For months, the Bittensor community speculated about dynamic TAO (dTAO)—would it unlock new prosperity or add a problematic layer of complexity to an already intricate system?

On February 14, 2025, they got their answer. Bittensor’s root chain began redirecting newly minted tokens into fresh “Alpha” pools.

dTAO marked a fundamental shift: power shifting from top validators to the open market. No more backroom decisions. Every TAO holder can now vote with their stake.

Nearly a year ago, I wrote about Bittensor’s economic challenges. Now, with dTAO live, the network is finally addressing them.

The change was overdue. Bittensor’s growth had outpaced the ability of root validators to fairly assess new subnets. Influence concentrated at the top, sometimes in ways that weren’t exactly neutral. dTAO fixes that by letting demand, not gatekeepers, dictate which subnets thrive.

I’ll be honest—making sense of dTAO wasn’t easy at first. It took a lot of digging to piece everything together. That’s why I wrote this: to break things down in plain English and save you the frustration I felt.

One quick note: this isn’t investment advice. I’m not here to tell you which subnet tokens to buy, or whether you should buy at all. My goal is simply to help you understand what’s happening with this historic shift in the most important Crypto AI protocol today.

Why dTAO?

To begin, it’s worth asking: so what was dTAO actually designed to fix?

Validator Bottlenecks

Under the old system, newly minted TAO was distributed based on validator votes. In theory, this “validator democracy” made sense. In practice, it struggled.

As more subnets launched, top validators simply couldn’t keep up. There were too many subnets, too many signals, and not enough bandwidth to fairly assess them all.

Over time, the system fell into a pattern of apathy—where a handful of well-connected subnets received most of the emissions, while newer ones struggled to gain traction.

Conflicts of Interest

Many top validators also happened to be subnet owners. With control over emissions, some assigned higher weights to their own subnets, effectively inflating their own rewards.

Some have even called the previous system as more like “giving out TAO to their friends.”

In extreme cases, validators cut side deals or revenue-sharing agreements with subnet owners, creating a centralization risk that distorted emissions and eroded trust in the system.

Poor coordination

Validators had their own weighting methodologies for determining emissions, but these didn’t always align with the network’s broader goals.

Worse, stakers—who actually supplied the economic weight behind validators—had no direct say in which subnets received emissions. Most staked TAO was concentrated behind a few validators that effectively dictated the entire emission landscape.

dTAO — Important Changes

Before dTAO, emissions were simple. Every block produced 1 TAO (or 7,200 TAO per day), which was distributed to subnets based on weightings assigned by root validators. Each subnet distributed the TAO internally to their contributors in fixed proportions: 18% / 41% / 41% for subnet owners, miners and validators respectively.

For stakers, everything revolved around Root (Subnet 0). TAO holders staked behind validators, and in return, they earned newly minted TAO. It was straightforward and predictable.

That’s over.

With dTAO, emissions are no longer assigned through validator weightings. Instead, TAO emissions now flow through a market-driven system using subnet tokens, also known as Alpha tokens.

The price of these alpha tokens reflects the market demand for a subnet. Higher demand pushes up the price, signaling a more valuable subnet.

Subnet tokens use a Constant Product Automated Market Maker (AMM)—the same pricing mechanism used in Uniswap. The price at any moment is determined by the ratio of TAO reserves to Alpha token reserves in the subnet’s liquidity pool.

So instead of emissions being assigned arbitrarily, a subnet’s share of TAO emissions is now determined by how valuable the market perceives it to be.

• Higher Alpha token price → Implies strong market demand → More TAO emissions

• Lower Alpha token price → Implies weak market demand → Fewer TAO emissions

Imagine two subnets competing for emissions:

• Subnet A’s token price = $100

• Subnet B’s token price = $50

Since Subnet A’s token price is higher, it receives a larger share of the total TAO emissions every block than Subnet B.

This creates a self-regulating system where subnets producing more value (as perceived by the market) attracts more TAO rewards, while underperforming subnets naturally see lower emissions.

This mechanism ensures that capital flows toward the most productive subnets.

Emissions

It took me a while to piece together what’s actually happening with emissions, so let me try to summarise it as best possible.

The chart below is worth revisiting as you go through the rest of the essay. I found it to be one of the most informative visualizations.

#1: What’s happening on Root Network?

In the early days of dTAO like now, stakers on Root (Subnet 0) still receive the bulk of TAO emissions. The reason is simple: there aren’t many Alpha tokens in circulation yet.

Validator stake weight in each subnet isn’t just determined by their share of that subnet’s Alpha tokens—it also includes their TAO stake in Root, as you can see from the formula above.

Because Alpha tokens are still scarce at the beginning, Root validators hold a disproportionate amount of influence across the network.

This results in a significant chunk of newly minted Alpha tokens getting automatically “sold” back into TAO and distributed to TAO stakers on Root.

For now, that’s been highly rewarding for Root stakers. With most emissions still flowing into Root, yields have been strong, with 60-70% APRs in the first few days.

But this won’t last forever.

As more Alpha tokens enter circulation, their weight in the network increases, shifting influence away from Root validators. Over time, dTAO ensures that emissions are no longer concentrated in Root but instead flow more evenly across the network.

In approximately 100 days, TAO emissions to Root stakers are expected to reach parity with subnet Alpha tokens

#2: What’s happening on the Subnets?

Instead of distributing newly minted TAO directly to miners and validators, subnets now reward participants in Alpha tokens—their own local currency.

How Alpha Works

Every block, each subnet mints Alpha tokens, starting with 2 alpha per block (double the emission rate of TAO). The emission rate is dynamic and drops as Alpha token prices increase.

Like TAO, each Alpha has a hard cap of 21 million tokens and follows the same halving schedule, with the first halving at 10.5 million total supply—which will likely be reached in just under two years.

Each subnet operates an AMM pool, where TAO is paired with Alpha. The price of Alpha is determined dynamically based on the ratio of TAO to Alpha tokens in the pool.

When you stake TAO into a subnet’s pool, you receive an equivalent amount of Alpha at the current market price. Later, if you unstake, you swap Alpha back for TAO at whatever the prevailing rate is.

NOTE: I’ve seen some confusion around this.

When people say they’re “buying” or “selling” subnet tokens, they’re actually just staking or unstaking TAO into subnet pools. There’s no separate mechanism where you can directly purchase Alpha tokens yet.

How Emissions Are Now Allocated

Every block, the protocol scans the Alpha token prices across all subnets and dynamically decides how much fresh TAO to inject into each subnet’s pool.

• Higher-priced subnets (signalling stronger demand and utility) receive a larger share of TAO emissions.

• Lower-priced subnets receive less TAO

Subnets now have to earn TAO by generating real demand for their Alpha tokens. This creates a competitive, market-driven environment where success has to be earned and only the fittest survive.

Subnets can’t just coast along anymore; they’ve got to prove their worth.

Those that show real utility and keep Alpha prices high collect bigger TAO rewards, while those that falter will naturally fade as their emissions dry up.

To prevent short-term price swings from distorting emissions, the system applies an exponentially weighted moving average (EMA), which smooths volatility and ensures TAO allocations remain stable despite sudden price movements.

The smoothing factor is extremely small (3e-6 per block), causing the EMA to update gradually. As a result, changes in the actual Alpha price take time to reflect in TAO emissions — measured in days / weeks, not hours.

Timeline

Here’s a breakdown of the key phases to help you visualize what’s ahead.

Note that these are approximate timelines and conceptual milestones rather than fixed in stone.

Launch Phase (Day 0 - Day 1)

• 2 Alpha emitted per block per subnet (new emissions start).

• Root receives ~100% of TAO emissions because there are no Alpha tokens in circulation yet.

• Validator stake weight is entirely TAO-based.

• TAO stakers on Root benefit the most.

Early Adoption Phase (Day 2 - Day 30)

• More Alpha tokens start entering circulation as subnets emit Alpha.

• Validators in subnets begin accumulating Alpha, shifting stake weight toward subnets.

• Root still gets the majority of TAO emissions, but its dominance starts to decline.

Transition Phase (Day 30 - Day 100)

• Alpha supply in subnets grows rapidly due to high emissions.

• Subnet validators with more Alpha begin to outweigh TAO-based validators in Root

• Root’s share of TAO emissions declines significantly.

• Around Day 100, stake weight parity between TAO and Alpha is expected, meaning that TAO stake is no longer dominant in validator weight calculations.

Post-Transition Phase (Day 100 - Year 1)

• Subnet validators dominate emissions

• Root continues to receive TAO emissions but at a much lower rate.

• Validators who adapted to staking Alpha tokens in subnets benefit the most.

Long-Term (Year 1 and Beyond)

• TAO emissions are almost entirely directed by market-driven subnet staking.

• Root still allows TAO staking, but rewards are minimal. TAO weight gets close to 0.

• The network is fully decentralized in terms of emissions allocation.

What Has Happened So Far

All subnet token pools started with just 1 Alpha / 1 TAO. The epitome of a fair launch.

Shortly after dTAO launched, there were wild swings in Alpha prices. Some subnets soared to 5–10 TAO/Alpha in the first hours, driven by speculators hoping to benefit from high emissions. Others stayed near 0.1–0.2 TAO, presumably overshadowed by bigger names or lacking early marketing.

But big price spikes in the early days will likely be short-lived because:

• Auto-Selling for Root emissions: A good portion of newly minted alpha tokens is automatically sold back into these subnet pools to pay out rewards to TAO stakers on Root. This exerts downward price pressure

• Sell Pressure: Miners, validators and subnet owners are earning Alpha tokens (which is emitted faster than TAO) and will swap back to TAO to cover operational costs.

WARNING: There is very high relative inflation on subnet alpha tokens in the early days!!

Low float, Highly volatile prices

The best place I’ve found to track subnet alpha prices is Backprop finance.

As of now, barely 0.4% of Alpha is in circulation per subnet, so you’ll often see low market caps but sky‐high fully diluted valuations, often in the billions.

For instance, the hottest one lately is Chutes (Subnet 64) which provides GPU resources in a severless way. It’s showing a market cap around $9.2 million but a fully diluted valuation of $2.6 billion, which is pretty wild compared to TAO’s own ~$4 billion market cap.

Given the heavy inflation and the ongoing sell pressure, I expect those FDVs to settle into more realistic territory eventually.

One metric to track is the total FDV of all the subnet tokens vs the market cap of TAO (see left most chart above). It’s hovering at around 2 - 3x but clearly that is not sustainable over the long run.

But this is still a low‐liquidity environment, meaning even small “ape” buys or trader selloffs can whip prices around in a hurry. In the past day alone, we’ve seen subnet tokens rocket up by 100–200% then cool off just as fast.

How to Get Subnet Alpha Tokens

Picking the right subnet is step one.

Not all are equal, so look for real utility, active communities, and strong miner participation—Discord, X, GitHub, and tools like Taostats.io can help you spot genuine momentum.

Once you’ve found a subnet you like, you’ll need a Bittensor wallet. A good one is the official Chrome extension from the OpenTensor Foundation. You can only stake TAO for subnet tokens, so there’s no direct swap with ETH or USDC or SOL.

While you can stake directly in the wallet, I prefer using platforms like Taostats.io or Backprop Finance, which offer a familiar trading‐style interface. Just watch out for slippage: most subnets still have low liquidity, so larger trades can move prices sharply.

One upside? Holding Alpha tokens earns you more tokens because newly minted Alpha auto‐accrues in your balance. When you want to exit, you can unstake and swap back to TAO at the pool’s exchange rate. The rate can be quite different from when you staked, so you can actually lose TAO here.

How I’m Thinking About dTAO

The best part about dTAO and Bittensor subnet tokens is that it's forcing everyone to finally pay attention to what each subnet is building. There’s real alpha to be found here—actual upside in doing the research—whereas before, you could just buy TAO and call it a day.

And that's exactly the point.

I’m taking my time to dig into what these subnets are doing, to understand their product vision and business model.

And it’s actually very fun. Many are led by sharp, technically skilled teams with deep AI expertise, tackling everything from AI model development to scientific research on protein folding and advanced vision models

They’re all at different stages of development. Some subnets are still in the early phase, focused on building their miner communities, while others are already generating valuable outputs and securing commercial partnerships.

And if I were to give any advice on the subnet tokens, it would be this: patience is likely your best strategy.

dTAO is designed for the long-term, a system that transitions slowly and rewards those who take the time to understand it properly. If you like a particular subnet, easing in with small, regular buys (rather than one big lump sum) lets you ride out the volatility and gives liquidity time to grow.

For anyone uncomfortable with the subnet frenzy, you can probably keep your TAO staked on Root for the next couple of months. The APR there will drop over time, but it’s still respectable. 

Of course, they will be those who want to play the volatility lottery, and if they have impeccable timing with getting in and out, they may be able to grow their stack of TAO significantly. It’s a very risky game though.

Some Thoughts

dTAO is a major step in the right direction. But it’s not a perfect system (is there any, actually?)

Manipulation is still possible

Switching to an Alpha-based staking model introduces a new set of risks. In theory, it creates better market-driven incentives. In practice, it still leaves room for exploitation. If a subnet’s token price collapses, a bad actor could swoop in, buy up cheap Alpha, and use it to manipulate emissions.

For now, dTAO tempers this by blending root stake weight, making it harder for any single entity to hijack emissions. But over time, as root weight diminishes, subnets will need stronger security mechanisms to prevent hostile takeovers. Subnet owners can still strike private deals with large validators or miners—just now the medium is Alpha rather than TAO. The system is more distributed, but it’s not immune to game-theoretic alliances.

1,000 Subnets?

Every time a new subnet is registered, the cost doubles. But the price also decays over time, halving roughly every 38,880 blocks—or about five and a half days. This means that if demand remains steady, a new subnet could launch every five days.

What happens when we have a thousand subnets?

At that scale, no individual can reasonably track all the emissions, performance, and opportunities across the network. There will be too much data, too many variables, and too much noise. AI-powered analytics tools will become a necessity, not a luxury, helping stakers navigate the overwhelming number of options.

For those launching new subnets, early liquidity will be everything. They will need to engineer an initial wave of demand for their Alpha token, otherwise its emissions share will remain negligible.

Over time, the real winners will be those subnets that demonstrate genuine utility, forging a strong correlation between usage and the Alpha price. Those that fail to attract usage likely fade, their tokens drifting toward zero.

Real DeFi on Bittensor

I’m excited to see how future upgrades could bring DeFi-like mechanics into the ecosystem, deepening capital efficiency.

One possibility is Uniswap V3-style liquidity pools allowing concentrated liquidity instead of the constant-product AMM model. Another is permissionless liquidity provision, where outside LPs can deposit into Alpha–TAO pairs and earn trading fees.

None of this exists yet—but if it does, it could fundamentally change the game by making subnet tokens more attractive to trade and stake.

More capital → more liquidity → more capital.

dTAO is still in its early days, but as new mechanisms are introduced, the financial layer of Bittensor could evolve into something far more sophisticated than what we see today.

The Renaissance

Last month, in my personal predictions for 2025, I wrote that Bittensor would likely see a comeback:

Bittensor spent much of last year in a rough spot—an OG in Crypto AI, yet overlooked as newer narratives took the spotlight. Despite the frenzy around AI tokens and AI agents, TAO struggled to keep up.

Now, with dTAO, that’s changing. Interest is surging, and for the first time, the network is forcing everyone to pay attention—not just to TAO, but to what each subnet is actually building.

Congrats to const and the Opentensor team, and everyone put in the work to make this actually happen. I admit, I had my doubts.

This is not just an upgrade. It’s the start of a Bittensor renaissance, one that plays out over years.

Cheers,

Teng Yan

Resources I found useful

• Dynamic TAO Whitepaper (warning: a lot of math)

• Dynamic TAO FAQ by Opentensor

• Taostats (great resource for tracking network and subnet data)

• Taopill (outline of what each subnet does and key achievements)

• Backprop finance for monitoring subnet token prices

• Automated subnet evaluation paper by Wombo

• Many good tweets from Seth Bloomberg & Sami from Crucible Labs, and Xavier at Latent Holdings

The author holds positions in TAO and several subnet alpha tokens.

This report 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.