This episode reveals Bittensor's strategic shift towards a resilient internal economy, driven by Targon's anti-fraud technology and the controversial TFlow upgrade, forcing investors to re-evaluate subnets based on verifiable work and economic viability.
Targon's $10.5M Raise and High-Profile Backing
- James Woodman begins by detailing Targon's recent $10.5 million funding round led by OSS Capital. He highlights the strategic importance of bringing on legendary angel investors like Tobias Lütke (Shopify founder) and Ram Shriram (founding Google board member).
- James explains that while the capital provides firepower, the primary goal was to align with partners who understood Targon's core mission without altering its fabric.
- He notes the skepticism traditional tech investors have towards Crypto AI, but argues that the performance degradation and scaling issues of centralized AI (like ChatGPT) make the decentralized alternative a compelling narrative.
- According to James, these high-profile investors provide a crucial “stamp of approval,” bringing Bittensor's potential into the boardrooms of major tech companies and validating the long-term vision.
"It gets Bittensor closer to these... Mag 7 boardrooms where we can really have a serious conversation when the time is right."
The Strategic Pivot: Fortifying Bittensor's Internal Economy
- The conversation shifts to Targon's role within the Bittensor ecosystem, specifically its support for other subnets like Ridges (Subnet 62). James Woodman frames this not as a simple client relationship but as a core part of a unified strategy, viewing the entire network as a single company.
- James emphasizes his perspective: "I very much view Bittensor as a company... we want to help Shaquille [of Ridges]." This philosophy dictates that strengthening any part of the network strengthens the whole.
- Targon provides "priority zero" support for fellow subnets, building features on demand to ensure their production workloads are successful. This internal focus is a deliberate pivot from earlier ambitions of courting large enterprise clients.
- This strategy positions Bittensor as Targon's "crossing the chasm" market. By first dominating this internal market and proving the economic model, they can build a resilient foundation before tackling external enterprise sales.
Introducing TVM: A Solution to Weight Copying
- TEE (Trusted Execution Environment): A secure, isolated area within a processor that guarantees the code and data inside are protected from tampering, even from the machine's owner.
- James explains that Targon's TVM (Trusted Virtual Machine) uses TEEs to force validators to prove they are running real, specified hardware. This is achieved through an attestation process where the hardware's keys are verified directly by the manufacturer (e.g., NVIDIA, Intel).
- This directly combats weight copying, a practice James describes as a "massive leech on the network." Weight copying occurs when a validator or miner submits another's results without performing the computation, earning rewards dishonestly and diluting the network's value.
- As of October 27th, all Subnet 4 validators must pass TVM attestation to earn VTrust, effectively eliminating weight copying on their subnet for the first time in Bittensor's history. Other subnet owners can now adopt this solution to ensure useful work and prevent yield from going to "cockroach leeches."
The TFlow Upgrade: A Necessary Catalyst for Economic Resilience
- TFlow (TAO Flow): An incentive mechanism that measures the amount of TAO being sequestered or "flowing into" a subnet's token. It rewards subnets that demonstrate real market demand and economic utility.
- Mark raises the initial concern that TFlow could create a "death spiral" for compute subnets like Targon, whose miners exert constant sell pressure to cover operational costs, creating negative TAO flow.
- James offers a strong counter-argument, stating he is now a "big fan of TFlow." He believes it forces subnets to become "gross margin positive" and build a self-sustaining internal economy, preventing capital from leaking out to centralized providers like AWS and CoreWeave.
- This change narrows Targon's focus squarely onto serving the Bittensor network, reinforcing the "domestic policy" of strengthening the internal ecosystem before engaging in "foreign policy" with outside enterprises.
Governance in Bittensor: A Beneficent Dictatorship?
- The discussion explores the nature of governance within Bittensor, prompted by the top-down implementation of TFlow by Const (the "super subnet" operator).
- Mark observes that Bittensor currently operates more like a "super company" with centralized guidance rather than a fully permissionless protocol like Ethereum. Const's ability to "alter the deal" highlights this dynamic.
- James agrees, framing it as a necessary phase. He argues that true decentralization cannot be spawned overnight and must be earned. He compares the situation to early Ethereum, where Vitalik Buterin held significant influence.
- He views the current structure as a "beneficent dictatorship," where decisive leadership from experienced, heavily invested individuals like Jake and Const is crucial for navigating the network's early, complex stages. The success of past complex upgrades, like the DTO launch, has built trust in this leadership.
The Future of Research vs. Revenue Subnets Under TFlow
- The final segment addresses a critical strategic question: How can long-term, non-revenue-generating "research subnets" (like those building frontier models) survive in a TFlow world that rewards immediate economic activity?
- The concern is that subnets focused on ambitious, multi-year research goals will be starved of emissions because they lack a mechanism to drive constant buy pressure for their tokens.
- James aligns with Const's vision that speculation on a powerful, long-term vision can drive demand, similar to how investors fund OpenAI despite its massive cash burn.
- Crucially, he proposes a symbiotic economic model: revenue-generating subnets like Targon, benefiting from positive TFlow, will be incentivized to reinvest their earnings into promising research subnets. This ensures the entire "company" of Bittensor can fund its own ambitious R&D and compete with centralized giants.
Conclusion
This conversation underscores a pivotal moment for Bittensor, as the TFlow upgrade forces a focus on internal economic resilience and verifiable work. For investors and researchers, the key takeaway is that a subnet's ability to generate real TAO flow and contribute to the network's GDP is now the primary metric for long-term success.
