Bittensor (TAO) tokenomics

Bittensor (TAO) utilizes a tokenomic model heavily inspired by Bitcoin, characterized by a fixed maximum supply, a fair launch, and a programmatic halving schedule. The ecosystem is designed to incentivize the production of machine intelligence through a decentralized network of specialized markets known as subnets.

Issuance Mechanism

The native token, TAO, has a maximum supply cap of 21,000,000 tokens. The issuance follows a predictable, decreasing rate:

• Block Rewards: Currently, 1 TAO is issued every block, which occurs approximately every 12 seconds.
• Daily Issuance: This results in a total of 7,200 TAO being created and distributed daily across the network.
• Halving Cycle: Similar to Bitcoin, Bittensor employs a halving mechanism. However, instead of halving based on a fixed number of blocks, TAO halves based on the total supply issued. A halving occurs once 50% of the remaining supply has been issued. The first halving will reduce the daily issuance from 7,200 to 3,600 TAO.
• Recycling Feature: Bittensor includes a unique "recycle" mechanism where tokens paid for certain actions (like subnet registration or transaction fees) are removed from the circulating supply and returned to the unissued supply. This effectively postpones the halving dates by increasing the amount of TAO that must be "re-mined."

Allocation Mechanism

The distribution of newly issued TAO is determined by the Root Network (Subnet 0) and the Yuma Consensus (YC) mechanism. The allocation is structured as follows:

Within the validator's 41% share, a further breakdown occurs due to delegation:

• Delegators: Receive approximately 82% of the validator's share.
• Validators: Retain approximately 18% as a commission (take rate) for their operational services.

Usage and Incentive Mechanism

TAO serves as the economic foundation for all transactions and incentives within the Bittensor ecosystem.

• Incentivizing Intelligence: Miners are rewarded for contributing high-quality machine learning models or other digital commodities (storage, compute, etc.). Validators are rewarded for accurately ranking these miners.
• Network Access: To access the collective intelligence of the network or build applications on top of subnets, users and developers must hold and stake TAO.
• Governance: TAO holders can influence the network's trajectory by delegating their tokens to validators. The top 64 validators by stake (the Root Network) vote on how the total network emissions are distributed among the various subnets.
• Subnet Creation and Registration: Users must pay a fee in TAO to create a new subnet. Additionally, miners and validators must pay variable registration fees to secure limited slots within a subnet.

Locking and Unlocking Mechanism

The primary locking mechanism in Bittensor is Staking.

• Staking Requirements: Validators must stake TAO to participate in consensus and earn rewards. As of late 2024, approximately 5.97 million TAO (roughly 80.95% of the circulating supply) was staked across all validators.
• Delegation: TAO holders who do not wish to run their own hardware can delegate their tokens to existing validators. This "locks" the tokens in support of that validator's consensus power.
• Unlocking (Unstaking): While the provided data does not specify a mandatory "unbonding period" (the time it takes to withdraw tokens after unstaking), it notes that rewards are paid near-instantly based on performance and rank.
• Dynamic TAO (Proposal): A proposed "Dynamic TAO" (BIT001) mechanism would introduce Automated Market Maker (AMM) pools for each subnet. In this model, validators would buy and stake subnet-specific tokens in these pools to earn rewards, further linking TAO's value to the performance of individual subnets.