This episode provides a masterclass on the intricate tokenomics of Bittensor's Dynamic TAO (DTO), revealing how emissions, injections, and the upcoming halving create a complex but deliberate economic environment for subnets.
Deconstructing Bittensor's Emission Model
- TAO Emissions: One new TAO is created per block and distributed among all subnets based on their respective emission rates (e.g., a subnet with 10% of the network's weight receives 0.1 TAO per block). This TAO is "ownerless" liquidity within the subnet's on-chain automated market maker.
- Root vs. Alpha Holders: The popular 60/40 split refers to the distribution of Alpha tokens, not TAO. Maciej explains, "Technically 0% [of TAO emissions] go to root... what happens is all the TAO emissions are going to subnets and then later on there's the process of root proportion that is selling alpha for TAO."
- Root Proportion: This is a mechanism that determines how validator rewards are split. A portion of Alpha earned by validators is automatically sold for TAO on behalf of Root stakers, while the remainder is distributed as Alpha to Alpha holders.
Liquidity Injections: The Engine of Subnet Growth
- Injection vs. Emission:
- Injection: Refers to new tokens created by the chain that go directly into a subnet's liquidity pool.
- Emission: Refers to new tokens created by the chain that are distributed to network participants (owners, miners, validators).
- Pool Dynamics: Every block, one TAO is injected into the pools. Alongside this, a variable amount of Alpha, between zero and one, is also injected. This rate is determined by the ratio of the subnet's TAO emissions to its Alpha price, creating a self-balancing system.
The Subsidy Mechanism: The Chain as a Buyer of Last Resort
- Subsidy Trigger: When a subnet's Alpha price falls below its TAO emission rate, the chain intervenes. It uses its newly emitted TAO to buy that subnet's Alpha from the pool and subsequently burns it.
- Actionable Insight: This mechanism creates buy pressure on undervalued subnets, encouraging the sum of all subnet prices to converge toward one. However, Maciej cautions it is not a perfect floor. "It's possible that the sum of prices can drop below one... it's encouraging the sum of prices to be at one or above but it doesn't guarantee that." If market sell pressure from participants outpaces the chain's buy pressure, prices can still fall.
The TAO Halving: Impact on Liquidity and New Subnets
- Halved Injections: The TAO block emission will be cut from 1.0 to 0.5. Consequently, the maximum Alpha injection will also be halved to 0.5 to maintain price neutrality.
- No Change to Participant Rewards: Crucially, the Alpha emissions distributed to subnet owners, miners, and validators will not change with the TAO halving. These rewards operate on a separate, much longer halving schedule (estimated at ~2.5 years).
- Strategic Implication: Existing subnets are "golden children." Post-halving, new subnets will take twice as long to build the same level of liquidity, creating a significant competitive advantage for the established 128 subnets.
Alpha Emissions: Who Gets What and Why
- Subnet Owner: Receives a fixed 18%.
- Miners: Receive 41% for performing the computational work.
- Validators & Holders: Receive the remaining 41%. This portion is then subject to the Root Proportion split.
- Root Proportion in Action: At a subnet's launch, Root Proportion is 100%, meaning all validator rewards are sold for TAO and given to Root stakers. As of the 200-day mark, this has shifted to a ~60/40 split, with 60% going to Alpha holders and 40% being sold for TAO for Root stakers. This creates sell pressure but also deepens pool liquidity.
The Rationale Behind a Complex System
- Preventing Manipulation: The high initial sell pressure makes it prohibitively expensive for malicious actors to pump the price of a new, low-liquidity subnet to capture emissions.
- Controlling APY: Without this mechanism, early Alpha holders would have received "insane" APYs (estimated in the thousands of percent), creating unsustainable economic incentives.
- Bootstrapping Liquidity: By selling Alpha, the Root Proportion mechanism adds more tokens to the pool than injections alone, building a more stable and liquid market faster.
Recycling vs. Burning: A Key Bittensor Distinction
- How Recycling Works: When TAO is spent on subnet registration, the majority of it is recycled. This means the tokens are deleted, and the chain's total issuance counter is wound back as if those tokens were never created.
- The Difference from Burning: A standard burn deletes tokens but leaves the total issuance unchanged. Recycling effectively erases the tokens from history.
- Current State: TAO recycling now only occurs during subnet registration. Miner and validator registrations now recycle Alpha, not TAO, by staking TAO into the pool, taking out Alpha, and recycling the Alpha.
Conclusion: Navigating the Economic Gauntlet
This deep dive reveals Bittensor's tokenomics as a system of temporary "guardrails" designed to foster fair distribution and deep liquidity. For investors, understanding that the current sell pressure is a feature, not a bug, is critical for identifying value in subnets poised to thrive once these initial constraints are lifted.
