This episode convenes an expert panel to dissect the initial 90-day performance of Dynamic Tao (dTAO), debating its effectiveness in fostering high-quality AI subnets and exploring the evolving economic and strategic landscape for Crypto AI investors and researchers.
1️⃣ Episode Introduction
- This expert panel dives deep into the first 90 days of Dynamic Tao (dTAO), scrutinizing its impact on subnet quality, tokenomics, and the strategic path forward for AI development within the BitTensor ecosystem.
2️⃣ dTAO: Initial 90-Day Assessment – Is It Working?
- The panel kicks off by evaluating whether dTAO, a system where subnet market capitalization dictates Tao emission routing, is achieving its goal of letting the market identify and reward quality AI projects.
- David Fields (Subnet 33 Ready AI), taking a longer-term view, acknowledged the significant technical achievement of launching dTAO with minimal initial problems. However, he expressed concern that "we're not getting the desired outcome of participation in alpha at a really material level," with only 7-8% of Tao staked for subnet tokens. He noted that current activity often reflects low-liquidity behavior rather than responses to substantial subnet updates, and pointed out that less Tao is currently staked in subnets than has been emitted by the chain since dTAO's inception.
- dTAO (Dynamic Tao): A system in the BitTensor ecosystem where each AI subnet has its own "alpha token." The market capitalization of these alpha tokens determines the share of Tao emissions directed to that subnet and its token holders.
- Alpha Tokens: Tokens specific to each subnet, obtained by staking Tao, representing a share in that subnet's success and emission rewards.
- Keith Singery (tao.com, BitTensor Guru Podcast), an OG in the space, stated dTAO is "working a hell of a lot better than what we had previously," as the market now determines emissions instead of validators. However, he echoed David's sentiment on low participation, highlighting static top holder wallets and trading driven by "socials and the different momentum that happens when projects are releasing." He believes the system is currently "treading water" awaiting the "next big wave" of inflows.
- Michael White (BitTensor Fund 1) agreed that the dTAO protocol "worked flawlessly" as designed. He highlighted David's point about the "very very elevated yield for people staking to root," suggesting that rewards might not be commensurate with the risk taken by root stakers compared to subnet stakers. He believes while the system functions, there's "still room to make some improvements" in yield distribution.
3️⃣ The "Root" of the Problem: Is Root Yield Too High?
- Discussion shifted to the persistently high yield for staking Tao to the root network (around 17-23% APY), which was initially expected to decrease significantly, thereby incentivizing movement into subnet alpha tokens.
- David Fields explained that the initial "Tao weight" (a parameter influencing emission distribution) was set to stabilize subnets in early low-liquidity phases. While this worked, he now advocates for adjusting it to "get more participation in alpha." His hot take: "I don't actually know that that's better necessarily for alpha holders because there are all of these tradeoffs... if we sort of sit in this holding pattern where now all of us who are heavily allocated into alpha are earning 80 to 100% APY."
- Root Network/Staking: The foundational layer of the BitTensor network. Staking Tao to the root network provides broad network security and validation, earning stakers a share of Tao emissions.
- Tao Weight: A parameter in dTAO that influences the proportion of emissions going to root stakers versus subnet alpha token holders.
- Keith Singery concurred that root yield is too high but was uncertain about immediate intervention, noting "the thing is actually kind of working the right way." He acknowledged David's proposal for a "halving event" on root APY but also suggested patience, as the current high APY for alpha holders provides comfort "as we wait for the next wave."
- Michael White argued the "onus needs to be on every subnet owner to produce a product that attracts investment." He believes forcing participation via protocol adjustments is not the ideal solution. Instead, he emphasized the need for "significant tradfi capital to come in," such as VC funding or strategic investments from industry players looking to build open-source solutions on BitTensor.
4️⃣ Defining the Ideal Successful Subnet: Revenue vs. Subsidization
- The panel debated the characteristics and economic models of a successful subnet, questioning whether they must generate external revenue or can thrive on Tao emissions alone.
- Keith Singery believes a successful subnet "unlocks the intelligence behind the mining pool" by creating incentive mechanisms that foster increasing levels of intelligence. He argued, "you don't need outside revenue," suggesting the original BitTensor model can work if demand for the alpha token and Tao is sufficient, making the system self-sustaining, similar to Bitcoin's model.
- Michael White contended that "not a single subnet owner has figured it out" yet and that each needs to define its own intentional business model, whether internal to the Tao ecosystem or an external-facing product. He stressed the importance of user-friendly interfaces, citing Shoots' early success. While advocating for eventual "external facing revenue generating products," he cautioned against demanding immediate revenue, stating teams need "grace and patience."
- David Fields, from a subnet owner and investor perspective, emphasized that "subnets need to demonstrate the value of their commodity to the outside world." He sees dTAO as a forcing function for this. He believes in strategic positioning against Web2 competitors, leveraging advantages like cost, and cited examples like PayPal's early user acquisition strategies as potentially analogous to how subnets might use emissions to gain traction before achieving profitability.
5️⃣ Navigating Token Sales: Subnet Owner Funding and Market Perception
- The conversation addressed the sensitive topic of subnet owners selling their alpha tokens to fund operations, and how this is perceived by the market under dTAO.
- David Fields shared that, based on data, "when a high quality subnet sells a reasonable amount of their token, the market doesn't seem too concerned about it." He argued practically that if subnets cannot sell tokens in their early years, "I don't think we're going to attract anyone to build on BitTensor." He stressed the need for communication and suggested a period (e.g., 100-150 days) of holding before sales might be acceptable.
- Keith Singery took a direct stance: "subnet owners can sell... the market will react or not react to that and the chips will fall where they may." He believes if investors trust the subnet owners, they accept this as part of the value proposition, with on-chain transparency holding owners accountable.
- Michael White firmly stated, "subnet owners should absolutely be free to sell their alpha tokens." He highlighted the significant opportunity cost for subnet owners and advocated for multiple funding options, including traditional VC investment (if value accrues to the alpha token, like DSV Fund's investment in Subnet 44) and even credit facilities. He pointed out the practical cash needs for taxes and growth, especially for US-domiciled teams.
6️⃣ Subnet Metrics and Valuation: Beyond "Sum to One"
- The panel discussed Sammy Kassab's (Unsupervised Capital) recent article on subnet valuation, touching on metrics like Fully Diluted Value (FDV) versus circulating supply, and the "sum of subnets tending to one Tao" theory.
- David Fields found Sammy's article insightful, agreeing that looking solely at FDV "is probably missing how to really think about the value of the subnet at this moment in time." He highlighted Sammy's points on considering the ~50% supply emitted in the first 24 months and the impact of high APY on an investor's effective cost basis.
- FDV (Fully Diluted Value): The total market capitalization of a token if all possible tokens (including those not yet in circulation) were issued.
- APY (Annual Percentage Yield): The real rate of return earned on an investment, taking into account the effect of compounding interest.
- Michael White praised Sammy's analysis, wishing for more mathematical depth. He believes that as capital from other blockchains flows into BitTensor subnets, traders will focus on "market cap as opposed to fully diluted value." He urged investors: "don't invest in a subnet because somebody else likes it... do the work for yourself."
- Keith Singery, emphasizing how early the ecosystem is, noted that only ~5.5% of the first 64 subnets' alpha tokens have been emitted. He sees "so many paths for this thing to explode," including new capital inflows and pressure from declining root APY. He anticipates a FOMO-driven "domino effect" leading to subnet prices exceeding the "sum to one" theory for a considerable period.
7️⃣ Vibe Check: Subnet Quality, Innovation, and Future Outlook
- The panelists provided their overall sentiment on the current state and future potential of BitTensor subnets.
- David Fields assessed overall subnet quality as "really high" across various categories. However, he expressed a desire to "see a new subnet emerge that isn't tied to some OG in the space in some material way," to demonstrate BitTensor's appeal to entirely new teams. He plugged an upcoming Tao-focused agent from Ready AI.
- Michael White was "optimistic," praising the "phenomenal" quality and caliber of individuals on subnet ownership teams. He highlighted the increasing collaboration between subnets (e.g., Templar on Shoots via Subnet 64) as a positive sign, declaring, "I'm ready for Subnet Summer."
- Keith Singery noted that subnet quality is rising due to competition. He believes the next major leap will occur "when artificial intelligence to catch up with BitTensor," enabling easier development and true democratization of AI. "That's what I'm waiting for with BitTensor is like for it to go into easy mode." He plugged an upcoming app from tao.com and Subnet 81 Patrol.
8️⃣ Reflective and Strategic Conclusion
- The panel reveals dTAO is a functional but evolving mechanism, with current low participation creating high alpha APYs but also highlighting the need for subnets to prove external value. Investors should monitor participation rates, subnet revenue models, and the potential for new capital inflows as key indicators.
