Hash Rate - Ep 113 - TAOFu Subnet Seeds

This episode of Hashrate delves into Tau's innovative solution, Subnet Seeds (SNS tokens), designed to alleviate selling pressure on new BitTensor subnet tokens and provide a sustainable fundraising mechanism for subnet owners.

The Challenge of Subnet Tokenomics

• Mark Jeffrey, the host, outlines a critical issue within the BitTensor ecosystem: the economic pressure on subnet owners.
• Initially, subnets received emissions in TAO tokens. Selling these TAO tokens to fund operations, much like Bitcoin miners selling BTC, exerted downward pressure on the TAO price.
• With the advent of Dynamic TAO (DTA), subnets now receive emissions in their own specific "alpha tokens." This forces subnet owners, particularly newer or less capitalized ones, to sell their native alpha tokens to cover costs.
  • Dynamic TAO (DTA): A system in the BitTensor network where subnets earn rewards in their own unique tokens (alpha tokens) based on their performance and stake, rather than directly in TAO. This aims to create individual economies for each subnet.
• This selling pressure directly depresses the price of their individual subnet tokens, creating a difficult environment for growth and investor confidence. Matt from Tau notes, "if you don't have the upfront capital and you're not VC funded, it's a really hard game to play."
• Mark also points out the initial phase for new alpha tokens: "the price of the alpha tokens is super super super high... but also low liquidity. So, the price goes up really quickly, but just down just as fast." This volatility makes it hard for subnet owners to sell strategically.

Tau's Solution: Subnet Seeds (SNS Tokens)

• Matt from Tau introduces their solution: the Tau Launchpad and Subnet Seeds (SNS tokens). This mechanism allows subnet owners to raise capital without directly selling their precious alpha token emissions.
• The core idea is to tokenize the subnet owner's 18% share of alpha token emissions.
  • These owner's alpha emissions are locked into a multi-sig wallet.
    • Multi-sig wallet: A cryptocurrency wallet requiring multiple private keys to authorize a transaction, enhancing security by distributing control.
  • The multi-sig is governed by the subnet owner, Tau, Mog from TAO Stats, and Contango Roundtable, ensuring secure management of the locked alpha tokens. The subnet owner retains proxy access for hyperparameter adjustments but cannot move the locked alpha.
• In place of selling alpha, subnet owners can sell a portion of these SNS tokens, which act as a liquid representation of their share of future alpha emissions.
• SNS token holders gain several benefits:
  • Governance rights over the delegation of the locked alpha emissions.
  • A potential claim to staking rewards generated by the underlying alpha.
  • Subnet-specific perks, such as early access to products, service discounts, or voting rights on the subnet's future direction.
• Matt emphasizes, "what we've done with Tau is we've created a solution to this for subnet owners that allows subnet owners to raise capital without selling any of their alpha."

Mechanics of SNS Tokens and Sales

• SNS tokens are issued on the BitTensor EVM chain.
  • BitTensor EVM chain: An Ethereum Virtual Machine-compatible blockchain integrated with the BitTensor network, allowing for smart contract functionality and easier interaction with Ethereum-based tools and assets.
• Each subnet tokenized will have a fixed supply of 21 million SNS tokens, minted when the sale concludes. This supply represents the locked pool of the owner's alpha emissions.
• Subnet owners decide the "sale allocation" – what percentage of their 21 million SNS tokens to offer for sale. Tau advises starting small (e.g., 10%) to prove the concept and allow for future raises at potentially higher valuations.
• SNS token sales occur on the Tau Launchpad. Post-sale, liquidity is established on a Decentralized Exchange (DEX) by pairing SNS tokens with TAO.
  • This liquidity is provisioned using 10-20% of the TAO raised from the SNS sale, along with a corresponding amount of SNS tokens from the owner's remaining share.
• Mitch from Tau highlights a key benefit: "The SNS by being a proxy of the alpha tokens that a subnet owner would normally have... it's a really nice way for them to enter and exit positions in subnets without having to go through all the back doors." This provides a transparent, open market mechanism for early investors or VCs to manage their positions without negatively impacting the subnet's alpha token price.

Cross-Chain Potential and Investor Accessibility

• The peg between SNS tokens and the underlying alpha tokens is expected to be maintained primarily through arbitrage opportunities.
• Mitch explains that SNS tokens can be listed on any EVM-compatible chain, and with LayerZero integration, potentially on chains like Solana.
  • LayerZero: An omnichain interoperability protocol that enables communication and asset transfers between different blockchains.
• This cross-chain capability significantly broadens accessibility for investors. Mark Jeffrey notes the current difficulty for "Joe 386 pack" (retail investors) to access BitTensor subnet tokens and sees this as a positive step.
• For Crypto AI investors, this means SNS tokens could offer a more familiar and accessible entry point into promising BitTensor subnets, tradable on established DEXs across various ecosystems.

Inaugural SNS Sale: Tau Private Network (TPN), Subnet 65

• Tau's own subnet, TPN (Tau Private Network, Subnet 65), will be the first to conduct an SNS sale.
  • Registration for the whitelist is set to go live at the end of the week of the podcast, with the sale occurring during the week of Proof of Talk in Paris.
• TPN is described by Mitch as "an open layer for commoditization of IP addresses," essentially a decentralized VPN (DPN).
  • It allows developers to build VPN applications on top or leverage its API.
  • BitTensor's incentive layer subsidizes infrastructure costs.
• The AI relevance of TPN, as Mitch outlines, includes:
  • Testing LLM biases by prompting from different geolocations.
  • Facilitating data scraping for AI purposes by bypassing regional restrictions.
  • Enhancing privacy, which is increasingly crucial in the age of AI.
• Strategic Implication: The TPN sale will be a crucial test case for the SNS model. Its success could pave the way for other subnets to adopt this fundraising mechanism, offering investors diversified exposure to the BitTensor ecosystem.

How to Participate in the TPN SNS Sale

• Participants must first register their Ethereum-compatible wallet address (e.g., Talisman, MetaMask) during the registration period to get on the whitelist.
• The sale itself requires TAO tokens. Specifically, native TAO must be bridged to wrapped TAO on the BitTensor EVM chain.
• Tau's launchpad includes an integrated bridge to facilitate this process.
• Matt acknowledges that direct participation with USDC, ETH, or SOL isn't available yet but is a development priority.
• Actionable Insight: Investors interested in the TPN SNS sale should prepare by acquiring native TAO and familiarizing themselves with bridging to the BitTensor EVM.

The Tau Team: Backgrounds and Vision

• Matt: Entered crypto in 2017. Background in industrial and mechanical engineering. Went full-time into crypto in early 2024, joining Imstones (blockchain infrastructure), where he was introduced to BitTensor via the Masa team. His excitement for BitTensor mirrors his initial discovery of Bitcoin. He now handles growth strategy for both Tau and Masa.
• Mitch: Background in traditional field marketing. Crypto investments played a key role during challenging business times, leading him to delve deep into the space around 2020-2021. His journey involved influencer marketing and a focus on capital formation, culminating in the creation of Tau, which evolved from a liquid staking protocol to its current focus on subnet tokenization.
• Both speakers convey a strong belief in BitTensor's potential and the necessity of solutions like SNS to foster a healthier ecosystem.

Are BitTensor Subnets Working? Perspectives 90 Days Post-DTA

• Mark Jeffrey poses the question of whether DTA and subnets are functioning as intended.
• Mitch's View: He believes DTA is a success, enabling projects like their TPN (Subnet 65) to "turn nothing into something." He sees a path to product-market fit and revenue generation that can create network value.
• Matt's View: Largely agrees DTA is a step in the right direction, despite initial hiccups. He states, "turning that over to the free market and allowing anyone who is a TOW holder to vote with their money on where to emissions should go I think was a really great and natural evolution." He highlights that DTA has forced subnets to adopt a business mindset, leading to a surge in product development and innovation.
• Strategic Consideration: The consensus is that DTA, while imperfect, has spurred necessary evolution. Researchers should monitor how subnets adapt to this new economic reality and which business models prove sustainable.

Sustainability of Subnet Models: Shoots vs. Towash

• The discussion touches on prominent subnets like Shoots (AI model access) and Towash (Bitcoin mining).
• Matt's Analysis: He argues that long-term reliance on emissions for subsidization is unsustainable. "Emissions are a form of bootstrapping... there has to be a road beyond that." While acknowledging that startups often burn capital (like OpenAI or Uber), he stresses that the ~$1 billion in annual BitTensor emissions carries a responsibility to build lasting businesses.
  • He views Towash's revenue-generating model (mining Bitcoin) as novel.
  • Shoots has achieved significant user acquisition, but its path to independent monetization is still developing.
• Mitch's Analysis: Concurs with Matt, adding that there's potential for existing Web2 companies to leverage BitTensor to subsidize their operational costs.
• Investor Insight: The debate underscores the critical need for subnets to develop clear paths to external revenue beyond emission subsidies. Investors should scrutinize business models for long-term viability.

Conclusion: A New Funding Paradigm for BitTensor Subnets

This episode underscores Tau's Subnet Seeds as a vital mechanism for BitTensor subnets to raise capital without diluting their native token value. For Crypto AI investors and researchers, SNS tokens could offer a more accessible and sustainable way to invest in the burgeoning BitTensor ecosystem, contingent on the success of early launches like TPN.

Key Takeaways for Crypto AI Investors & Researchers:

• Monitor the TPN (Subnet 65) SNS sale closely as a proof-of-concept for this new funding model.
• Evaluate subnets based on their strategies for achieving long-term revenue streams independent of TAO emissions.
• Consider the potential of SNS tokens to provide diversified, liquid exposure to innovative BitTensor projects.