Bittensor ( $TAO ) was once known as the Bitcoin of crypto AI, and is now referred to as the Ethereum of the crypto AI field.
What is the flywheel effect of this token?
- A hard supply cap of 21 million TAO, the same as BTC, with a halving plan.
- By staking TAO, you can participate in subnet interactions; of course, the simplest and most direct interaction is still earning interest.
- After the upgrade to Dynamic TAO (dTAO), more than 100 subnets have been established so far. dTAO
With dTAO, each subnet now has its own alpha token.
TAO holders can purchase and hold this alpha token and stake it in the subnet's liquidity pool.
Additionally, the issuance allocated to each subnet is now linked to the market price of its alpha token.
The higher the price, the larger the share of issuance the subnet receives.
In simple terms, the core of this flywheel effect: through a market-oriented incentive mechanism, link the issuance of TAO to the actual value of the subnet (reflected by its Alpha token price), guiding resources towards the AI applications with the most potential and value creation.
But to be honest, the speed at which this flywheel could collapse might also be very fast:
- If a large number of subnets are created merely for speculation, lacking real AI application value or innovation, and fail to attract real users, then the price bubble of their Alpha tokens could burst rapidly. Once the price of the Alpha token plummets, the issuance of $TAO received by that subnet will sharply decrease, leading participants (validators, miners) to exit, causing the subnet to decline rapidly.
- The Alpha tokens themselves may become highly speculative objects. If the price of one or more key Alpha tokens collapses due to a speculative bubble bursting, it could trigger a chain reaction that undermines market confidence in other Alpha tokens and even in TAO itself.
- The flywheel effect is bidirectional. If the price of TAO drops, or if the market loses confidence in the Bittensor ecosystem, then:
The attractiveness of staking TAO decreases, leading to unlocking and selling off.
The value of TAO rewards received by the subnet decreases, reducing incentives for high-quality AI models and validators.
Then, the quality of the subnet declines, the price of the Alpha token drops, further reducing the inflow of $TAO issuance, creating a vicious cycle.