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Opinion: Why Bittensor Is a Scam, TAO Is Headed to Zero?

思维怪怪

2025-04-18 11:17

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Original Author: StrangeMind

Starting a long post to document my thoughts: Why is #Bittensor a scam, and $TAO is heading to zero?

Firstly, although Bittensor has always claimed to be a "fair mining" project, the underlying Subtensor is neither a PoW chain nor a PoS chain; it is a single-chain system managed by the Opentensor Foundation (Bittensor's foundation), with a very opaque mechanism.

As for the so-called "Three Titans + Senate" binary governance structure, the three titans are three employees of the Opentensor Foundation, and the Senate consists of the top 12 validators, all of whom are insiders or stakeholders.

Secondly, on January 3, 2021, the "Kusanagi" release marked the activation of the Bittensor network, allowing miners and validators to start receiving the initial TAO rewards. From network activation to the launch of the subnet on October 2, 2023, a total of 5.38 million TAO has been mined by Bittensor over this 2 years and 9 months. However, there is no documentation or information on how the tokens generated during the period from January 3, 2021, to October 2, 2023, when the subnet went live, were allocated or where they ultimately went.

It is reasonable to speculate that these tokens were divided among internal members and interest groups because Bittensor, unlike Bitcoin, was hatched and invested in by VCs.

If you take this portion of tokens divided by the current circulation of 8.61 million, at least 62.5% of TAO is in the hands of internal members and interest groups. In addition, the Opentensor Foundation and some VCs who invested also operate validator node businesses on Bittensor, so their chip percentage will only be higher than the 62.5% figure.

Similar to the recent Avalanche (OM) crash, with all projects whose market value you wonder why it is so high, their distorted market value is often created by poor liquidity.

Billions market cap backed by poor liquidity.

The following chart shows the historical staking situation of TAO. Don't be deceived by it, thinking that TAO's staking rate gradually increased from low to high. The reason it's depicted this way is due to TAO's intense inflation.

In reality, TAO's staking rate has never been below 70%, reaching close to 90% at its highest. Based on TAO's current market cap of 2 billion USD, this means that at least 1.4 billion USD worth of TAO has never entered circulation. TAO's actual market cap is only 600 million USD, with a corresponding Fully Diluted Valuation (FDV) reaching a staggering 5 billion USD, a typical project with low circulation and high market cap.

The so-called AI project ranked first by market cap—how the bubble was inflated by the whales, please carefully consider.

Finally, the so-called dTAO upgrade is more like providing OGs (Original Gangsters) with an opportunity to exit liquidity. It allows you to buy subnetwork tokens with high multiples and take over TAO from the hands of the whale group.

According to the Three-Dish Theory, Bittensor's February dTAO upgrade introduced new Ponzi scheme models like the "Split Dish" and "Mutual Aid Dish" when the "Dividend Dish" became unsustainable, aiming to deleverage. The core purpose is to fabricate a new narrative to attract new external liquidity to continue draining it as the old narrative weakens and external liquidity dries up rapidly.

First is the "Split Dish": By allowing all subnets to issue tokens, TAO successfully positions itself as the base currency for all Bittensor subnet tokens, supported by the tokens of several dozen (and increasing) subnets.

Due to differences in liquidity pool depth, subnet tokens often experience astonishing price surges. Through this, Bittensor showcases an ecosystem that offers high ROI opportunities to the outside world. The exaggerated nominal ROI provided by subnet Alpha tokens artificially creates significant buying pressure for TAO and serves as a smokescreen for root network validation nodes to sell TAO.

Unfortunately, Bittensor’s closed ecosystem, coupled with a market environment transitioning from a bull to a bear market, resulted in the dTAO upgrade failing to attract sufficient external liquidity, and even internal liquidity (those staking TAO in the root network) failed to be adequately mobilized and activated.

At the same time, the lowered entry barriers and unlimited token issuance for subnets have excessively diluted the already limited overall liquidity of the Bittensor ecosystem.

Second is the "Mutual Aid Dish." Regrettably, Bittensor's subnet token issuance could not establish a mutual aid mode where funds could circulate freely, as seen on 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 holding subnet tokens to migrate liquidity between different subnets. This further exacerbates the liquidity dilution issue caused by high splitting rates, unable to achieve continuous participation in speculation within the ecosystem like Solana.

Once the staking whales of the root network start collectively exiting, both on-chain and off-chain liquidity will quickly dry up.

The moment you sell, game over.

So, are the whales exiting? The answer is "they are exiting"!

Since the launch of the dTAO:

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

➤ 150,000 TAO (33%) flowed to the root network validation nodes through an "auto-sell" mechanism

➤ The root network's stake (τ₀) decreased by 150,000 TAO (5,860,000 → 5,710,000)

This means:

300,000 TAO (≈70 million USD) successfully exited the root network and may be liquidated on CEXs.

Moreover, Bittensor's foundational base was previously the subnet and miners. Bittensor's previous model was like a VC, funding projects to focus on building valuable business models without worrying immediately about monetization to ensure a balanced budget. This was the core reason why projects were attracted to build subnets on Bittensor.

Furthermore, projects attracted to Bittensor brought miners providing compute power (termed "intelligence" by Bittensor), creating a mutually beneficial situation that was a core reason for Bittensor becoming the top crypto AI project by market cap.

However, after the dTAO upgrade, the interests of subnet projects, miners, and validation nodes are no longer aligned, and the previous mutually beneficial environment no longer exists. The dTAO model provides no benefit to subnet projects, and the collapse of the economic model is currently Bittensor's biggest and most fundamental issue.

In Bittensor's dTAO model, the Subnet Alpha token is a "voucher" received by staking TAO in the subnet, not a tradable token in the conventional sense. This makes it challenging for subnet projects to invent effective tokenomics for these tokens. Besides being able to mint more Alpha tokens, these tokens have no utility for retail holders. From my observations, the most common method subnet projects use to boost token price is by announcing buybacks of Alpha tokens using project revenue, such as Chutes (SN64).

However, if the Subnet Owner can only empower the Alpha token in this way, then the funny thing happens. The 18% of Alpha tokens allocated by dTAO to the Subnet project can only ever be dumped by the project itself. After all, you have announced a token buyback using project revenue, so why would you sell your own tokens?

Selling and buying back are contradictory.

Therefore, not only can the Subnet owners not receive any income from the dTAO model, but they also have to subsidize it: creating external revenue and injecting it into their Subnet's Alpha tokens. This means that Subnet projects and miners are essentially working for the validation nodes. Validation nodes, as the privileged class of the Bittensor network, not only cannot do anything of value, but can continuously sell Subnet Alpha tokens from the start of dTAO upgrade, flowing up to 1/3 of the daily emission to the root network's TAO.

The reason why Bittensor is able to onboard other projects to build Subnets on top of them is fundamentally because the previous TAO emission was a good subsidy mechanism for emerging projects without income, allowing these projects to focus solely on getting their business model up and running.

If this subsidy mechanism not only disappears but also reverses, why would Subnet projects still want to build on Bittensor? Going solo, keeping all the income for themselves, isn't that more appealing?

Therefore, the dTAO model, as a means for interest groups to offload, is harming the fundamental of Bittensor's development until now. Although the business models of most Subnets in the Bittensor ecosystem are a mess that can't even be looked at, without them, Bittensor would lose its last fig leaf.