This episode dives into the hidden economics of GPU scarcity—how AI and crypto are colliding over compute power, and what this means for investors.
Maciej Kula on Bittensor's Core Mechanics and Recent Updates
Maciej Kula, founder of LearnBittensor.org and part of Latent Holdings, returns to discuss critical, often misunderstood, aspects of Bittensor. He highlights the upcoming Tao halving and recent changes like TaoFlow and MEV shields, emphasizing the importance of understanding underlying fundamentals. Maciej's expertise, drawn from his deep involvement in Bittensor's ecosystem, provides a grounded perspective on these complex topics.
Demystifying Bittensor: LearnBittensor.org's Educational Approach
LearnBittensor.org aims to provide a guided learning path for individuals, from crypto novices to experienced users, focusing on the "why" behind Bittensor's mechanisms. Unlike the more developer-focused documentation maintained by Latent Holdings, LearnBittensor breaks down technical aspects into accessible language. This approach ensures users understand the core principles, allowing them to adapt to future changes without needing to relearn entirely new concepts.
Unpacking Chain Buys: A Long-Standing Mechanism for Price Stabilization
Maciej clarifies a common misconception: "chain buys" have existed since DTO (Decentralized Training Organization) in February, not as a recent addition. This mechanism activates when a subnet's alpha price drops significantly relative to its Tao emissions.
- Mechanism Explained: If Tao emissions (e.g., 1 Tao) divided by alpha price (e.g., 0.5) would result in injecting more than one alpha token into the pool (e.g., 2 alpha), the system downscales the alpha injection to one. To maintain the price ratio, the Tao injected is also reduced (e.g., to 0.5 Tao). The "excess" Tao (e.g., 0.5 Tao) is then used by the chain to buy the subnet's alpha token, creating buy pressure and increasing the alpha price.
- Strategic Implication: This mechanism acts as a built-in price floor, preventing excessive alpha inflation and stabilizing subnet token values. Investors should recognize chain buys as a long-standing, active component of Bittensor's tokenomics, influencing subnet price dynamics.
The Tao Halving: Impact on Liquidity, Not Participant Rewards
The upcoming Tao halving, estimated for December 15th, is a significant event often misunderstood. Maciej emphasizes that the Tao halving only reduces the issuance of Tao into subnet pools, thereby decreasing the liquidity growth for subnets.
- Key Distinction: It does not reduce rewards for participants, such as miner incentives or validator dividends (APYs). These rewards are tied to alpha emissions, which follow a separate halving schedule.
- Impact on Subnets: A halving of Tao emissions means the amount of alpha injected into subnet pools will also drop by half, assuming constant prices. This will lead to more volatile staking and unstaking for newer or smaller subnets due to reduced liquidity injections.
- Strategic Implication: Investors should adjust their expectations regarding liquidity growth in subnet pools post-halving, particularly for newer or less established subnets. This could affect entry and exit strategies for subnet tokens.
Alpha Injection Dynamics and Halving Schedule Adjustments
Maciej details how the alpha injection cap and halving schedules have been refined.
- Alpha Injection Cap: The cap for alpha injected into subnet pools remains at one alpha per block for the next two years, synced with the alpha halving schedule, not the Tao halving. While Tao halving reduces the amount of alpha injected, the cap itself remains at one, allowing for potential increases if subnet emissions rise or prices fall.
- Halving Compression Fix: Previously, alpha halvings were prone to "compression," meaning they would occur faster than the intended two-year cycle. This was due to the alpha injected scaling with Tao halvings. This issue has been fixed by syncing the alpha injection scale with alpha emissions, ensuring alpha halvings occur at their intended pace.
- Strategic Implication: The adjusted alpha injection cap and fixed halving schedules provide more predictable long-term inflation dynamics for subnet alpha tokens. Researchers should model these changes to better forecast token supply and potential price impacts.
TaoFlow: Shifting to Inflow-Based Emissions for Sustainable Growth
TaoFlow represents a fundamental shift from price-based to inflow-based emissions, addressing several critical issues.
- Problem Solved: Previously, high prices could lead to high emissions, building up "dead liquidity" that slowly bled out. TaoFlow removes liquidity from the equation, focusing purely on continuous inflows of Tao.
- Mechanism: Emissions are now based on the Exponential Moving Average (EMA) of Tao inflows into a subnet. The EMA has an infinite look-back, with a 30-day half-life, meaning recent inflows have the most significant impact. Subnets with negative inflow EMAs receive zero emissions.
- Impact: This change allows subnets to maintain emissions with lower prices if they consistently attract new Tao. It also means that fewer, higher-performing subnets might receive emissions, concentrating rewards and incentivizing genuine value creation. Maciej notes that some subnets are already losing emissions due to negative inflows.
- Strategic Implication: This is a crucial shift for subnet valuation. Investors and researchers must now prioritize subnets demonstrating consistent Tao inflows and strong community engagement over those merely maintaining high prices. This incentivizes active participation and growth.
Combating MEV: Bittensor's Transaction Encryption Solution
Bittensor is actively addressing the Maximal Extractable Value (MEV) problem, where transactions are front-run, leading to higher slippage for users.
- The Problem: Currently, pending transactions sit in a public "mempool," allowing malicious actors to see and front-run them by submitting their own transactions before the original.
- The Solution: Bittensor is implementing an optional "MEV shield" that encrypts pending transactions. This prevents others from reading the transaction details in the mempool, making front-running impossible.
- Strategic Implication: This enhancement significantly improves transaction security and fairness for all users, especially those with larger wallets or engaging in frequent trading. Platforms and interfaces are encouraged to integrate this feature automatically, making Bittensor a more secure environment for on-chain activity compared to other blockchains still grappling with MEV.
Enhancing Security with Proxy Wallets: Types and Use Cases
Maciej expresses strong support for proxy wallets, highlighting their ability to enhance security and isolate risk.
- Core Function: A proxy allows one account (e.g., a daily-use wallet) to perform specific actions on behalf of another account (e.g., a secure cold wallet) without exposing the cold wallet's private key. This is achieved by signing transactions with the proxy account.
- Benefits: If a proxy wallet is compromised, only the delegated permissions (e.g., staking/unstaking) are at risk, not the entire fund transfer capability. The connection can be revoked immediately.
- Proxy Types:
- Staking Proxy: Allows staking and unstaking for a cold wallet.
- Owner Proxy: Enables subnet owners to manage subnet parameters without exposing their main key.
- Small Transfer Proxy: Permits transfers up to 0.5 Tao, limiting exposure.
- Transfer Proxy: Allows transfers of any size.
- Root Claim Proxy: Specifically for updating the root claim type (keep/swap).
- Accessibility: The upcoming BT key support will make proxies much more accessible, enabling broader adoption.
- Strategic Implication: Crypto AI investors should strongly consider implementing proxy wallets for enhanced security, especially for managing significant holdings or active staking. This best practice minimizes exposure to common attack vectors.
Root Claim Evolution: Keep, Swap, and the New Delegate Default
Maciej explains the evolution of the root claim mechanism, which governs how Tao stakers on the root subnet receive alpha dividends.
- Root Claim Explained: Staking Tao on the root subnet earns alpha dividends from subnets where the chosen validator is active.
- Previous Mechanism (Swap): Alpha dividends were automatically sold for Tao through subnet pools, negatively impacting subnet prices.
- Current Options: Users can choose "swap" (sell alpha for Tao) or "keep" (accumulate alpha tokens).
- New Default (Delegate): The default behavior will change to "delegate," empowering validators to decide whether their nominators' alpha dividends are kept or swapped. This gives validators more authority over their stakers' alpha management.
- Discussion Point: There's ongoing debate about whether validators' default should be "keep," as this would mean 90%+ of root Tao stakers would suddenly receive 128 different alpha tokens, potentially without their explicit consent or understanding.
- Strategic Implication: This change significantly impacts how root stakers receive rewards. Investors must understand the "delegate" default and actively manage their root claim type if they have specific preferences (e.g., accumulating specific alpha tokens). Validators' decisions will now directly influence the token holdings of their nominators.
Understanding Root Proportion Dynamics
Maciej clarifies the calculation and implications of the root proportion.
- Calculation: Root proportion is determined by the amount of Tao staked on the root subnet relative to the total alpha supply (in pools and staked by participants), using a constant factor (currently 18%).
- Historical Trend: The root proportion has decreased significantly from 100% in February to approximately 20-22% today. This reduction is primarily due to the continuous issuance of more alpha tokens per block.
- Impact: A lower root proportion means that the root subnet's influence on the total stake in each individual subnet is reduced. If Tao staked on root were to decrease substantially, the root proportion would also fall, further diminishing its influence.
- Strategic Implication: Researchers should monitor the root proportion as an indicator of the root subnet's relative influence within the broader Bittensor ecosystem. A declining proportion suggests a more decentralized distribution of staking power across individual subnets.
Mastering Bittensor: Thinking from First Principles
Maciej's ultimate advice for achieving expert-level understanding in Bittensor is to think from "first principles."
- Beyond Surface-Level: Instead of just learning how a mechanism works, understand why it exists and what purpose it serves. When concepts change (e.g., price-based to inflow-based emissions), this fundamental understanding allows for adaptation.
- Example: Emissions: Both price-based and inflow-based emissions fundamentally aim to incentivize bringing Tao into subnets. However, inflow-based emissions remove liquidity from the equation, focusing purely on continuous buying activity. This shift makes sense when viewed through the lens of incentivizing active, positive network participation.
- Strategic Implication: For Crypto AI investors and researchers, adopting a first-principles approach is crucial for navigating Bittensor's rapidly evolving landscape. Understanding the core economic and game-theoretic incentives behind each mechanism provides a robust framework for evaluating changes and identifying long-term opportunities.
The conversation highlights Bittensor's rapid evolution, emphasizing the shift towards inflow-based emissions and enhanced security. Investors and researchers must adopt a first-principles mindset to navigate these changes, focusing on subnet inflows and leveraging new security features like proxy wallets to capitalize on emerging opportunities.
