Issues and Development Concerns of the Bittensor Project

Although Bittensor has always touted itself as a "fair mining" project, in reality, its underlying Subtensor is neither a PoW nor a PoS public chain, but rather a single chain managed by a certain foundation, with an opaque mechanism. The so-called "three giants + senate" dual governance structure consists of the three giants being the foundation's employees, while the senate is made up of the top 12 validating nodes, all of whom are insiders or stakeholders.

From the network activation on January 3, 2021, to the launch of the subnet on October 2, 2023, a total of 5.38 million TAO has been mined in the span of 2 years and 9 months. However, there is no clear explanation of the token distribution rules and the final flow during this period. It can be speculated that this portion of tokens is likely to be divided among internal members and interest groups, as Bittensor is incubated and invested by venture capital. If this portion of tokens is divided by the current circulating supply of 8.61 million, at least 62.5% of TAO is in the hands of internal members and interest groups. Furthermore, a certain foundation and some invested venture capital also operate validation node services on Bittensor, and their share of the tokens will only be higher.

The historical staking situation of TAO shows that its staking rate has never dropped below 70%, reaching nearly 90% at its peak. Based on TAO's current market capitalization of 2 billion USD, at least 1.4 billion USD worth of TAO has never participated in circulation. The actual market value of TAO is only 600 million USD, while the corresponding FDV is as high as 5 billion USD, making it a typical low circulation, high market value project.

The so-called dTAO upgrade is more like providing early participants with an opportunity for exit liquidity. According to a certain theory, the dTAO upgrade in February of this year was a necessity to introduce a new model to de-leverage when the original model was becoming untenable. Its core purpose is to fabricate a new narrative to attract new external liquidity in the context of the old narrative weakening and external liquidity drying up.

However, the closed ecosystem of Bittensor combined with the bearish market environment has resulted in the dTAO upgrade not attracting enough external liquidity, and internal liquidity has also not been fully activated. At the same time, the lowering of entry barriers for subnets and the lack of a cap on their number have led to excessive and rapid issuance of tokens, diluting the overall liquidity that was already limited in the ecosystem.

Since the launch of dTAO, the protocol has injected 450,000 TAO into the subnet pool, of which 33% flowed to the root network validation nodes, reducing the staking amount in the root network by 150,000 TAO. This means that approximately 300,000 TAO (worth about 70 million USD) have been successfully withdrawn from the root network and may have been liquidated on centralized exchanges.

After the dTAO upgrade, the interests of subnet project parties, miners, and validating nodes are no longer aligned, and the original win-win situation no longer exists. The new model is not beneficial for subnet project parties, and the collapse of the economic model has become the biggest and most fundamental issue for Bittensor at present. The subnet Alpha token, as a "warrant" obtained by staking TAO, finds it difficult to develop an effective tokenomics.

Verification nodes act as a privileged class in the network, unable to create substantial value while continuously selling subnet Alpha tokens. If the subsidy mechanism disappears or even reverses, subnet project parties may consider independent development rather than continuing to build subnets on Bittensor.

Overall, the dTAO model, as a means for certain groups to cash out, is undermining the fundamental base that Bittensor has developed to this day. Although there are issues with the business models of most subnets in the Bittensor ecosystem, losing these subnets would mean that Bittensor will also lose its last fig leaf.