The Bittensor ecosystem is known for its subnets which include leading DeAI teams like @chutes_ai, @celiumcompute and @tplr_ai. These subnets join Bittensor to receive three primary benefits: • An out-of-the-box 𝗶𝗻𝗰𝗲𝗻𝘁𝗶𝘃𝗲 𝗺𝗼𝗱𝗲𝗹 for miners and validators; • 𝗜𝗻𝘁𝗿𝗮-𝘀𝘂𝗯𝗻𝗲𝘁 𝗰𝗼𝗹𝗹𝗮𝗯𝗼𝗿𝗮𝘁𝗶𝗼𝗻; • An emissions system that effectively provides research teams with 𝗻𝗼𝗻-𝗱𝗶𝗹𝘂𝘁𝗶𝘃𝗲 𝗳𝘂𝗻𝗱𝗶𝗻𝗴. It’s the latter system that is most interesting and most novel about @bittensor_ ↓

The emissions drive why subnets join (and stay) in Bittensor. This thread will explain how they work and how to think about valuing TAO and Alpha tokens. The current “DTAO” emissions system wasn’t originally part of the network. Bittensor was initially funded on the ideal of a transactional intra-subnet economy where each subnet could invoke another for different services.

Collaboration does exist among subnets (and some subnets are owned by the same entity, @rayon_labs being the biggest multi-subnet team).

In practice, subnets weren't really competing with each other for direct product revenue, they were competing against the best alternatives in the market – other AI (or DeAI) companies. And of course these most competitive alternatives usually weren't other Bittensor subnets. Instead, subnets were competing against each other for emissions. And it was time to change Bittensor to make that competition as efficient as possible. Now each Subnet has an “Alpha” token which can be received by staking Tao. The Alpha tokens are priced by an AMM that allows users to stake Tao to “purchase” Alpha tokens (and vice versa). In short: Bittensor pivoted to a cryptoeconomic holding company built entirely on incentives. Bittensor now acts as a way to aggregate market expectations around the future revenue potential and execution capability of decentralized AI teams. The most important part is that each subnet also receives emissions which are proportional to the current price of Alpha tokens in its AMM. And here are some fun facts: • The only thing driving the value of $TAO is the ability to create subnets and participate in their pricing; • There is nothing formally in the protocol that drives the value of Alpha tokens; • TAO is isolated from the failure of a single subnet but needs multiple subnets to be valuable. Before we explain why, we have to understand how this mechanism works.

These are tokens with a built-in market maker. The core idea is that instead of allowing each subnet to launch their own token independently, tokens Alpha1, Alpha2, etc. are created for each subnet with the 𝘁𝗼𝗸𝗲𝗻𝗼𝗺𝗶𝗰𝘀 𝗯𝗲𝗶𝗻𝗴 𝗰𝗼𝗺𝗽𝗹𝗲𝘁𝗲𝗹𝘆 𝗰𝗼𝗻𝘁𝗿𝗼𝗹𝗹𝗲𝗱 𝗯𝘆 𝗕𝗶𝘁𝘁𝗲𝗻𝘀𝗼𝗿. What’s especially novel is that Bittensor opts to provide market making services for these tokens by reserving a subnet pool for each subnet. This pool is a 𝗰𝗼𝗻𝘀𝘁𝗮𝗻𝘁 𝗽𝗿𝗼𝗱𝘂𝗰𝘁 𝗔𝗠𝗠 𝘄𝗶𝘁𝗵 𝘀𝗼𝗺𝗲 𝗧𝗔𝗢 𝗿𝗲𝘀𝗲𝗿𝘃𝗲𝘀 𝗮𝗻𝗱 𝘀𝗼𝗺𝗲 𝗔𝗹𝗽𝗵𝗮𝗡 𝗿𝗲𝘀𝗲𝗿𝘃𝗲𝘀 (for each N). 𝗔𝗻𝘆𝗼𝗻𝗲 𝗰𝗮𝗻 𝘂𝘀𝗲 𝘁𝗵𝗲 𝗽𝗼𝗼𝗹 𝘁𝗼 𝘀𝘄𝗮𝗽 𝗯𝗲𝘁𝘄𝗲𝗲𝗻 𝗧𝗔𝗢 𝗮𝗻𝗱 𝗔𝗹𝗽𝗵𝗮𝗡. Since nobody own or LPs in the pool (it's enshrined), there are no fees. For the pool to grow it receives a proportional amount of TAO and AlphaN tokens every block. 𝗘𝘃𝗲𝗿𝘆 𝗽𝗼𝗼𝗹 𝘄𝗶𝗹𝗹 𝗿𝗲𝗰𝗲𝗶𝘃𝗲 𝘁𝗵𝗲 𝘀𝗮𝗺𝗲 𝗮𝗺𝗼𝘂𝗻𝘁 𝗼𝗳 𝗔𝗹𝗽𝗵𝗮𝗡 𝘁𝗼𝗸𝗲𝗻𝘀 𝗯𝘂𝘁 𝗮 𝗱𝗶𝗳𝗳𝗲𝗿𝗲𝗻𝘁 𝗮𝗺𝗼𝘂𝗻𝘁 𝗼𝗳 𝗧𝗔𝗢 𝗱𝗲𝗽𝗲𝗻𝗱𝗶𝗻𝗴 𝗼𝗻 𝘁𝗵𝗲 𝗰𝘂𝗿𝗿𝗲𝗻𝘁 𝗽𝗿𝗶𝗰𝗲 of AlphaN vs. TAO. Moreover, the subnet’s participants (owners, validators and miners) also receive rewards proportional to the TAO price of the subnet’s Alpha token.

So emissions are both used to reward subnet participants and to keep growing the active liquidity for the subnet. The emissions are subject to a halving process so the terminal supply of each subnet's Alpha token is finite. For reference, here are the distributions: 𝘕𝘰𝘵𝘦: 𝘵𝘩𝘦 𝘧𝘪𝘳𝘴𝘵 𝘵𝘸𝘰 𝘵𝘰𝘱-𝘭𝘦𝘷𝘦𝘭 𝘵𝘦𝘳𝘮𝘴 𝘳𝘦𝘱𝘳𝘦𝘴𝘦𝘯𝘵 𝘪𝘯𝘫𝘦𝘤𝘵𝘪𝘰𝘯𝘴 𝘪𝘯𝘵𝘰 𝘵𝘩𝘦 𝘈𝘔𝘔 𝘱𝘰𝘰𝘭 𝘢𝘯𝘥 𝘵𝘩𝘦 𝘵𝘩𝘪𝘳𝘥 𝘣𝘳𝘢𝘯𝘤𝘩 𝘰𝘧 𝘵𝘩𝘦 𝘵𝘳𝘦𝘦 𝘳𝘦𝘱𝘳𝘦𝘴𝘦𝘯𝘵𝘴 𝘩𝘰𝘸 𝘦𝘮𝘪𝘴𝘴𝘪𝘰𝘯𝘴 𝘧𝘭𝘰𝘸 𝘪𝘯𝘵𝘰 𝘴𝘶𝘣𝘯𝘦𝘵 𝘱𝘢𝘳𝘵𝘪𝘤𝘪𝘱𝘢𝘯𝘵𝘴.