Original Author: QuirkyMind

Opening a lengthy post to document my thoughts: Why is #Bittensor a scam, and $TAO is heading towards zero?

Firstly, despite officially claiming to be a "fair mining" project, Bittensor is not actually based on a PoW or PoS public chain at its core; 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 ranking validation nodes, all of which are insiders or stakeholders.

Secondly, on January 3, 2021, the "Kusanagi" was released, marking the activation of the Bittensor network, allowing miners and validators to start receiving the initial batch of 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 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 distributed according to what rules and where they ultimately went.

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

If you take this portion of the tokens and divide it by the current circulation of 8.61 million, at least 62.5% of TAO is held by internal members and interest groups. Additionally, the Opentensor Foundation and some VC investors also operate validation node businesses on Bittensor, so their share of the chips will only be more significant than the 62.5% figure.

Similar to the recent Avalanche of OM, for all projects with inexplicably high market caps, their distorted market value is often a result of poor circulation.

Billions market cap backed by poor liquidity.

The following chart shows the historical staking situation of TAO. Don't be fooled by it and think that TAO's staking rate gradually increased from low to high. The reason it is depicted this way is because TAO is undergoing severe inflation.

In reality, TAO's staking rate has never been below 70%, reaching close to 90% at its peak. 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. The actual market cap of TAO is around 600 million USD, while its Fully Diluted Valuation (FDV) is as high as 5 billion USD, a typical low-circulation, high-market-cap project.

The so-called top AI project by market cap illustrates how a bubble is inflated by the main players. Enjoy the analysis.

Lastly, 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 leverage and take over the TAO from the whale groups.

According to the Three Platters Theory, Bittensor's February dTAO upgrade introduced new Ponzi scheme models, the "Split Platter" and the "Mutual Aid Platter," as a response to the unsustainable nature of the "Incentive Platter." The core purpose was to introduce new narratives to attract external liquidity amidst the weakening of the old narrative and the rapid depletion of external liquidity.

Firstly, the "Split Platter": By allowing all subnets to issue tokens, TAO was successfully positioned as the base currency for all Bittensor subnet tokens, with its value being supported by the tokens of several dozen (and increasing) subnets.

Due to differences in pool depth, subnet tokens often experience astonishing price surges. Through this, Bittensor presented an eco-system that could offer high ROI opportunities to the outside world. The exaggerated nominal ROI provided by Subnet Alpha tokens artificially created significant buying pressure on TAO and provided cover for the root network's validation nodes to sell TAO.

Unfortunately, due to Bittensor's closed ecosystem and the transition from a bull to a bear market, the dTAO upgrade failed to attract sufficient external liquidity. Even internal liquidity (those staking TAO in the root network) was not adequately mobilized or activated.

Simultaneously, the lower entry barriers and unlimited issuance of subnets led to rapid and excessive token issuance, diluting the already limited overall liquidity of the Bittensor ecosystem.

Secondly, the "Mutual Aid Platter." Regrettably, Bittensor's subnet token issuance fails to establish a mutual aid platter model like Pump.fun on Solana, where funds can circulate freely. This is because Bittensor's network infrastructure is poor, and even different subnet tokens cannot be exchanged, making it challenging for participants to migrate liquidity between subnets. This further exacerbates the liquidity dilution issue caused by high split rates, making it impossible for funds to stay within the ecosystem for continuous speculative participation.

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

The moment you sell, game over.

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

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 validating nodes through an "auto-sell" mechanism

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

This means:

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

Moreover, Bittensor's previous support was from the subnet and miners. Bittensor's previous model was like a VC, providing funding to projects to focus on building valuable business models without immediately worrying about making money to ensure financial balance. This is the core reason projects were attracted to build subnets on Bittensor.

The project attracted miners who provide computing power (referred to as "intelligence" by Bittensor). This "you scratch my back, I scratch yours" situation is the core reason Bittensor became the top market-cap crypto AI project.

However, after the dTAO upgrade, the interests of the subnet projects, miners, and validating nodes are no longer aligned, and the previous "mutual beneficial" situation no longer exists. The dTAO model offers no benefits to subnet projects, and the economic model's collapse is currently Bittensor's biggest and most fundamental problem.

In Bittensor's dTAO model, the Subnet Alpha token is a kind of "warrant" we receive for staking TAO in the subnet, not a token that can circulate in the general sense. This makes it very difficult for subnet projects to invent effective tokenomics for these tokens. Besides being able to generate more Alpha tokens, these Alpha tokens are of no use to retail investors. From what I have observed, the most common way subnet projects are trying to boost the token price now 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 joke is on them. The 18% of Alpha tokens that dTAO allocates to the Subnet project can only ever be dumped by the project itself. After all, if you have announced a buyback of project earnings, why would you sell your own tokens?

Selling and buying back are contradictory.

Therefore, not only can Subnet Owners not receive any income from the dTAO model, but they may even 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 the dTAO upgrade, flowing up to 1/3 of the daily emission to the root network's TAO.

The reason Bittensor is able to onboard other projects to build Subnets on top of it is essentially because the previous TAO emission was a good subsidy mechanism for emerging projects without revenue, allowing these projects to focus solely on their operational model.

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

Therefore, the dTAO model, as a means for interest groups to dump, is undermining the fundamental support that has brought Bittensor to where it is today. Although most of the Subnet business models in the Bittensor ecosystem are a mess that can't even be looked at, without them, Bittensor loses its last fig leaf.

References:  

1. Bittensor Official Documentation: docs.bittensor.com

2. Research Report "Bittensor: When the Music Stops" by @harry_xymeng: prism-pancake-61a.notion.site/Bittensor-432c…

3. "The Trinity Theory - The Ultimate Guide to Ponzi Construction" by @thecryptoskanda: x.com/thecryptoskand…

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