasn't an unstake-swap-restake process. This implies the staked tokens themselves are transferable units.
The CEX Horizon: Implications of Transferability for Listings
- This transferability discovery has significant implications:
- CEX Listing Feasibility: It means centralized exchanges (CEXs) like Kraken can technically list subnet Alpha tokens directly, something Mark previously thought impossible.
- Kraken's Validator Role: Kraken recently became a BitTensor validator. Mark and Nick interpret this as a strategic move to potentially front-run other exchanges in listing subnet tokens, allowing them to capture trading fees and validator rewards. Mark posits Kraken might list Shoots first.
- Binance Precedent: Mark recalls how Binance gained massive traction by being the first CEX to distribute GAS tokens to NEO holders on their platform, suggesting a similar opportunity exists for the first CEX to list subnet tokens and pass through the associated TAO emissions to holders.
Ecosystem Outlook: Popping the TAO Bubble
- Both speakers agree the current TAO ecosystem feels like a "small bubble," relatively insulated from the broader crypto market. They believe CEX listings, enabled by token transferability and driven by exchange profit motives, could be the catalyst that "pops that bubble," bringing mainstream attention and liquidity. Nick asserts, "...the one entity that pops that bubble... will be the one that benefits from it the most." Mark mentions poking the Winklevoss twins (Gemini) about listing TAO, suggesting growing interest from major players, potentially hindered only by regulatory hurdles (like New York's BitLicense). The fact that Coinbase already lists TAO is seen as a positive sign for future subnet token listings.
Conclusion: Strategic Takeaways for Crypto AI Investors
- The discussion highlights the strategic value of blending social sentiment analysis (mindshare via SwordScan) with on-chain data to navigate the BitTensor subnet market's early, volatile phase. Transferable staked tokens open the door for CEX listings, potentially catalyzing mainstream adoption. Investors should monitor mindshare trends and CEX developments closely.
