Original Title: "IOSG Weekly Brief | TAO is the Elon Musk who invested in OpenAI, Subnet is Sam Altman #321"
Original Author: Momir, IOSG Ventures
The bullish logic of TAO requires you to believe in the emergence of a game theory miracle. But such miracles have occurred in the cryptocurrency industry before.
Bittensor possesses one of the most elegant narratives in the cryptocurrency realm: a decentralized AI intelligence market where market mechanisms allocate funds to the most influential research. TAO acts as the coordination layer, subnets are the laboratories, and the market is the funding committee.
Peeling away the narrative, you will discover some more disturbing elements.
Bittensor is a funding program where cryptocurrency speculators provide funding for AI research — yet the recipients are under no obligation to return any value to TAO.
You can think of TAO as Elon Musk — he was the first investor in the "non-profit" company OpenAI. The subnet is like Sam Altman — they are the builders receiving the funding and delivering products, but have no contractual obligation to share profits. They may ultimately choose to privatize the profits and not return any value to the original source of funding.
Bittensor distributes TAO tokens to subnet operators and miners based on the price of the subnet tokens. Once a subnet receives a TAO allocation, there is no enforced mechanism requiring the AI models, datasets, or services generated to remain within the Bittensor ecosystem. Subnet operators can take advantage of TAO incentives from Bittensor and then move the actual products elsewhere — to centralized cloud servers, packaged as standalone APIs, or even directly sold under a SaaS shell.
TAO does not have equity, nor does it have authorized contracts. The only binding factor is the subnet tokens — the token price must hold up to maintain access to resources. But this only holds true before the subnet has "flown away": once the product is strong enough to stand independently outside the Bittensor framework, this tether is severed. The relationship between Bittensor and the subnets resembles more of a research funding rather than venture capital — providing you with startup funds, but with no claim to your shares.
To put it harshly, Bittensor is essentially a wealth transfer: from the pockets of token speculators to the accounts of AI researchers — or more straightforwardly, from the retail investors to the "miners" who understand the technology.
The principle is straightforward: TAO investors foot the bill for the entire ecosystem. They buy and hold TAO, sustaining the token price, which serves as the conduit for funds flowing into the subnet incentive system. Subnet operators earn TAO inflation rewards by "showing performance" — but in reality, what is meant by "showing performance" largely amounts to maintaining the attractive price of their own subnet tokens. The AI products built with these funds can walk away at any moment — the only constraint is that they still need to continuously acquire network resources.
This is the nightmare that VCs fear the most: you put in the money, they delivered the product, but they owe you nothing. What remains is a schedule of token inflation and a prayer.
Optimist's Interpretation
Now, let's look at it from another perspective. The optimistic viewpoint is anchored on two pillars:
Continuous resource demand leads AI companies to face persistent funding shortages. The costs of computation, data, and talent are high. If Bittensor can reliably provide these resources on a large scale, subnets will have a reasonable incentive to stay — not because they are locked in, but because leaving means losing their resource supply channels.
There is a soft logic underpinning this: the demand for resources in AI is limitless, and the scale that TAO can provide cannot be achieved by relying solely on its own funding. Following this logic, subnet teams will actively maintain their token valuation without needing any enforced mechanisms, allowing the TAO economy to spontaneously form a positive feedback loop. Cryptocurrency has shown excellent performance in resource aggregation. Bitcoin has aggregated massive computing power solely through token incentives. Ethereum's proof-of-work mechanism has also achieved tremendous success, becoming a strong magnet for computing resources.
Bittensor is applying the same strategy to the field of artificial intelligence. The "enforcement mechanism" is the token game itself — as long as TAO has value, the motivation to participate will continue to grow.
If you were to simulate the future of Bittensor 1000 times, the distribution of results would be extremely skewed.
In most simulations, Bittensor will remain a niche funding project. The AI achievements generated by subnets will be insignificant. The best-performing subnets gain significant attention, reap rewards, and then switch to a closed-source model, leaving no value for TAO. When the token issuance exceeds the value created, the TAO token will depreciate.
In a few simulation paths, something might actually take off. A certain subnet delivers a truly competitive AI service, and network effects begin to snowball. TAO becomes the truly coordinating layer of decentralized AI infrastructure — capturing value not through enforced constraints but based on its gravity as a functioning AI economic reserve asset.
In very rare cases, TAO becomes the foundation of a brand new asset class.
Where Things Might Go Wrong
The bearish logic is simple: no stickiness. Once a 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 of computing power and talent reserves. TAO cannot compete with the formidable strength of the venture capital and private equity markets. Therefore, the best talents will choose traditional development paths. Inflation is the tax.
The TAO inflation plan subsidizes subnets by diluting holders. If the value created by a subnet does not match this degree of dilution, it becomes a slow bleed masquerading as a "growth mechanism."
The optimistic scenario, in plain terms, appears more like wishful thinking rather than a realistic and viable path to success.
Conclusion
Most of the capital invested in TAO will ultimately subsidize development activities that will not return value to token holders. However, the crypto industry has repeatedly shown that token incentive-driven coordinated games can produce outcomes that all rational models cannot predict.
Bitcoin should not have succeeded, but it did — although this argument is not sufficient, the industry has previously used it to endorse many projects that do not withstand scrutiny by first principles.
The core issue of TAO does not lie in the existence of an enforcement mechanism — it does not exist, and the efforts of dTAO have not changed this. The core issue lies in whether the game-theoretic incentives are strong enough to keep the highest quality subnets on track. Buying TAO is a bet on whether a "soft guarantee" can hold up in a harsh reality.
This is either naive or visionary.
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