Bittensor (TAO) and dynamic TAO (dTAO): an upgrade that changes everything?

Context and Overview of Bittensor

What is Bittensor?

Bittensor is a decentralized protocol designed to reinvent access to artificial intelligence resources. Unlike traditional blockchains, it doesn't just secure transactions or execute smart contracts—it aligns the economic interests of a set of actors to promote the creation, training, and networking of AI models.

The architecture is based on a main network, the Subtensor, which acts as the coordination layer, and a multitude of specialized Subnets, each dedicated to a specific task. These sub-networks are independent but interconnected, and consist of three types of participants:

• Subnet Owners, who define the network rules, task types, and validation methods.
• Miners, who provide computing power or AI models.
• Validators, who distribute tasks and grade results, influencing the reward distribution.

The reward mechanism is based on the Yuma consensus, a system that aggregates validator weightings to determine the share of TAO tokens distributed to each actor. The better a miner is rated, the more they are paid; the closer a validator is to the overall consensus, the more they are rewarded too.

→ Find our full presentation of Bittensor (TAO):

Governance Issues

Until February 2025, the economic governance of the protocol was fully centralized within the Root Network (Subnet 0). Every 12 seconds, a new block emitted 1 TAO, which had to be distributed among the various subnets.

This distribution was decided exclusively by the 64 validators of the Root Subnet, based on the supposed performance of the subnets. These validators had voting power weighted by the amount of TAO delegated by stakers.

In theory, this system aimed to surface the best subnets by rewarding those that brought the most value. But in practice, as Bittensor quickly grew (over 60 active subnets in early 2025), this centralized model revealed several limitations:

• Power concentration: the top 5 validators held over 50% of the voting power, creating a decision-making oligopoly.
• Bias and favoritism: some validators favored their own subnets or those of their associates, to the detriment of more relevant but less connected projects.
• Scalability issues: it became impossible for validators to objectively monitor and evaluate dozens of subnets with very different logics.
• Potential collusion: in several cases, revenue-sharing deals between Subnet Owners and validators were suspected, creating biased interest alignments.

This centralization wasn't limited to governance. To this day, the Subtensor still operates on Proof of Authority, with all validating nodes controlled by the Opentensor foundation. While this helped bootstrap the protocol, it now raises legitimate concerns about the network's true decentralization. Faced with these accumulating frictions, governance reform became inevitable.

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Introduction to Dynamic TAO

A Paradigm Shift

Deployed on Bittensor's mainnet on February 13, 2025, the "Dynamic TAO" (or dTAO) update marks a complete break from the previous governance model. Its goal is simple: replace centralized decision-making power with a governance mechanism.

Specifically, the role of the 64 Subnet 0 validators in emission and reward distribution has been removed. Instead, every network user can now "vote" for their preferred subnets by allocating their TAO tokens directly into their liquidity pools.

This system profoundly transforms Bittensor’s logic by introducing primitives similar to those in DeFi (notably Curve Finance in 2021, which led to the Curve War) into its economic engine.

Alpha Tokens

The question now becomes: how do users allocate TAO to vote for their favorite subnets? The answer lies in a central novelty introduced by dTAO: the creation of a unique token for each subnet, called an Alpha Token.

These tokens are a bit different—they are not tradable on secondary markets or traditional exchanges but exist solely within a dedicated liquidity pool for each subnet. They are swappable against TAO via an Automated Market Maker (AMM) based on the constant product model (x * y = k), identical to Uniswap.

Thus, each subnet’s liquidity pool is composed of two tokens: TAO and that subnet’s Alpha Token. The price of an Alpha Token depends directly on the ratio of TAO and Alpha present in its pool. The more users stake TAO in a subnet, the higher the price of its Alpha Token—and vice versa.

To gain exposure to a specific Subnet, users must buy TAO, go to the Subnet’s AMM, and stake TAO into the liquidity pool to receive Alpha Tokens in return. Reversing this process retrieves the staked TAO.

This mechanism turns every TAO allocation into a market signal. The price of an Alpha Token becomes a direct reflection of demand: the more confidence or excitement a subnet inspires, the higher its valuation—and the more emissions it receives.

Market-Based Governance

By replacing validator votes with free, liquid staking, Bittensor is betting on collective intelligence. Emission allocations are no longer defined by a handful of actors but by the aggregated choices of all network participants: validators, miners, TAO holders, external investors.

This creates an environment where Bittensor will reward subnets perceived by the market as the most profitable, interesting, performant, or innovative. It naturally incentivizes the development of subnets that produce the most value.

However, as we’ll explore later, this system also carries manipulation risks—subnets may financially incentivize others to stake TAO in their pool to secure a larger share of emissions.

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Impact of dTAO on Staking and Rewards

A Dynamic and Speculative Staking Model

With the introduction of dTAO, every network participant can now gain exposure to the subnets of their choice by staking TAO tokens. In return, they receive a certain amount of Alpha Tokens, specific to each subnet.

This mechanism turns staking into a speculative position. If demand for a subnet rises, the price of its Alpha Token increases. Conversely, if a subnet collapses or loses popularity, its Alpha Token will be diluted by continuous emissions, and its value will mechanically drop.

In other words: for users, every TAO staking operation in a subnet is now an economic bet on the subnet's future value. And this value is determined collectively, in real time, by the market.

Automated Emission Distribution

As previously mentioned, Bittensor emits tokens to the subnets with each block:

• 1 TAO token (global supply, shared among all subnets),
• 2 Alpha Tokens per subnet.

These emissions are initially injected as liquidity (TAO + Alpha) into each pool, proportionally to the Alpha Token’s price. The more valuable an Alpha Token (i.e., the more demand), the more rewards the subnet receives. This phase lasts 360 blocks (around 12 hours), after which the accumulated liquidity is redistributed among three actor types:

• 41% to miners, via Yuma consensus
• 41% to validators, proportionally to their token holdings (TAO + Alpha)
• 18% to subnet owners

This setup incentivizes each actor to optimize their allocations:

• Miners are motivated to join the most profitable subnets
• Validators must choose between staking TAO (less risky, less efficient) or gaining exposure via Alpha Tokens
• Subnet Owners are directly rewarded if their project attracts demand

The Role of the Root Subnet (Subnet 0)

Although its decision-making role is gone, Subnet 0 (Root Network) still exists. It has no Alpha Token or validation logic, but remains a secure staking option. TAO holders can delegate tokens here to earn a risk-free yield, as TAO cannot be diluted in this setting.

However, yields on the Root Subnet are bound to decline. Alpha subnets receive twice as many tokens per block, and the weighting of TAO staked in Subnet 0 has been reduced to 18% of nominal value. A validator with 100 TAO on Subnet 0 and 100 Alpha Tokens will have much more influence through the Alpha staking.

This shift aims to accelerate liquidity migration to subnets, while still offering a transitional option for more conservative actors.

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Impact on Bittensor's Economy

A New Incentive Distribution

dTAO fundamentally changes how TAO emissions are distributed across the network. Where validators previously centralized decisions, it’s now the market — through Alpha Token pricing — that determines who deserves rewards.

This mechanism creates a virtuous loop: the more TAO a subnet attracts, the more its Alpha Token appreciates, the more emissions it receives, the more attractive it becomes. This realigns incentives for all stakeholders:

• Subnet owners are incentivized to grow demand for their token through valuable products or AI models.
• Validators benefit from staking in the most profitable subnets to maximize emissions.
• Miners naturally gravitate toward the highest-paying subnets to leverage their computing power.

Ultimately, only subnets that generate real utility — and thus sustained demand for their token — will survive economically.

The Rise of Alpha Tokens

As explained earlier, dTAO introduces 2 Alpha Tokens per block for each subnet, versus just 1 TAO. This asymmetry creates a mechanical rise in Alpha Tokens’ prominence within Bittensor’s economy.

Over time, TAO's relative weight in reward calculations shrinks: TAO staked in the Root Subnet now counts for only 18% of its nominal value in validator weight, while Alpha Tokens retain full (100%) weighting. This shift will soon mean most network rewards are distributed via subnets.

This creates a programmed dilution effect: over time, TAO holders are increasingly incentivized to migrate to Alpha Tokens to capture meaningful emissions.

A Self-Regulating System

In theory, this mechanism should bring economic balance:

• Subnets deemed unhelpful or poorly designed will see their Alpha Tokens fall due to lack of demand. Their emissions share will drop, discouraging miners and validators.
• High-performing subnets will see their Alpha Tokens appreciate, granting them greater access to rewards and boosting their appeal.

This model assumes a sufficiently liquid and open market is better than delegated voting for rewarding innovation. It transposes DeFi logic (Uniswap, Curve) into an AI protocol, drawing inspiration from "vote with your dollars" mechanics.

However, this new economy carries risks: we’ll explore how this approach can go off course without structural safeguards.

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Pros and Cons of dTAO

Benefits of dTAO

dTAO addresses one of Bittensor’s biggest criticisms: centralized emission allocation. Replacing validator power with market mechanisms marks a shift toward more decentralized, merit-based governance.

This update offers several advantages:

• A more neutral incentive system: anyone can now direct emission flows by staking TAO where they see fit.
• A more transparent economic model: Alpha Token prices serve as a real-time, public metric for a subnet’s appeal.
• A natural filter for underperforming subnets: without demand, a subnet receives no rewards. Weak initiatives are naturally weeded out.
• Wider access for builders: subnet registration is now permissionless, with lowered entry costs, welcoming a new wave of technical, innovative teams.
• Investor accountability: TAO holders are encouraged to take an active interest in network projects, reinforcing the community effect.

Bittensor thus moves closer to an open market where value is built collectively, not dictated by a select validator committee.

Limitations of dTAO

Despite dTAO’s ambitions, this model also introduces several challenges that, if left unchecked, could limit effectiveness — or even backfire on Bittensor.

1. Alpha Token Volatility

Subnet staking relies on constant product AMM pools. Shallow liquidity and continuous Alpha Token emissions create systemic sell pressure. Miners, validators, and Subnet 0 stakers must regularly sell these tokens to recover TAO, pushing prices down.

Without sustained demand, Alpha Token prices could trend toward zero — even without direct selling — worsened by low trading volumes and market conditions.

2. Subnet Explosion Difficult to Manage

Permissionless registration leads to a rapid proliferation of subnets. Each new project requires attention, liquidity, and technical resources. But human capacity to evaluate project relevance doesn’t scale at the same pace.

As a result, retail investors gravitate toward the “Top 10” visible names, often promoted by influencers or aggressive marketing — at the expense of less visible but potentially more useful projects. This visibility bias can hinder optimal resource allocation.

3. Unclear Incentives for Validators

Validator roles are now more uncertain. Once governance central figures, they must now choose between accumulating TAO or Alpha Tokens. ROI is less predictable, and their contribution to real value creation is fuzzier.

This strategic ambiguity could discourage legacy validators or create participation asymmetries across subnets.

4. Risk of Collusion

Validator removal doesn’t eliminate political games. Implicit deals can form between subnet owners, validators, and miners to artificially steer demand toward specific tokens. Governance remains manipulable—just through different levers.

5. More Complex User Experience

Staking is now more technical, risky, and less accessible to newcomers. Understanding an Alpha Token’s true value, pool liquidity, or slippage effects presents entry barriers for retail users.

This could slow broader adoption and reinforce insider dominance within the ecosystem.

6. Protocol Image Pressure

Lastly, a less technical but equally strategic risk: perception. If most Alpha Tokens post negative performance for months — likely during early phases — Bittensor’s credibility could suffer among broader audiences, leading to premature conclusions that “the model doesn’t work.”

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Launch and Future of dTAO

The Dynamic TAO update was deployed on the Bittensor mainnet on February 13, 2025, after more than a year of research, development, and intensive testing. Although the deployment was technically smooth, it took several days for the various participants—validators, miners, investors—to fully adapt to the new rules introduced by dTAO.

Block Zero

At launch, each subnet started with a balanced initial pool containing 1 TAO for 1 Alpha Token. This nominal parity, although artificial, temporarily created an illusion of valuation: for 12 seconds (the duration of a block), the theoretical market cap of all Alpha Tokens equaled 64 times the fully diluted valuation (FDV) of TAO—between $400 and $500 billion, depending on TAO's price at the time.

But starting from the next block, Alpha Token prices naturally dropped to reflect actual market demand. That’s why subnet price charts all begin with a large red candle: a market correction in response to an unrealistic initial valuation.

First Month

dTAO’s launch resembled a massive fair launch. Each Alpha Token started with an initial supply of 1, and the issuance of 2 Alpha Tokens per block per subnet began immediately. This created a significant gap between market cap and FDV, which will persist for several weeks until emissions reach a critical mass.

During the first month, TAO staking remained mostly concentrated on the Root Subnet, but we’re already seeing a gradual migration toward Alpha subnets. Holders are starting to take positions, and certain pools are showing stronger price and volume dynamics than others—depending on demand, liquidity, and project visibility.

Months 2 to 4

In the following weeks, Alpha Token supply will grow rapidly, driven by continuous emissions. Bittensor has reinforced this mechanism by reducing the weight of TAO staked on Subnet 0 to only 18%, compared to 100% for Alpha Tokens. This strongly incentivizes validators to shift toward subnet staking.

This change is expected to gradually reverse liquidity flows: within 2 to 4 months, the majority of network rewards will likely go to validators and stakers of subnets, rather than those on the Root Network.

In parallel, continuous issuance could put downward pressure on Alpha Token prices—especially for subnets that fail to generate sufficient demand to offset growing supply.

6-12 Month Outlook: Model Maturity

Over the next 6 to 12 months, staking on Subnet 0 will likely yield only marginal returns, appealing primarily to more risk-averse profiles. Conversely, active and high-performing subnets should capture nearly all TAO and Alpha emissions, becoming the true economic center of gravity for the protocol.

The success of the model will depend on several key factors: subnets’ ability to generate real value, Alpha Tokens’ resilience to dilution, and the emergence of a secondary market infrastructure to support trading and evaluation of subnets.

To explore further, we invite you to watch the full video from our contributor, Victor on YouTube.

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Conclusion

With Dynamic TAO, Bittensor is making a fundamental shift: from a protocol governed by a closed validator committee to one led by an open, fluid, and fully market-driven system. By letting Alpha Token prices dictate resource allocation, the protocol is betting on a more decentralized, agile, and speculative framework.

This architectural change upends all internal network dynamics. It reshuffles roles among validators, miners, and builders. It gives TAO holders an active role in valuing subnets. And it forces each project to prove its worth—not through connections, but by generating demand.

But this radical overhaul also comes with challenges. Volatility, dilution, information asymmetry, network effects, manipulation, even emission wars… The protocol will need to continuously adjust to ensure market openness doesn’t devolve into a short-term profit race or opportunistic behavior.

Rather than adding a governance layer, Bittensor chose to reinvent its economic engine. An ambitious and risky move, but potentially foundational for building a truly decentralized infrastructure for artificial intelligence.

The real question now is: can the market do a better job than the validators?