SN12 :: Eliminating Exploits, Incentivizing Honesty, and Scaling with YC3

This episode unpacks the critical shift towards Yuma Consensus 3 (YC3) in Bittensor, exploring how it aims to eliminate exploits by incentivizing honest, performant validation and potentially reshaping the network's competitive dynamics for validators and subnet owners.

Episode Show Notes: SN12 :: Eliminating Exploits, Incentivizing Honesty, and Scaling with YC3

Introducing Ref: A Key Bittensor Developer

Jacob introduces Ref, a highly knowledgeable figure within the Bittensor ecosystem known for his deep understanding of its internals. Ref's significant contributions include developing Commit Reveal 2 and leading the deployment of Commit Reveal 3, spearheading efforts against weight copying for over a year, running the Church Route Discord for developers, and launching one of the first compute subnets (Subnet 12). Jacob humorously recounts hiring Ref off Upwork, firing him, and Ref subsequently becoming integral to Bittensor's development.

The Problem with Current Consensus (YC1 & YC2)

Jacob provides context on Bittensor's consensus evolution. YC1, outlined in the original whitepaper, was foundational but flawed. YC2, introduced by Taco, significantly improved security by adding bonds, deterring validator-side exploits.

• Consensus Mechanism: The rules by which a decentralized network (like Bittensor) agrees on the state of the network or the value/performance of its participants.
• However, Jacob points out YC2's critical limitation: "it's very myopically focused on making the validators agree... not that focused on making them agree by doing the validation process." This loophole enabled Weight Copying (validators mimicking others' work without performing validation themselves), a persistent issue Ref has focused on resolving through initiatives like YC3 and Commit Reveal.

Introducing the Collateral Smart Contract: Raising the Stakes for Cheating

Ref introduces a pivotal innovation: the Collateral Smart Contract, designed to combat miner exploits. Previously, miners could cheat, farm emissions, and exit before consequences. This created a "game of cat and mouse" between subnet owners patching exploits and miners finding new ones.

• The contract requires miners to post a security deposit (e.g., 5 TAO - Bittensor's native token) to participate in a subnet.
• If caught cheating, validators can vote to burn the miner's collateral, introducing a direct financial penalty for dishonest behaviour.
• This is the first Smart Contract (self-executing contract with predefined rules) tightly integrated with Bittensor subnets, requiring new subtensor features.
• It necessitates miners using an EVM Key (Ethereum Virtual Machine compatible key, format H160) alongside their standard Polkadot key (SS58), with scripts provided for ease of use.
• A dashboard allows monitoring of collateral status, and Ref notes potential for other contracts like the "Capacitor contract" (delayed rewards).
• Actionable Insight: This contract significantly increases the risk for exploiters, potentially improving subnet integrity and ROI for honest participants. Investors should monitor its adoption and effectiveness in deterring malicious activity across subnets.

Deep Dive into Yuma 3 (YC3): Rewarding Eagerness, Penalizing Lateness

Ref explains YC3 by contrasting it with predecessors using simulation charts.

• YC1: Primarily rewards validators based on stake size, not necessarily performance. An eager validator finding a new best miner first sees no benefit over a large, slower validator.
• YC2: Attempts to address this but fails in practice. Ref observed validators being penalized for being the first to identify and vote for a new leading miner. The system inadvertently rewards lagging validators or those simply following the majority stake, not accurate, timely validation.
• YC3: Fundamentally shifts incentives. While an eager validator might initially see a small dip (as the system verifies they aren't colluding), they are significantly rewarded with higher dividends once other validators confirm their finding. Late validators are penalized. The reward/penalty curves can be adjusted via Hyperparameters (configurable settings that control the algorithm's behaviour).
• Ref states, "Turns out Yuma 2 doesn't really work the way we all thought it works."
• Actionable Insight: YC3 aims to reward validators for actual performance (speed and accuracy) rather than just stake size or passive agreement. Researchers should analyze how this impacts validator strategies, network discovery speed, and the potential for new optimization techniques.

Liquid Alpha 2.0: Enforcing Validator Vigilance

Ref explains Liquid Alpha 2.0 works in tandem with YC3. Its core function is to adjust the rate at which validators acquire Bonds (a measure of trust/stake influence within the consensus system) based on their timeliness in setting weights.

• Unlike Liquid Alpha 1.0, which had inconsistencies, LA 2.0 accurately penalizes validators who are late in updating their assessments (weights) for miners.
• The consequence: "validators will have to be more vigilant... take care of their subtensors... monitor their nodes." Tolerance for validator downtime or slowness decreases significantly.
• Actionable Insight: This increases operational demands and risks for validators. Investors delegating stake need to scrutinize validator operational excellence, uptime, and responsiveness more closely than before.

Implications: A New Era of Validator Competition

The combination of YC3 and LA 2.0 ushers in a new competitive landscape for validators.

• Previously, validators might optimize for the cheapest hardware. Now, they must compete on performance – speed and accuracy in evaluating miners.
• Ref uses Subnet 7 as an example where predictable weight ramp-ups (due to averaging results over time because of compute limits) allow gaming the system. YC3 rewards validators who can assess miner quality faster (e.g., using more compute).
• Subnet 9 is shown as becoming more dynamic, making weight copying harder. Ref believes enabling YC3, LA 2.0, and Commit Reveal will drive weight copiers away.
• Ref emphasizes, "validators now will have to compete both in terms of hardware and in terms of software."
• Actionable Insight: This shift could lead to consolidation around highly performant validators or create opportunities for new entrants with superior technology or strategies. The value proposition for validators shifts towards demonstrable performance.

Compute Horde (Subnet 12): Decentralizing Validation Compute

Ref details Subnet 12 (Compute Horde), which allows validators to utilize GPU resources from miners for validation tasks, secured by the collateral contract.

• Validators submit validation jobs (packaged in Docker containers, without network access during execution) to SN12 miners. Cross-verification ensures miner honesty; cheating results in collateral burning.
• It enables parallelization (async.io allows awaiting results while starting new tasks) and flexible compute usage (e.g., using 10 GPUs for 5 minutes).
• A fallback mechanism to cloud providers like Runpod is planned if Compute Horde capacity is unavailable.
• This model is presented as more economical and scalable for potentially thousands of subnets compared to each validator running dedicated GPUs, especially for subnets with variable compute needs.
• Ref contrasts this practical, deployable solution with the complexities and performance limitations of TE (Trusted Execution Environments) or ZK (Zero-Knowledge) proofs for this specific use case.
• Actionable Insight: Compute Horde offers a potential path to scalable, cost-effective validation compute. Investors and researchers should track its adoption, reliability, and economic impact on both validators and SN12 miners.

DOS Shield: Enhancing Miner Security

Ref introduces the DOS Shield, a mechanism to protect miners from DDoS (Distributed Denial-of-Service) attacks.

• Miners generate unique IP addresses for each validator they serve.
• These IPs are encrypted with the respective validator's public key and shared securely. Only the intended validator can decrypt and know the specific IP to communicate with the miner.
• If a validator attacks a miner via DDoS, the miner knows the culprit (as only they had that IP) and can block them, regenerating new IPs for remaining validators.
• This prevents validator-on-miner attacks and miner-on-miner attacks, as IPs are not public.
• Actionable Insight: Improved miner security enhances overall network stability and reliability, benefiting all participants. This feature directly addresses a key operational risk for miners.

Debate: YC3 Implications and Validator Concerns

A lively discussion ensues with prominent validators Capricious and Fish, highlighting potential challenges and alternative perspectives on YC3.

• Capricious's Concerns:
  • Worries about validator centralization, with few large players dominating many subnets.
  • Fears YC3 might incentivize more validators to simply child-hotkey to the dominant subnet owner key, further centralizing control.
  • Questions if Compute Horde could become a central point of failure if widely adopted.
  • Highlights the significant risk YC3 poses to "monolithic validators" (those using a single hotkey across multiple subnets) due to weight-setting limitations, stressing the urgent need for the hotkey splitting feature currently in development. He notes the painful and costly process Yuma went through to split keys manually.
• Fish's Concerns:
  • Argues YC3 might inadvertently reward sophisticated weight copiers ("predictive validators") who can analyze honest validator patterns and set weights faster, effectively becoming "better" validators under YC3 rules, even if not doing original work. "The weight copers are now honest validators," he posits, questioning if this is desirable.
  • Expresses concern about the increased burden on subnet owners, who now need to design incentive mechanisms robust against potentially adversarial validators, not just miners.
  • Questions the necessity of migrating to YC3 if YC2 issues could potentially be fixed or managed, especially for subnets like his that already exhibit dynamic weights making copying difficult. He feels YC3 introduces "double-sided mining" complexity.
• Ref's Rebuttals:
  • Reiterates YC3 rewards correctness and speed; if a "weight copier" accurately predicts true miner quality faster, they are performing better validation under the new rules.
  • Stresses that subnet owners must make validation unpredictable (e.g., via Commit Reveal) for YC3 to work optimally. Predictable validation is the underlying problem.
  • Confirms YC3 is configurable and YC2's core flaw (penalizing eager validators) is fundamental and detrimental long-term, potentially leading to network stagnation.
  • Acknowledges the need for hotkey splitting and plans for Compute Horde flexibility (including local hardware fallback).
• Analysis: This debate underscores the complex trade-offs. YC3 aims for a more performant and honest network but introduces new competitive pressures, potential exploits, and operational hurdles. The perspectives highlight the differing challenges faced by global validators versus subnet owners.

Strategic Conclusion and Next Steps

YC3 marks a significant evolution in Bittensor's consensus, prioritizing validator performance and speed, but its real-world impact and potential for gaming remain debated. Investors and researchers must closely monitor YC3 adoption, its effect on validator strategies and profitability, and how subnet owners adapt their incentive mechanisms in response. A follow-up discussion is planned for the Open Dev call.