🐰 Research Highlight — Taoshi (Subnet 8)

This week, we’re diving into Taoshi, a cutting-edge proprietary trading network built on the Bittensor platform.

One AI Trader To Rule Them All

Taoshi’s mission is ambitious: to democratize wealth generation by enabling everyone (yes, that’s you and me plebs) can access the best trading signals in the world.

Taoshi harnesses the collective intelligence of algorithmic traders to generate signals that traders and developers can use.

Taoshi is a subnet on Bittensor, a decentralized network that incentivises AI and intelligence with TAO tokens. Bittensor comprises 45 distinct subnets, each with a unique ecosystem and objectives.

Miners: The Lifeblood of TAO

At the core of every Bittensor subnet are two key players: Miners and Validators.

In Taoshi, Miners are algorithmic and quant traders who submit long and short signals across crypto, forex, and stock indices.

Picture this: a miner signals a BTC long at $59,800, betting that the price is poised for a rise based on their model. This is data-driven precision, not a “hunch” or “gut feel”.

Miners in Taoshi are evaluated based on a blend of three weighted metrics:

• Short-Term Returns (0.25 weight): Trading performance over a 3 day period.

• Long-Term Returns (1.00 weight): A deeper view, analyzing performance over 30 days.

• Omega (0.05 weight): Measures the magnitude of positive asset changes relative to negative ones.

But it doesn’t stop there. To ensure that miners produce actionable and consistent results, Taoshi imposes strict penalties:

• Consistency: Miners must maintain open positions for at least 18 out of every 30 days.

• Minimal Drawdowns: High drawdowns are heavily penalized. The drawdown limit is 5%, after which the miner is kicked out.

• Realized vs. Unrealized Returns: If a miner’s realized returns lag behind their unrealized gains, penalties kick in.

• Max Returns Ratio: If a single position accounts for an outsized portion of returns, expect a penalty.

Taoshi also considers unrealized returns, preventing miners from artificially inflating performance by leaving losing positions open. 

The system encourages miners to maintain a maximum drawdown (MDD) between 0.25% and 1.5%. Competitive miners typically keep drawdowns under 1.5%, often using less than 2x cumulative leverage.

The Challenge Period

New miners don’t just waltz in and start earning. They must first navigate a challenge period and meet specific criteria, such as positive realized returns and consistent activity, before they’re eligible for incentives.

The highest-scoring miners earn the most TAO, pushing them to refine their strategies continuously.

The criteria for evaluating miners (i.e., incentive design) is continuously evolving and improving to optimize high-signal trading. In the past two months alone, there have been 8 proposals to adjust the criteria, and there will be many more in the future.

Validators play a crucial role in this ecosystem. They receive trade signals from miners, track portfolio returns, and score the miners every five minutes based on the established metrics.

It’s a relentless, high-stakes game where the scoreboard is always on display.

Transparency in Trading

On the Taoshi dashboard, transparency reigns supreme. You can view every miner’s trade positions and their 30-day returns.

For example, one miner recently posted a 36% return over 30 days, far outpacing the 3-4% average (see above chart).

But there’s a catch—this miner is ranked 44th, likely penalized for high drawdowns because they adopted a risk profile that most traders would find hard to stomach.

What makes Taoshi truly remarkable is the constant competition among miners to deliver high returns with low drawdowns and consistent performance. This is no short sprint—it’s a marathon where only the best strategies survive.

Currently, top miners boast an impressive 80-85% win rate.

Among the miners, TARVIS stands out. This sophisticated trading strategy, based on rigorous market models, was fine-tuned over a period of two years.

But here’s the kicker: Taoshi’s blended strategy, which aggregates the best signals from multiple miners, is poised to outshine any single trader.

The Martingale Issue: Double Trouble

For a while, some clever miners were gaming the system using a Martingale strategy to stay at the top of the leaderboards.

The approach? Double down on a losing position until it turns profitable, a tactic that capitalizes on crypto’s high volatility.

However, this also can lead to catastrophic drawdowns. The network had to adjust the incentive model, ensuring that miners who rely on this high-risk strategy are properly penalized.

Look at the simulated returns for a miner using a Martingale strategy on ETH trading. Notice the massive drawdown on June 12? That’s the Martingale trap in action.

Recent simulations indicate that the network is now robust enough to weed out miners who rely on Martingale, even if they occasionally score big gains.

These Martingalers become increasingly uncompetitive and eventually pruned from the network.

🌈 Research-Level Alpha: Trading Bots

What sets Taoshi apart from other subnets is its tangible, actionable outputs. People are actually building trading bots based on the miner and subnet outputs.

Dale

Dale is a trading bot built on Taoshi that focuses on crypto (BTC, ETH) trades. Currently, it’s leveraging TARVIS’s trading strategies, but the plan is to integrate strategies from other top miners in the future. It currently has $500K in AUM.

You can track Dale’s performance here and copy-trade it.

Timeless

Timeless is a signals bot on Telegram.

For $99 a month, users receive trading signals from Taoshi, covering crypto and forex. Right now, the bot operates manually, meaning users need to execute trades through their own brokers.

However, automated trading is on the horizon (estimated end of September) — the team is onboarding users with at least $100K to allocate initially.

Building your own bot

If you want the miner trade data, you can do so on the Request Network. 24-hour delayed data is free, while 100% of real-time miner positions will cost $999.

**Not financial advice — please exercise your discretion when using these trading tools**

My Thoughts on Taoshi

• Taoshi is my favourite experiment on Bittensor right now. The key to its success lies in its incentive design, and the team has been moving fast, iterating to plug gaps and fine-tune the system. There’s still plenty of work ahead to get this right.

• While miners’ trade positions are transparent, the strategies behind those trades are anything but. It’s a black box—nobody knows how miners make their decisions, making it tough to understand what’s driving their success.

• The reported win rates of 80-85% have sparked some skepticism, leading to frequent debates in the Discord community about how real these wins are.

• Visibility is crucial, and getting the word out to the top trading minds will be key to scaling this experiment. Incentives are useless if people don’t know about them!

• Currently, miners earn about 96 TAO ($24K) daily collectively. The top miner pulls in around $4.8K/day ($1.7M annually). That’s a pretty compelling incentive, and it’s likely to keep attracting new traders. However, it’s important to remember that these incentives are tied to the price of TAO and the overall growth of the Bittensor ecosystem. If either falters, so could the influx of new miners.

That’s it! If you have specific feedback or anything interesting you’d like to share, please just reply to this email. We read everything.

Cheers,

Teng Yan

This newsletter is intended solely for educational purposes and does not constitute financial advice. It is not an endorsement to buy or sell assets or make financial decisions. Always conduct your own research and exercise caution when making investment choices.