This episode unpacks TAOFU's innovative SNS tokens for subnet fundraising and TPN's decentralized VPN (Subnet 65), offering Crypto AI investors and researchers a deep dive into new Bittensor ecosystem financing models and privacy-centric applications.
Introductions and Synergistic Collaboration in Bittensor
- Mitch and Matt connected at ETH Denver, drawn together by a shared enthusiasm for Bittensor. Matt, previously with blockchain infrastructure provider Impstones, was introduced to Bittensor through a client, Massa (operating Subnets 42 and 59).
- Matt described his journey: "I went all the way down the Bittensor rabbit hole. The more I learned, the more excited I got... I wanted to be all-in on Bittensor." This led him to a unique dual role.
- He now spearheads growth strategy for both Massa and TAOFU, a decision supported by both teams, highlighting the collaborative, synergistic nature of the Bittensor ecosystem. Matt emphasized, "This has been the most excited I’ve ever been to wake up and go to work."
TAOFU and TPN: Team Structure and Vision
- Mitch, co-founder of TPN (Subnet 65) and TAOFU alongside Miguel, explained their unified team structure. A core team of nine people dedicates its resources equally, 50/50, to both the TPN subnet and the TAOFU protocol.
- TAOFU is designed as a subnet organization and fundraising platform.
- TPN (The Privacy Network) is their Subnet 65 initiative, an open decentralized VPN network aiming to subsidize VPN costs and enable developers to build applications on top of it.
Mitch's Early Foray into Bittensor
- Mitch recounted his entry into Bittensor in late 2022, sparked by discussions in a European WhatsApp group. Intrigued, he delved into the whitepaper, Discord communities, and conducted a "following analysis of Bittensor on Twitter."
- This research revealed significant interest from "really interesting open source AI people" and "big ETH maxis." This conviction led him and Miguel to invest in TAO early, positioning them in the ecosystem "pre-subnets, pre-TAO... when it was still in its infancy."
- Strategic Implication: Early ecosystem engagement and network analysis can identify burgeoning projects like Bittensor before mainstream recognition, offering significant advantages to researchers and investors.
Subnet 65 (TPN): A Decentralized VPN for the AI Era
- TPN secured its Subnet 65 slot for a mere 38 TAO, which Mitch described as "an extremely good buy, a bargain." The idea for a decentralized VPN originated from their CTO's prior success in building and selling two VPN companies.
- Mitch highlighted the VPN's relevance for AI: "it actually really makes sense to sometimes bypass georestrictions... Whether you're prompting like an LLM from Iran or Russia, the output is going to be like extremely different." This is crucial for unbiased AI development and global data scraping.
- TPN is built with an open-source ethos, encouraging others to leverage their infrastructure.
The Genesis of TAOFU and Subnet Tokenization
- Mitch detailed TAOFU's evolution. Their initial 2023 plan was an institutional liquid staking protocol for TAO. However, regulatory hurdles like MICA (Markets in Crypto-Assets Regulation)—a comprehensive EU framework for crypto assets—and a partner custodian withdrawing forced a pivot.
- The announcement of DTL (Dynamic TAO Issuance), a mechanism that adjusts TAO emissions to subnets based on their performance and staked TAO, reshaped the landscape. This led to the current TAOFU concept: a platform for tokenizing subnet owner stakes.
- Inspired by platforms like Pump.fun but aiming for more utility, TAOFU focuses on tokenizing the subnet owner's 18% share of alpha token emissions into SNS (Subnet Native Stake) tokens. Mitch explained, "we wanted to have them like some sort of utility to make it meaningful and yeah that's how the idea came up. So what if we just tokenize like the subnet owner part and raise funds for that."
TAOFU: Solving Post-DTL Funding Challenges for Subnets
- Matt Karas explained the critical problem TAOFU addresses. Pre-DTL, subnet owners relied heavily on TAO emissions for funding. Post-DTL, emissions are tied to the subnet's alpha token price. Selling these alpha tokens to cover operational costs can create a "death spiral," depressing the token price and further reducing emissions.
- Subnet owners need capital but are hesitant to sell their alpha tokens. TAOFU's SNS tokens offer a solution: "a liquid proxy or representation of your alpha as a subnet owner."
- SNS tokens, built on the Bittensor EVM (Ethereum Virtual Machine)—a compatibility layer allowing Ethereum-like smart contracts on Bittensor's Substrate-based chain—offer enhanced utility:
- Cross-chain compatibility.
- DeFi applications like index funds and lending.
- Governance rights over the underlying alpha emissions.
- Subnet-specific perks (e.g., discounted service access).
- Potential claim to staking rewards from the alpha emissions.
- Investor Insight: SNS tokens could provide a way to gain exposure to a subnet's success without directly impacting its alpha token's market dynamics, potentially offering a more stable investment avenue.
SNS vs. Alpha Tokens: Differentiated Value
- Mitch clarified that alpha tokens are integral to DTL, influencing subnet control and emission direction. Selling them directly harms a subnet's liquidity and future prospects. SNS tokens, representing a share of these alpha emissions, operate outside the direct DTL pools.
- He noted, "imagine if the alpha tokens are really like going up in value and the FDV is growing, then the representation of the SNS could actually lag behind that, which is interesting."
- The Bittensor EVM's unique capability to "call like native Bittensor functions from smart contracts on the EVM" unlocks novel utility not easily achievable on other ecosystems.
Unlocking Future Utility with the Bittensor EVM Layer
- Matt elaborated on the Bittensor EVM's potential:
- Enhanced cross-chain composability, citing LayerZero's integration with the Bittensor EVM.
- Broader DeFi product development, such as lending protocols based on SNS and index funds (mentioning talks with Metagraph Minds).
- Subnet-specific utilities like exclusive product access or governance voting for SNS holders.
- He views SNS holders as "more invested, more active stakeholders" compared to alpha token holders whose utility is often primarily price appreciation.
- Researcher Note: The Bittensor EVM's ability to interact with native Substrate functions is a key technical differentiator, potentially enabling complex hybrid applications.
Valuation Dynamics: SNS vs. Alpha Tokens
- Mitch acknowledged alpha tokens would likely have more liquidity but also higher volatility due to inflationary pressures and miner sell-offs. SNS tokens, in contrast, have a fixed supply (21 million per subnet offering), potentially leading to more stability.
- The value of an SNS token will ultimately depend on "each subnet... and the way that their team is able to execute and really deliver value."
- Matt added that while the market will determine prices, SNS tokens will have a secondary market from day one, with 10-20% of raised funds allocated to liquidity pools. He stated, "we look at it as potentially being a much more stable way to invest in subnets."
The TAOFU SNS Sale Process: A Guide for Participants
- For Subnet Owners:
- TAOFU is a permissioned launchpad. Interested subnet owners should contact Matt or Mitch.
- The TAOFU team assists with valuation, SNS allocation (recommending starting small, e.g., 5-10% of owner's stake), setting soft/hard caps for fundraising, and developing a go-to-market strategy. Matt cautioned, "The last thing you want is to... issue 50% of your SNS value... just to watch your alpha token triple in price... and then you feel like you gave up too much too early."
- Subnet owners retain significant control over sale terms, unlike traditional VC routes. An optional "curator" can help generate interest.
- For Buyers:
- Participants need an Ethereum-compatible wallet (e.g., Talisman).
- The TAOFU launchpad includes a bridge for converting native TAO to EVM-compatible TAO.
- A registration/whitelist period precedes the sale for compliance.
- Once the sale is live, participants can buy SNS tokens until the hard cap is reached or the sale window closes.
- SNS tokens are claimed by buyers after the sale concludes.
- The first official SNS sale will be for TPN (Subnet 65), scheduled for the end of the week following the podcast.
TPN's (Subnet 65) Inaugural SNS Sale
- Mitch indicated that the valuation for TPN's SNS sale is still being finalized with co-incubator Contango Labs, aiming for a "fair... kind of discounted" price to ensure a successful launch.
- The primary goal of this first sale is to serve as a "public proof of concept" and gather crucial feedback for the TAOFU platform.
- Investor Action: Monitor TAOFU's announcements for specific details on the TPN SNS sale to participate in this first-of-its-kind offering.
Deep Dive into TPN (Subnet 65): The Decentralized VPN
- Mitch explained TPN's mechanics: miners provide VPN connections requested and routed through validators. The network is open, with an API allowing other subnets or developers to build on top of it.
- TPN will also launch its own "flagship VPN app," a consumer-focused product with a freemium model and paid subscriptions. Revenue generated will be used to "buy back more alpha or buy back some of the SNS."
- This app will abstract away the underlying Bittensor complexity, offering a user experience similar to traditional VPNs but potentially cheaper due to decentralized infrastructure.
Miner Dynamics and Incentives in TPN
- Miners on TPN compete to provide VPN connections across diverse geographic locations. Mitch noted, "we've already had like 80 different locations that are being offered through miners."
- Matt clarified validator scoring: "partially scored on like the number of IP addresses and connections... but also... the locations based on demand and kind of obscurity." Providing IPs in high-demand or rare locations is rewarded more.
- Research Focus: The incentive mechanism for TPN miners, balancing geographic diversity, connection quality, and demand, is a key area for ongoing observation.
TPN's Market Positioning and Vision for Privacy
- Mitch stated the goal is to "build a VPN app on top of it that's cheaper than most of the competitors and then just scale it and add value to Bittensor as a whole." The open infrastructure and focus on privacy are core tenets.
- Matt personally envisions "a world where we're growing towards people... putting more emphasis and value on their privacy." He believes Web3 technologies empower individuals by returning control over their data, a sentiment TPN aligns with.
- Strategic Consideration: Decentralized infrastructure like TPN could disrupt traditional VPN markets by offering lower costs and enhanced user data control, appealing to a growing privacy-conscious user base.
Post-DTL Launch: Challenges and Opportunities
- Mitch views launching Subnet 65 post-DTL as largely beneficial, stating, "I do think that the new dynamics introduced by DTL are great for the network." While pre-DTL subnets had an easier funding path, the current system fosters robust competition.
Utility for TPN's Alpha Token and SNS Perks
- While specific utility for TPN's native alpha token is still under consideration, Mitch confirmed that SNS holders for TPN will likely receive "some sort of utility to whatever they're providing."
- They are exploring ideas like "crypto perks or AI perks based on using like the TPN VPN," similar to benefits offered by some crypto debit cards.
The Potential of SNS-Based Index Funds
- Matt highlighted the appeal of index funds for institutional capital entering crypto, offering risk-adjusted exposure to baskets of assets. SNS tokens, being on the Bittensor EVM, are well-suited for creating such products.
- He envisioned "a basket of data focused subnets" or compute-focused indices, potentially created in partnership with entities like Metagraph Minds, with dynamic reweighting and rebalancing.
- Mitch added that the fixed supply of SNS tokens (21 million per offering) simplifies the creation of these financial primitives. He emphasized a key benefit: "it could be really interesting for funds that are not really looking for the volatility that the alpha token pools really have... they can buy into these baskets... making it also interesting for potentially bigger subnets to... exit."
- Investor Takeaway: SNS-based index funds could offer diversified, more liquid exposure to the Bittensor subnet ecosystem, attracting a wider range of investors.
TAOFU for Seed-Stage Subnets
- The name "Subnet Seeds" (SNS) implies support for early-stage projects. Mitch confirmed TAOFU could facilitate token sales for "subnets that don't even have a slot yet," with raised funds potentially used for subnet registration.
- This comes with "a lot of responsibility," necessitating thorough due diligence on teams by TAOFU.
TAOFU's Vetting Process and Partnerships
- TAOFU aims for broad platform adoption and collaborates with ecosystem partners like Contango Digital Assets and Yama.
- If a subnet is backed by a known curator or investor, it acts as a "pre-check." Otherwise, TAOFU conducts its own vetting to "make sure that the people investing through TAOFU are not investing into a scam."
- Their relationship with Contango, which co-incubated TPN, is strong, built on shared excitement for Bittensor. Mitch praised Mike from Contango's "Endgame" talk as "one of the best Bittensor talks I've ever seen."
Staying Informed about the TPN SNS Sale
- For updates on the upcoming TPN (Subnet 65) SNS sale and other TAOFU developments:
- Follow TAOFU on Twitter: @TAOFU_XYZ
- Join the TAOFU Discord server.
- Follow TPN on Twitter: @SN65_TPN (corrected from transcript's SN65_TTPN)
Matt's Vision for Bittensor's Future: Eating the World
- Matt expressed profound enthusiasm for Bittensor, comparing its discovery to his initial excitement for Bitcoin. He declared, "Bit Tensor is eating the world... There are going to be thousands of subnets someday."
- He sees Bittensor as a "digital marketplace for any type of digital commodity," not limited to AI, leveraging a global talent pool through its unique incentive mechanism. The fair launch and robust tokenomics (21 million TAO) are key strengths.
Mitch's Outlook: Bittensor as a Paradigm Shift
- Mitch foresees "future web two moguls... moving into Bittensor to subsidize part of the cost that they have," citing examples like AI model companies (e.g., Suno, Midjourney) using subnets to incentivize miner competition and reduce operational expenses.
- He highlighted Bittensor's potential for "revenue generating businesses," a rarity in crypto. The partially trust-based nature of its outputs (unlike verifiable Bitcoin blocks) makes it "super interesting."
- "As long as this keeps going and the value that keeps being created continues to increase, I think this is one of the biggest sort of paradigms in distributed computing," Mitch asserted.
Advice for Newcomers to the Bittensor Ecosystem
- Mitch's Advice: "Try and align with like really smart people building in the ecosystem first. So basically just dive into their discords, start learning, start trying to mine."
- Matt's Advice: "The best thing you can do to start is just learn... go read the Bittensor white paper, hop into the Discord, stay [up with] all the stuff going down in the Root Chat... surround yourself with people that understand this better than you do."
- Actionable Step for Researchers/Investors: Immerse yourself in Bittensor's community channels (Discord, Root Chat) and foundational documents to understand its evolving landscape and identify opportunities.
Conclusion: New Frontiers in Bittensor Investment and Utility
- This discussion reveals TAOFU's SNS tokens as a pivotal innovation for subnet financing, while TPN showcases Bittensor's capacity for real-world decentralized applications. Investors and researchers should monitor SNS adoption and the Bittensor EVM's growth for novel investment vehicles and utility paradigms.
