Background

Although the market cooled down in 2025, Bittensor, as the leading decentralized AI network, has continued to actively develop. In February, Bittensor completed its largest network upgrade, introducing a new token economic model called Dynamic TAO (dTAO), which made the value discovery of subnet projects more decentralized through a market competition mechanism. In March, YZi Labs invested in Tensorplex Labs to promote the development of decentralized AI. This team develops subnets and applications on Bittensor, once again drawing market attention to the Bittensor ecosystem.

Bittensor Overview

Bittensor is essentially a network that supports numerous decentralized AI marketplaces or subnets, all based on a unified token system. These independent marketplaces operate through Bittensor's blockchain, enabling each market to interact with one another and integrate into a single computational infrastructure.

Bittensor consists of three components:

1.Subnets: Subnets are incentive-based competitive marketplaces that produce specific digital goods related to AI.

2.Bittensor Blockchain: Serving as a record-keeping system, it uses the TAO token to incentivize miners and validators participating in subnet activities.

3.Bittensor SDK: Provides support for interactions with miners and validators within the subnet

Subnets and Token Mechanism

Subnets are the core of Bittensor, with over 70 subnets currently in operation. Each subnet focuses on specific AI tasks and consists of miners (who produce AI goods) and validators (who assess quality). Each subnet is an independent community dedicated to producing specific AI-related digital goods, such as computational power, storage space, AI inference, data scraping, and more. The composition of a subnet includes:

• Miners: Responsible for producing digital goods, such as running AI models or providing computational resources.

• Validators: Evaluate the quality of miners' work to ensure the value of the output.

• Subnet Creators: Define the incentive mechanisms of the subnet and manage its operations.

Economic Model and Rewards

The token economy of Bittensor is its core, with newly minted TAO distributed to all subnets. The Dynamic TAO upgrade has brought significant changes to the issuance distribution, incentive structure, and economic model of the Bittensor ecosystem. It is mainly divided into three parts: TAO distribution based on the Alpha token price of subnets, injection of Alpha into subnet liquidity pools, and additional Alpha allocated to subnet owners, validators, and miners.

Specifically:

•TAO Token：

◦ TAO is the mainnet token of Bittensor, with a maximum supply of 21 million. Similar to Bitcoin's supply model, it features halving.

◦ One block is generated every 12 seconds, producing 1 TAO per block, totaling approximately 7,200 TAO per day.

• Alpha Tokens（Subnet Tokens）：

◦ Each subnet has its own Alpha token, which represents ownership or participation within the subnet.

◦ Each subnet can produce up to 2 Alpha tokens per block, distributed as follows:

▪ 1 Alpha token: 18% to subnet creators, 41% to miners, and 41% to validators (rewards are accumulated in a compound interest manner).

▪ The other portion is injected into the Alpha-TAO liquidity pool, with the amount calculated as the TAO allocated to the subnet divided by the Alpha token price, capped at a maximum of 1 Alpha token.

The higher the value of a subnet's Alpha token, the better the subnet's performance is reflected, potentially earning more TAO rewards and forming a positive feedback loop. Research shows that subnets with good liquidity can attract more participants, further increasing their value. It is worth noting that when users purchase Alpha tokens on-chain, it is equivalent to staking the corresponding TAO tokens with the underlying validators, allowing them to also share in the rewards of the Alpha tokens.

Economic Model and the Possibility of a Positive Feedback Loop

The key to Bittensor's economic model lies in whether the distribution of TAO and Alpha tokens can create a positive feedback loop. The supply and liquidity pools of TAO and Alpha tokens are crucial to the subnet economy. The higher the value of a subnet's token, the more TAO rewards it can earn, leading to better liquidity and forming a positive cycle. Conversely, the lower the value of a subnet's token, the fewer TAO rewards it receives, resulting in poorer liquidity. This could cause miners and validators to leave, ultimately turning the subnet into a "ghost town."

Additionally, subnet tokens are characterized by low circulation and high FDV (Fully Diluted Valuation). During the cold start phase of a subnet, the circulation ratio might be less than 2% of the total supply, with continuous token issuance over time. Therefore, subnets need sustainable business models to ensure stable development.

Subnet Ecosystem

Bittensor's subnet ecosystem is its core competitive advantage. It has now expanded to over 70 subnets, covering diverse applications ranging from computational resources and open-source AI model deployment to quantitative trading. Below are some of the subnets:

Conclusion

With the rapid evolution of AI technology, the demand for decentralized AI is on the rise. Traditional centralized AI models face challenges such as data privacy, computational costs, and accessibility. Bittensor, through its subnet model, distributes computational resources, model training, and data processing to participants worldwide, providing a unique solution. In the future, Bittensor's development will depend on the sustainability of its subnets, the recovery of market conditions, and further breakthroughs in AI technology. Only through the growth of high-quality subnets can Bittensor maintain its leading position in the field of decentralized AI.

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