Hash Rate - Ep 118 - Siam Kidd of DSV $TAO Hedge Fund

This episode features Siam Kidd of DSV $TAO Hedge Fund, who shares his journey from RAF pilot to a dedicated Bittensor investor, revealing his strategies for navigating the emerging decentralized AI landscape and why he believes Bittensor represents an unparalleled asymmetric opportunity.

From Fighter Pilot to Financial Trader: Siam Kidd's Origins

• Siam Kidd, a former RAF pilot, recounts his early foray into trading, which began at age 18. He describes an initial period of significant losses, humorously terming it a "gambling problem," where he blew approximately £2,000 monthly for several years.
• Kidd emphasizes that these early failures were crucial learning experiences. "After sort of four years of, you know, losing about 100 grand, I finally knew what not to do," he states, highlighting that understanding pitfalls was key to his eventual success in trading currencies over two decades.
• Mark Jeffrey, the host, draws a parallel between Kidd's learning curve and the necessity of "taking a punch" in any new venture, be it boxing or startups, underscoring that initial struggles are integral to growth.
• Kidd mentions his obsessive mentality, which led him to focus intensely on trading, causing his Air Force career to decline. A pivotal moment was reading "Rich Dad Poor Dad" by Robert Kiyosaki at 22, which, combined with his trading success, steered him towards entrepreneurship.

The "Five to Nine Game" and Building DSV Fund

• Siam Kidd explains his business philosophy, learned from his mentor John Davy, called the "five to nine game." This involves systematically setting up, running, growing, and selling businesses for progressively larger sums (five figures, then six, seven, and eight figures).
• He critiques the common advice to build a business around one's passion, stating, "The worst thing you can do in business is set up a business around your passion. I've done that six times. And every time I've destroyed a passion."
• Kidd details his experience in buying and selling over 30 companies, culminating in the sale of a crypto PE firm for low eight figures. This success provided the runway to establish DSV Fund, a hedge fund.
• DSV Fund is regulated in the Bahamas by the SCB (Securities Commission of The Bahamas), which Kidd notes is a significant regulatory hub for crypto, despite the negative connotations from FTX's presence there.
• Strategic Implication: Kidd's journey underscores the value of iterative experience in business and finance. For investors, understanding a fund manager's track record and investment philosophy, including their approach to risk and learning from failures, is crucial.

DSV Fund: A Bittensor-Exclusive Hedge Fund

• Siam Kidd reveals that DSV Fund, while documented as a digital asset hedge fund, is currently 100% focused on Bittensor ($TAO). He describes Bittensor as "the best asymmetric trade I've ever seen in my life."
• Bittensor ($TAO): A decentralized network that aims to create a market for artificial intelligence, where AI models are contributed and ranked, and contributors are rewarded in its native token, TAO.
• DSV Fund's primary role, as Kidd sees it, is to "funnel in and attract as much TradFi capital into Bittensor as possible." TradFi refers to Traditional Finance, encompassing established financial institutions and investment vehicles.
• The fund currently brings in about $700,000 a month in inflows, primarily from high-net-worth individuals who prefer a managed fund over directly handling crypto assets. Kidd explains, "These are people that can't play with crypto, won't can't be asked, it's too fiddly, etc. And so we are simply the aperture for them to get TAO exposure."
• A significant challenge is the "massive educational lag," as investors need to understand the opportunity in Bittensor, overcome skepticism about crypto, and grasp its position at the intersection of VC, crypto, and AI.
• Actionable Insight: The existence of funds like DSV highlights a growing demand from traditional investors for exposure to specific crypto AI projects like Bittensor. This signals a maturation of the market and potential for increased capital inflows as educational barriers are overcome.

Absorbing Sell-Side Pressure and the $3,000 TAO Target

• Siam Kidd outlines a strategic goal for DSV Fund: to absorb the sell-side pressure on $TAO, which he estimates at around $20 million per month from exchanges like MEXC and Binance (excluding Coinbase Prime).
• This selling primarily comes from validators, miners, and subnet owners.
• Subnets (in Bittensor): Specialized networks within the broader Bittensor ecosystem, each focused on a particular AI task or domain (e.g., text generation, image creation, data analysis). They compete for TAO emissions based on their performance and value.
• Kidd's ambition is for DSV Fund to "kill the sell side" by matching these sales with inflows from traditional investors, thereby supporting $TAO's price.
• He believes Bittensor "doesn't really get going until TAO is really around about $2,000 to $3,000." Reaching this price level is seen as a catalyst for the ecosystem's full potential.
• Strategic Implication: Investors should monitor the flow of institutional capital into $TAO and the effectiveness of entities like DSV Fund in absorbing sell pressure. A $TAO price of $2-3k is a key psychological and operational threshold to watch.

Institutional Inflows and Ecosystem On-Ramps

• Mark Jeffrey notes hearing from multiple sources about impending "avalanching" institutional money into the $TAO ecosystem and subnets.
• Siam Kidd concurs, mentioning "publicly listed companies about to announce a strategic TAO reserve." He cites examples like Sello, Oblong ($7.5M TAO reserve), and James Altucher's SNPX (planning up to $100M), with another entity reportedly planning a $250M strategic TAO reserve.
• Kidd asserts, "There's really not enough TAO to be gobbled up... TAO has to reprice. It's never a case of there's not enough units of something to be bought. It's always a case of units are not priced high enough for that demand-supply curve."
• Efforts are underway to create on-ramps for consumers from Solana, Ethereum, and Base ecosystems directly into Bittensor and $TAO, addressing current accessibility challenges.
• Actionable Insight: The combination of strategic corporate reserves and improved retail on-ramps could significantly increase demand for $TAO. Researchers should track these announcements and on-ramp developments as leading indicators of price movement and ecosystem growth.

Paris Bittensor Event and Siam's "Mental Scaffolding" for Investment

• Siam Kidd describes his experience at a recent Bittensor event in Paris as "amazing," leaving him even more bullish and feeling "underexposed" despite his significant personal and business investments in $TAO.
• He shares his "mental scaffolding" for investing, rooted in first principles and a focus on networks, virgin landscapes, and ecosystems.
• Historical examples include coding (1960s-80s), the internet, mobile phones, app stores (which "could only have existed if smartphones were there"), and crypto.
• Kidd identified Ethereum in late 2016 as such a virgin landscape due to the ERC20 standard, allowing anyone to create decentralized apps. He invested at $9.
• ERC20: A technical standard used for smart contracts on the Ethereum blockchain for implementing tokens. It defines a common list of rules that an Ethereum token has to implement.
• He views Bittensor's subnets, enabled by the "Revelations" update in October 2023, as "the Ethereum moment, but for decentralized AI innovation." This realization prompted him to pivot his entire portfolio from Casper into Bittensor at around $169 per $TAO.
• Strategic Implication: Kidd's framework suggests that identifying and investing early in "virgin landscapes" with strong network effects can yield outsized returns. Bittensor, with its subnet architecture, is presented as the latest such opportunity in the AI domain.

The Root APY Debate in Bittensor

• A discussion arises about the Root APY in Bittensor. Before subnets and alpha tokens (tokens specific to individual subnets), staking $TAO yielded around 18% APY through emissions. The new system, DTAL (Dynamic TAO Allocation), aims to direct emissions to deserving subnets.
• Root APY: The annual percentage yield earned by staking $TAO on the root network, rather than in specific subnets.
• Alpha Tokens: Tokens issued by individual subnets, representing a stake or utility within that specific subnet. Their value can fluctuate independently of $TAO but is often linked.
• DTAL (Dynamic TAO Allocation): A mechanism in Bittensor that dynamically allocates TAO emissions to subnets based on their performance and market valuation, aiming to incentivize valuable contributions to the network.
• Currently, the Root APY has been as high as 25% post-DTAL and is around 12% at the time of recording. This has led to only about 8.5% of $TAO being staked in subnets, with the rest "hanging out in root earning the easy money."
• Siam Kidd is "on the fence" regarding whether the Root APY is too high. He argues that the primary reason large $TAO holders (top 100 accounts) are not heavily invested in alpha tokens is the "liquidity depth of the [alpha] pools."
• "You could move the APY down to 5% and it won't do anything because the main reason the top 100 accounts are not in alpha is because the liquidity depth of the pools," Kidd states. Whales with large $TAO holdings (e.g., 30,000 $TAO) find it difficult to enter subnet positions without significant slippage.
• Actionable Insight: Investors considering subnet investments must be aware of liquidity constraints. While high Root APY might seem like a deterrent, the practical difficulty of deploying large capital into illiquid subnet markets is a more significant factor for whales. This presents opportunities for smaller, more agile investors.

Subnet Valuations: Beyond Market Cap

• Siam Kidd strongly criticizes the application of traditional crypto metrics like market cap and FDV (Fully Diluted Valuation) to Bittensor subnets. "I personally do not give a [ __ ] about market cap or FDV. They are the most useless metrics in my personal opinion," he asserts.
• FDV (Fully Diluted Valuation): The total value of a crypto project if all of its tokens (including those not yet in circulation) were trading at the current market price.
• He explains that an alpha token's price is determined by the amount of $TAO in its liquidity pool divided by the amount of alpha in the pool. As a subnet performs well, its EMA (Exponential Moving Average) for emissions increases, leading to more alpha tokens being added to the pool, which acts as sell-side pressure.
• EMA (Exponential Moving Average): A type of moving average that places a greater weight and significance on the most recent data points. In Bittensor, it's used to adjust emissions to subnets over time based on performance.
• Kidd presents a metric: "TAO needed to sustain price." For example, the subnet "Shoots" (SN21) at one point needed $90,000 of net buying daily, or $2.7 million monthly, just to maintain its price due to emission-driven sell pressure.
• This leads to his theory of a "very solid price ceiling of one TAO" for any subnet token, and an "almost as strong a price ceiling at half a TAO," at least for the next two years. He believes it's rare for a subnet to sustainably trade above 0.5 $TAO.
• Strategic Implication: Investors should be cautious about using traditional market cap analysis for subnets. Instead, understanding the dynamics of $TAO inflow required to counteract emission pressure and the relative price ceiling against $TAO provides a more nuanced valuation framework. The primary driver of subnet market cap growth will likely be the appreciation of $TAO itself.

Impact of External Subnet Trading and Siam's Investment Thesis

• Mark Jeffrey raises the question of whether subnet tokens becoming tradable on platforms like Solana, Ethereum, or centralized exchanges like Kraken (potentially allowing purchase with USDC or SOL) would devalue $TAO by bypassing it as the reserve currency.
• Siam Kidd doesn't believe this will significantly hurt $TAO, as most current proposals for such liquidity avenues don't bypass $TAO or its liquidity pools. He maintains that "$TAO is most likely going to be repriced as more eyeballs and attention comes onto subnets."
• Kidd distinguishes between DSV Fund's OTC (Over-The-Counter) deals and his personal trading strategy.
• OTC Deals: Direct, off-exchange transactions. For DSV, these involve buying alpha tokens from subnet owners to provide them liquidity, then parking these tokens long-term. "We want to be the friendly... credit card. If they're stuck with cash, use us... and we'll help you out."
• His trading strategy focuses on "TAO amount maximization." He targets subnets that have bled out and bottomed, typically around 0.005 $TAO, aiming for a 5x return in $TAO terms (e.g., to 0.025 $TAO). He then recycles 75% of the profit into new opportunities, keeping 25% in the original subnet.
• "The price of the subnet doesn't have to moon. It just needs to get to like 0.025 TAO. And guess what? I 5x my whole position."
• He avoids the top 15 subnets for this strategy due to their higher valuations making a 5x less likely.
• Actionable Insight: Kidd's dual approach (long-term OTC holds and active $TAO maximization trading) offers a sophisticated model. For researchers, his trading band (0.005 to 0.03 $TAO) for identifying undervalued subnets with high expected value is a concrete strategy to analyze.

DSV's Subnet Selection and "Revenue Search" Podcast

• For OTC deals, Siam Kidd's selection process for subnets mirrors traditional venture capital:
• People: Assessing the C-suite and team. He praises the team behind Score (SN4, Macrocosmos) – Max, Idol, Justin, and Peter – as exceptionally strong with proven business and technical backgrounds. "The C-suite impresses me more than anything."
• Revenue Focus: Prioritizing subnets obsessed with generating revenue and converting a portion of it into alpha token purchases, creating a flywheel.
• DSV has invested in subnets like SN1 (Foundry), SN2, SN13 (ReadyAI), SN25 (Omron), SN33 (David Fields' subnet), SN44 (Synth), and SN50. Kidd highlights Omron (SN25) as potentially very big, echoing Jake (the "Bittensor Guru") calling it "SSL for AI."
• Siam Kidd announces a new podcast, "Revenue Search," launching soon. It will feature short (15-minute) episodes focused solely on subnet revenue announcements, aiming to help "normies and non-coiners understand subnets better."
• Strategic Implication: The focus on strong teams and clear revenue models for subnet investments aligns with traditional VC principles, suggesting a path to maturity for the Bittensor ecosystem. The "Revenue Search" podcast could become a valuable resource for tracking tangible progress.

Conclusion

Siam Kidd's deep dive into Bittensor highlights its potential as a transformative force in decentralized AI, emphasizing that $TAO's true value will unlock as subnets mature and institutional capital flows in. Investors and researchers should monitor subnet liquidity, team quality, revenue generation, and the critical $2-3k $TAO price point as key indicators.