Author｜ Momir @IOSG
TAO's bullish logic requires you to believe that a game theory miracle can happen. But such miracles have happened in the cryptocurrency industry before.
Bittensor boasts one of the most elegant narratives in the cryptocurrency space: a decentralized AI marketplace where market mechanisms allocate funding to the most impactful research. TAO is the coordinating layer, subnets are the labs, and the marketplace is the funding committee.
Strip away the narrative veneer, and you'll discover something even more unsettling.
Bittensor is a grant program where cryptocurrency speculators fund research and development in artificial intelligence—with no obligation for recipients to return any value to TAO.
Think of TAO as Elon Musk—the first investor in OpenAI, this "non-profit" company. Subnets are like Sam Altman—they are the builders who receive funding, deliver the product, but have no contractual obligation to share the profits. They may ultimately choose to privatize the profits without returning any value to their original funding sources.
Bittensor distributes TAO tokens to subnet operators and miners based on the price of the subnet token. Once a subnet receives a TAO allocation, there is no mandatory mechanism requiring that the AI models, datasets, or services it generates remain within the Bittensor ecosystem. Subnet operators can use Bittensor's TAO incentives to generate revenue and then move their actual products elsewhere—to centralized cloud servers, package them as standalone APIs, or simply sell them as SaaS.
TAO has no equity or licensing agreement. The only binding is the subnet token—the token price must be maintained to ensure access to resources. But this only works before the subnet "takes flight": once the product is strong enough to stand on its own outside the Bittensor system, this tether breaks. The relationship between Bittensor and the subnet is less like venture capital and more like research funding—it provides start-up capital but doesn't give you equity.
To put it bluntly, Bittensor is essentially a transfer of wealth: from the pockets of token speculators to the accounts of AI researchers—or, to put it more bluntly, from retail investors to tech-savvy "miners."
The principle is very simple:
TAO investors are essentially underwriting the entire ecosystem. They buy and hold TAO, supporting the price, which itself serves as a conduit for funds to flow into the subnet incentive system.
Subnet operators earn TAO inflation rewards by “showing performance”—but in reality, “showing performance” largely means maintaining a good-looking price for their subnet tokens.
The AI products built with this funding can be abandoned at any time—the only constraint is that they still need to continuously acquire network resources.
This is the worst nightmare for VCs: you provide the funding, they develop the product, but they owe you nothing. All that's left is a token issuance schedule and a prayer.
Optimistic Interpretation
Now let's look at it from a different angle. This optimistic view is built on two pillars:
The persistent demand for resources means that AI companies always face funding shortages. Computing, data, and talent are extremely expensive. If Bittensor can reliably provide these resources at scale, subnets have a legitimate incentive to remain—not because they are locked up, but because leaving means losing access to these resources. There's a soft underlying logic: AI's demand for resources is inexhaustible, and TAO can provide resources on a scale that cannot be achieved through self-financing alone. Following this logic, subnet teams will proactively maintain their token valuations; without any coercive mechanisms, the TAO economy will spontaneously form a positive flywheel.
Cryptocurrencies excel at resource aggregation. Bitcoin, through token incentives alone, has aggregated massive amounts of computing power. Ethereum's proof-of-work mechanism has also achieved tremendous success, becoming a powerful magnet for computing resources. Bittensor is applying the same strategy to the field of artificial intelligence. The "enforcement mechanism" is precisely the game of tokens—as long as TAO has value, the incentive to participate will continuously increase.
If you simulate the future of a Bittensor 1000 times, the distribution of the results will be extremely skewed.
In most simulations, Bittensor will remain a niche funded project. The AI output from subnets will be insignificant. The best-performing subnets will gain significant attention, reap the rewards, and then transition to closed-source mode, leaving no value for TAO. When the token supply exceeds the value created, the TAO token will depreciate.
In a few simulated paths, something actually started working. A subnet produced a truly competitive AI service, and the network effect began to snowball. TAO became the true coordinating layer of decentralized AI infrastructure—not by capturing value through coercive constraints, but by the inherent attraction of becoming a reserve asset of a functioning AI economy.
In very rare cases, TAO becomes the defining entity of an entirely new asset class.
Where might problems occur?
The logic for being bearish is simple:
There is no stickiness . Once the subnet no longer needs TAO token incentives, it will leave. Bittensor is a transitional phase, not the final destination.
Centralized AI holds an overwhelming advantage . Companies like OpenAI, Google, and Anthropic possess orders of magnitude more computing power and talent. TAO cannot compete with the formidable strength of the venture capital and private equity markets. Therefore, the best talent will choose the traditional development path.
Issuance of new shares is essentially taxation . TAO's issuance plan subsidizes subnets by diluting existing shareholders. If the value created by the subnets does not justify this dilution, it becomes a slow process of blood loss disguised as a "growth mechanism."
An optimistic scenario, frankly speaking, is more like wishful thinking than a realistic and feasible path to success.
in conclusion
Most of the capital invested in TAO will ultimately subsidize development activities that do not return value to token holders. However, Crypto has repeatedly demonstrated that token-incentivized coordinated games can produce outcomes that no rational model can predict. Bitcoin shouldn't have succeeded, but it did—although this argument itself is not strong, and the industry has used it to endorse numerous projects that fail to withstand first-principles scrutiny.
The core issue with TAO isn't whether a coercive mechanism exists—it doesn't, and dTAO's efforts haven't changed that. The core issue is whether the game-theoretic incentives are strong enough to keep the best subnets on track. Buying TAO is betting that a "soft guarantee" will hold true in harsh reality.
That's either naiveté or foresight.
