In-depth explanation of Bittensor (TAO): Trillions of dollars in market opportunities

Author: hitesh.eth, encryption KOL

Compiled by: Felix, PANews

This article delves into Bittensor, explaining why it is not a decentralized OpenAI, but rather a decentralized AI economy; it also elaborates on how dTAO reshapes incentive mechanism design, how subnet economies operate, and why TAO represents a cultural resistance to centralized AI.

What changes happened after dTAO ###?

Perhaps many people are wondering what goals Bittensor is trying to achieve. Is it attempting to create a decentralized OpenAI, or is there a deeper intention? In fact, the encryption community generally believes that it could be a decentralized OpenAI, but when it lifted the subnet restrictions and introduced dTAO (which also involves subnet tokens) to make it more competitive, people became confused. This shift is crucial because it changes the network's reward distribution from centralized voting by a few validators to a completely market-driven system.

The introduction of dynamic TAO (dTAO) fundamentally changes the operational mechanism of the ecosystem. The distribution rights of the daily TAO issuance are completely transferred from the root validators (subnet 0, criticized as an oligarchic voting system) to be determined by the market price of each subnet's alpha tokens. Each mining subnet has obtained its own alpha (α) tokens and its own automated market maker (AMM) pool. This means that each subnet can develop an independent, capital-driven economy. The staking method has shifted from delegating TAO to a single validator (subnet 0 staking) to purchasing and staking subnet-specific alpha tokens (α). Stakers now bear market risks but can directly influence resource allocation. The originally rigid 50/50 reward distribution between miners and validators has evolved into the current 41/41/18 distribution, better funding subnet owners (18%) and incentivizing continuous innovation in the subnet core incentive mechanism.

grand vision

Bittensor is currently competing with centralized AI development and distribution platforms, providing developers with the infrastructure to build various AI use cases for different industries. This is crucial for understanding Bittensor's Total Addressable Market (TAM). While companies like OpenAI are competing in an instant market worth billions of dollars, selling finished AI products such as subscription services or API access, Bittensor is targeting the entire AI value chain market, worth trillions of dollars—encompassing computing infrastructure, data validation, model training, and a peer-reviewed intelligence layer.

If successful, Bittensor, as a foundational and permissionless platform for all decentralized AI, has a total addressable market (TAM) that far exceeds that of any proprietary AI company. Bittensor is developing and deploying different AI models to build a coordination engine for a distributed and decentralized AI ecosystem, while incentivizing people to provide funding and computational resources to achieve the highest levels of quality, efficiency, and trust in outcomes across decentralized AI projects for different use cases. This is more like constructing a decentralized AI value chain in which anyone can participate through capital, knowledge, and computational capabilities.

Bittensor is aimed at everyone, not just the 0.000001% of people in the world who can participate in OpenAI.

The overall vision of Bittensor is to create a neural internet. Over the past four years, Bittensor has built a loyal community, bringing together top venture capital firms like DCG, encryption researchers like Sami Kasab, and many geniuses who work hard every day to advance this vision. They create content, host podcasts, develop products, and are igniting a movement. Bittensor has also built a subnet ecosystem, with approximately 126 subnets currently active. The cost of the current subnet is about 1600 TAO (640,000 USD), and this cost is dynamic, changing based on the frequency of new subnet registrations. After a few months of suspension, new subnet registrations have now reopened.

One of the earliest Bitcoin pioneers, Barry Silbert, founded Grayscale in 2013 with the idea of attracting institutional investors to take an interest in Bitcoin. Today, it is creating a similar fund for subnet tokens. Grayscale announced a fund worth $10 million called the "Yuma Subnet Composite Fund," which can invest in top-ranking subnet tokens based on market capitalization.

subnet token

Subnetwork tokens are currently one of the most overlooked assets on encryption Twitter. 99% of users know nothing about this field. The core idea behind the pricing of subnetwork tokens is that they are priced in TAO rather than simply being pegged, and are determined by the liquidity ratios in their automated market maker (AMM) pools. The higher the value of subnetwork tokens relative to TAO, the more issuance they receive. More issuance will attract more miners to host and run AI models and provide computational resources. Miners will compete with each other to optimize the output of the subnetwork models, and better results will lead to higher prices. Or more precisely, better services will attract more staking demand, resulting in price increases, ensuring the overall output quality of AI models for different use cases across different subnetworks. Validators ensure that miners maintain quality.

Their job is to verify the work of miners and score it. Based on that score, miners receive issuance from the subnet. About 7200 TAO are issued daily, and this number will be halved in the next two months with the first Bittensor halving event in December.

This means that there is fierce competition in the mining ecosystem to obtain maximum profits. Most miners tend to mine in the best-performing subnet, and if they mine in the top subnet, the price of the tokens in these subnets will also rise accordingly. Increased mining demand driven by high issuance always leads to price increases of subnet tokens. The initial demand for mining subnets usually comes from the speculation on the use cases being built, the teams behind them, past performance, and support from large companies.

Currently, the top subnet tokens with the highest issuance include Chutes, Ridges, Gradient, and others. Some of these subnets have also received support from venture capital, such as Gradient, which is building the AI Trains platform. It is built by Rayon Labs, which also operates the leading subnet Chutes in terms of issuance. Many of these subnets are collaborating with each other to exchange services. For example, Ridges is a client of Chutes; Sportstensor is building AI models for sports betting and predictions; and there are subnets like OpenKaito that support Kaito's InfoFi Pioneer. Taofi is also part of Bittensor. They have launched a DEX that allows you to easily bridge and exchange subnet tokens from the Base network.

Believe TAO

If you ask which subnet tokens will attract demand, you need to track the growth of subnet token prices relative to TAO. The more growth you see over different time frames, the higher the demand, and then you need to look at the ADR (alpha distribution ratio). It should be less than 1, as the cancellation is now open. The worst-performing subnets are canceled every week. If the ADR ratio is above 1, the community may lose part of the value of the TAO collateral staked to obtain that token due to liquidation discounts at the time of cancellation.

You can also track the staking pools of different subnetworks. The more TAO you stake to obtain the subnet token, the more likely the price will rise. Therefore, the subnet token depends more on how long it can attract high issuance volumes. If they continue to receive high issuance volumes and the business around the subnet generates revenue from the services and products it offers, then the price of the subnet token may continue to rise. The overall market value growth around the subnet will directly drive up the price of TAO.

But it is advisable to stay away from things you do not understand. Subnet tokens are not like ordinary altcoins or junk coins. They require a deeper logical understanding, so if you believe in their vision, invest in TAO. TAO is not meant for trading, but rather as a cultural symbol against AI centralization.

The issue is not whether decentralized AI will exist, but rather who will own it. Bittensor has already made a choice, and others will do the same.

Related Reading: Bittensor Subnet Investment Guide: Seize the Next Opportunity in AI