This episode of Novelty Search offers a deep dive into the evolving tokenomics of the Bittensor network, particularly focusing on the controversial "Tao weight" parameter and its impact on subnet viability and TAO's role, a critical discussion for Crypto AI investors and researchers navigating this dynamic ecosystem.
Understanding Tao Weight and Its Origins
- The discussion kicks off with an exploration of Tao weight (also referred to as root weight), a crucial parameter within Bittensor's DTO (Dynamic Tao) framework.
- Tao weight: Currently set at 18%, this parameter dictates the influence of TAO (Bittensor's native token) on subnet validation and the distribution of TAO emissions. It also creates automatic sell pressure on subnet-specific tokens (alpha tokens).
- DTO (Dynamic Tao): The economic system governing subnet creation, tokenomics, and TAO emissions within the Bittensor network.
- Keith, a community member, and David Fields, who proposed
bid-8 (a proposal related to Tao weight), explain its initial purpose. It was designed to secure early-stage subnets (specialized AI networks within Bittensor) against manipulation by ensuring TAO holders (root validators) had significant influence, preventing human consensus attacks where a single entity could take over a new subnet.
- Human consensus attack: A scenario where an attacker gains majority control of a subnet's validation process, typically by acquiring a dominant share of its alpha tokens, allowing them to manipulate the subnet's operations or rewards.
- Const (also known as Jake, the host) elaborates that Tao weight was a response to Bittensor's "no premine" policy. Without it, the first tokens on a subnet could yield extraordinarily high APR (Annual Percentage Rate), concentrating power.
- APR (Annual Percentage Rate): The annualized rate of return on an investment.
- Tao weight also serves to:
- Gradually shift influence from TAO to subnet-specific alpha tokens.
- Alpha tokens: Unique tokens for each subnet, representing ownership, access, and a share in the subnet's rewards.
- Provide a mechanism for distributing TAO emissions, using subnet token price as a heuristic for value.
- Create guaranteed sell pressure on alpha tokens, making it difficult to artificially inflate prices to capture excessive TAO emissions. Const noted, "If you push your price to infinity, right, imagine how much TAO it would require to maintain a price in order to cheat the emission schedule."
Debating the Current Tao Weight: Time for Adjustment?
- David Fields, having initiated the conversation around the 90-120 day mark post-DTO launch, questions if the initial 18% Tao weight and its decay function are still optimal. He argues that while essential for early low-liquidity environments, the current setup might pose challenges for new subnets launching in the future.
- David's proposal (
bid-8) suggests introducing havings for the Tao weight, tied to individual subnet age (e.g., after 90 days).
- Havings (Halvings): Events that periodically reduce the rate of new token issuance or, in this context, the impact of a parameter like Tao weight.
- This aims to stabilize subnets after their initial high-risk period and better balance incentives for subnet owners and participants.
- Strategic Implication: Investors should monitor discussions around Tao weight adjustments, as changes could significantly alter subnet tokenomics, sell pressure, and the attractiveness of participating in newer versus established subnets.
Subnet Autonomy vs. Network Stability
- Const introduces the idea of "expressive Tao," allowing subnets more freedom to define their own economic parameters, including potentially adjusting their individual Tao weight.
- However, he stresses that such freedom must be balanced. If a subnet reduces its Tao weight (and thus the sell pressure from TAO), its share of TAO emissions should proportionally decrease to prevent gaming the system. "If you think about it, one of the major reasons is actually just to stop people from manipulating," Const explained regarding proportional emission adjustments.
- Actionable Insight: The potential for subnets to customize parameters like Tao weight or validator/owner cuts could lead to a more diverse ecosystem but also introduces new complexities for valuation and risk assessment. Researchers should analyze how such flexibility might impact overall network health and incentive alignment.
Perspectives from Subnet Builders
- Fish, a subnet owner, voices strong support for the existing root prop mechanism (the portion of TAO emissions influenced by Tao weight). He views the sell pressure as a "huge feature" that:
- Forces subnets to generate genuine demand and buying pressure.
- Creates buying opportunities for long-term investors in undervalued subnets.
- Filters out underperforming or non-viable subnets.
- Rob, another subnet owner, highlights the practical need for flexibility. He suggests that adjusting parameters like the owner's cut could allow subnets to attract more resources (e.g., GPUs for training models) and reduce the "opinionated" nature of Bittensor subnets, potentially attracting more builders.
- Speaker Analysis: Fish's perspective is that of a pragmatic builder who sees current pressures as healthy market correctives. Rob emphasizes the operational needs and growth challenges of running a subnet.
The Role and "Fairness" of Root TAO Yield
- Keith, reflecting on his experience, initially felt root TAO yield (derived from Tao weight across subnets) was detrimental. His revised stance is that a fair APY for TAO stakers is acceptable, provided it doesn't act as an "opposing incentive" that pulls capital from subnets purely due to risk-adjusted returns. He objects to mechanisms that might "encourage flight from the subnets after a certain amount of value creation."
- Const counters that the flight to TAO when subnet prices rise is a natural market dynamic of changing risk-reward ratios, not necessarily a flaw in DTO. He also points out that the auto-selling of TAO's share of subnet emissions makes this dynamic highly visible.
- An unnamed speaker (possibly Max, a core developer) raises a critical point: "What exactly is root really providing for example long-term after it doesn't limit the API anymore that much and after it is not providing any consensus security?"
- Strategic Consideration: The debate over TAO's yield from subnets touches upon its fundamental value proposition. Investors need to consider if TAO's role as a liquidity provider and ecosystem incubator justifies its current share of subnet-generated value, especially as the network matures.
Technical Considerations and Future Adjustments
- Max mentions that the team has modeled Tao weight dynamics with differential equations but lacks a clear, universally agreed-upon objective to optimize for. "Through months of discussion we don't know what the thing we're trying to optimize for."
- Const highlights a concerning metric from
tao.app: a divergence between the amount of TAO emitted to support subnets and the amount of TAO actually remaining in subnet liquidity pools, suggesting TAO might be "extracting" more value than intended or that liquidity isn't sticking. He proposes that perhaps 100% of TAO emissions directed towards subnets should end up in their pools.
- Another speaker points out that future TAO halvings (reductions in TAO's overall inflation rate) will relatively increase the sell pressure from the root proportion if Tao weight isn't adjusted, a significant long-term consideration.
- Keith also warns that if root TAO emissions went to zero, holding TAO would become a losing proposition due to inflation, disincentivizing staking and harming network security, especially for a future Proof of Stake (POS) transition.
- Proof of Stake (POS): A blockchain consensus mechanism where network validators are chosen based on the number of tokens they hold and are willing to "stake" as collateral.
Conclusion: Navigating Bittensor's Economic Evolution
This discussion underscores the delicate balance Bittensor seeks between fostering subnet innovation and maintaining network stability and value for TAO holders. The debate around Tao weight highlights that while DTO is largely seen as functional, refinements are being actively considered to optimize long-term growth and fairness.
For Crypto AI investors and researchers, the key takeaway is that Bittensor's economic parameters are not static. Monitoring proposals like bid-8, tracking metrics such as TAO liquidity in subnets versus emissions, and understanding the diverse perspectives of builders and core developers are crucial for anticipating market shifts and identifying strategic opportunities within this evolving ecosystem.
