Most crypto projects have very bad tokenomics. Either because they don’t actually need a token, or don’t know how to use it. Typically, projects will use their tokens to pay users, without there being any relation with the value these users bring.
Bittensor is the opposite. Its founders understood the power of well calibrated tokens, and exactly how Bittensor needed one. Instead of creating a whole new mechanism with hundreds of unnecessary features, they took bitcoin, and changed just what they needed to suit Bittensor’s use case.
Let’s dive in!
Bittensor creates a competition between mutliple networks (subnets) which goals are to produce specific digital commodities (compute, storage, inference, data scraping, …). Within each of these subnets, miners compete to produce the best version of the subnet commodity.
TAO tokens are used to incentivize these competitons between miners, and between subnets. They are the incentives for creating better commodities than the others.
TAO tokens are also necessary for subnets to register in the competition, and for miners to register into subnets.
So Bittensor’s token serves as two things:
Like bitcoin, TAO is limited to 21 million units. Currently, 1τ get issued at every block. With one block every 12 seconds, that’s 50τ every 10 minutes, exactly like bitcoin at the beginning. As in bitcoin, these TAO are sent as incentives to the best participants of the network.
One of the key aspect of Bitcoin are its halvings. And this is where it gets interesting for Bittensor.
In Bitcoin, halvings happen every 210,000 blocks. With 1 block happening approximately every 10 minutes, we can say that halvings in Bitcoin are time-based.
In Bittensor, halvings happen once a certain supply of TAO is circulating. Now you will say that it’s the same, as a fixed quantity of TAO are issued at each block. But this isn’t taking into account what happens when miners and validators register into the network.
When they do, the TAO they pay get recycled. This means the tokens are sent back into the emission pool to be issued later. As halvings are based on the circulating supply, this is effectively pushing back the date of the next halving.
Halvings reduce the issuance rate of a token by 50% and typically create an increase in price. The more halvings happen, the more the asset transitions to a hard asset, and becomes more expensive.
A high turnover in registrations means there is adoption under way. Making adoption push back the halving date leaves more time for the network to develop and grow organically before the tokens transitions to a harder asset, making it more expensive for people to join the network.