Opinion: Why is Bittensor a scam and TAO is heading for zero?

Original Author: Strange Thinking

Take a long post and record your thoughts: Why is #Bittensor a scam and $TAO on its way to zero?

First of all, although Bittensor has always officially advertised itself as a “fair mining” project, in fact, the underlying Subtensor is neither a PoW public chain nor a PoS public chain. Rather, it’s a stand-alone chain run by the Opentensor Foundation (Bittensor’s foundation), and the mechanism is very black box.

As for the so-called “Big Three + Senate” binary governance structure, the Big Three are the three employees of the Opentensor Foundation, and the Senate is the top 12 validators, all of whom are their own people or stakeholders.

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Second, the release of “Kusanagi” on January 3, 2021 marked the activation of the Bittensor network, allowing miners and validators to start earning the first batch of TAO rewards. In the 2 years and 9 months between the activation of the network and the launch of the subnet on October 2, 2023, Bittensor has mined a total of 5.38 million TAO. However, there is no documentation or information on what rules will be used to distribute the tokens generated during the period from January 3, 2021 to October 2, 2023, and where they will ultimately flow.

It is reasonable to speculate that this part of the token is divided between internal members and interest groups, because Bittensor is not like Bitcoin, it is incubated and invested by VCs.

If you divide this part of the token by the current issuance of 8.61 million, it means that at least 62.5% of TAO is in the hands of internal members and interest groups. In addition, the Opentensor Foundation and some VCs that have invested in it also run the validator business on Bittensor, so they will only have more chips than the 62.5% figure.

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Like the OM of the Avalanche the other day, all the projects that you don’t know why the market cap is so high, their deformed market cap is often created by poor circulation.

Billions marketcap backed by poor liquidity.

The following chart shows TAO’s historical staking situation, don’t be deceived by it, thinking that TAO’s staking rate is slowly increasing from low to high. The reason why it is drawn this way is because TAO is inflating sharply.

In fact, TAO’s pledge rate has never been lower than 70%, and it was close to 90% at its highest. Based on TAO’s current market capitalization of $2 billion, this means that at least $1.4 billion of TAO has never been in circulation. TAO’s actual market capitalization is actually only $600 million, while the corresponding FDV is as high as $5 billion, which is a typical low-liquidity, high-capitalization project.

The so-called AI project with the largest market capitalization, how the bubble was blown up by the main bookmaker, please take a closer look.

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Finally, the so-called dTAO upgrade is actually more like an opportunity for OGs to exit liquidity. In order to buy subnet tokens with high multipliers, you can take over the TAO in the hands of interest groups.

According to the three-disc theory, Bittensor’s dTAO upgrade in February this year was due to the introduction of new Ponzi scheme models “split order” and “mutual aid order” to deleverage when the “dividend market” was unsustainable. The core purpose is to fabricate a new narrative to attract new external liquidity to continue to squeeze when the old narrative is weakening and external liquidity is about to be squeezed out.

The first is the “split order”: by having all subnets issue tokens, TAO is successfully positioned as the base currency for all Bittensor subnet tokens, and its value is backed by tokens from dozens (and more) subnets.

Due to the poor depth of the trading pool, subnet tokens often see staggering gains. In doing so, Bittensor is showing the outside world a camouflage mask that the ecosystem can provide high ROI opportunities. The exaggerated nominal ROI provided by the subnet Alpha token artificially creates huge buying pressure on TAO and provides cover for root network validators to sell TAO.

Unfortunately, Bittensor’s closed ecosystem, coupled with a bullish-bearish market environment, resulted in the dTAO upgrade not being able to attract enough external liquidity to come in, and even internal liquidity (those staked on the root network) was not mobilized enough to activate.

At the same time, the entry threshold of subnets has dropped and the number of subnets is not capped, resulting in too many and too fast coins being issued, diluting the overall liquidity of the Bittensor ecosystem.

The second is the “Mutual Aid Plate”. Unfortunately, Bittensor’s subnet issuance cannot establish a mutual aid disk model with a high degree of capital circulation like Pump.fun on Solana, because Bittensor’s network infrastructure is very poor, and even different subnet tokens cannot be exchanged, making it difficult for participants in subnet tokens to migrate liquidity between different subnets. This exacerbates the problem of liquidity dilution caused by high split rates, and it is not possible to keep funds in the market and continue to participate in speculation.

Once the large stakers of the root network start to flee en masse, the liquidity on and off the floor will quickly dry up.

The moment you sell, game over.

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So are the big families on the run? The answer is, “They’re on the run”!

Since the launch of dTAO:

➤ The Bittensor protocol injects 450,000 TAO into the subnet pool

➤ 150,000 TAO (33%) flows to the root network validator through the “auto-sell” mechanism

➤ The amount of root network staking (τ₀) decreased by 150,000 (5.86 million → 5.71 million)

This means:

300,000 TAO (≈ $70 million) successfully escaped from the root network and may be liquidated in the CEX.

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Moreover, the basic disk of Bittensor before was subnets and miners. Bittensor’s previous model was like that of VCs, where they paid projects to focus on building valuable business models first, rather than immediately worrying about how to make money and make ends meet. This is the core reason that attracts projects to do subnetting on Bittensor.

The project has attracted miners who provide computing power (“smart” in Bittensor’s words) to Bittensor, and this “hello, hello, everyone” situation is the core reason why Bittensor has become the largest crypto AI project by market capitalization.

However, after the dTAO upgrade, the interests of subnet project parties, miners, and validators are no longer aligned, and the original “hello, hello, everyone” no longer exists. The dTAO model does not provide any benefit to the subnet project side, and the collapse of the economic model is the biggest and most fundamental problem for Bittensor at present.

In Bittensor’s dTAO model, the subnet alpha token is a kind of “warrant” obtained by staking TAO in the subnet, and it is not a circulating token in the general sense. This makes it difficult for subnet project owners to invent any effective tokenomics for these tokens. These alpha tokens are of no use to retail investors other than the ability to generate more alpha tokens. According to my observations, the most common way for subnet projects to pull the price is to announce the repurchase of alpha tokens with project revenue, such as Chutes (SN64).

But if subnet owners can only empower alpha tokens in this way, then the funny thing comes. The 18% alpha tokens distributed by dTAO to the subnet project team will always be smashed into the hands of the project team itself. After all, you’ve announced that you’re going to buy back with project revenue, so why sell your tokens?

Selling and buying back are contradictory.

As a result, subnet owners not only do not receive any revenue from the dTAO model, but even have to subsidize it: create external revenue and inject it into their subnet alpha tokens. This means that both the subnet project and the miners are essentially working for validators. Validators, as the privileged class of the Bittensor network, are not only unable to do anything of value, but can also continue to sell subnet alpha tokens from the beginning of the dTAO upgrade, and the TAO flowing to the root network accounts for up to 1/3 of the daily emissions.

Bittensor was able to attract other projects to build subnets on top of it essentially because the previous TAO emissions were a good subsidy mechanism for emerging projects with no revenue, allowing them to focus on the business model they wanted to run.

If this subsidy mechanism is not only gone, but even the other way around, why would subnet projects build subnets on Bittensor? Isn’t it fragrant to go it alone and own all your income?

As a result, the dTAO model, as a means for interest groups to ship, is hurting the fundamentals of Bittensor’s development so far. Although the business model of most subnets in the Bittensor ecosystem is a piece of that cannot be seen, without them, Bittensor will lose its last fig leaf.

References:

1. Bittensor Official Documentation: docs.bittensor.com

2. @harry_xymeng Teacher’s research report “Bittensor: When Will the Music Stop”: prism-pancake-61a.notion.site/Bittensor-432c…

3. @thecryptoskanda Teacher’s “Three-Disc Theory - The Ultimate Guide to Ponzi Construction”: x.com/thecryptoskand…

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