Bittensor New Economic Model 'Dynamic TAO' Detailed Explanation

The upcoming upgrade of Dynamic TAO (dTAO) for the Bittensor project, a Decentralization AI project, will be thoroughly analyzed in this article. The analysis will focus on how the introduction of dTAO will change the network's issuance distribution, incentive structure, and economics. This article is sourced from an article by Ventura Labs, compiled and translated by PANews. If you are reading this article, it means that you are already familiar with the Bittensor ecosystem and the Dynamic TAO upgrade on February 13th. If not, it is recommended to read 'Dynamic TAO for Dummies,' which describes the high-level changes and impact of dTAO on the Bittensor ecosystem. The purpose of this article is to deeply analyze how the introduction of dTAO will change the network's issuance distribution, incentive structure, and economics. dTAO's issuance mechanism implements Alpha Token specific to subnets on the constant product AMM (AMM) to trade with TAO, fundamentally transforming Bittensor's economic model. Below is an explanation of how AMM coordinates with dTAO. Through this new mechanism, the relative price of Alpha Token in subnets directly affects the TAO issuance received, rather than being controlled by a small number of validators in the issuance distribution. The new issuance consists of three parts: TAO distribution based on the price of subnet Alpha Token (Part 1), injection of Alpha into the subnet liquidity pool (Part 2), and additional Alpha issuance distributed among subnet owners, validators, and Miners (Part 3). These issuances are calculated per Block (approximately 12 seconds). The formula for core TAO issuance (Part 1) is as follows: subnet TAO issuance = (price of subnet Alpha / total price of all subnet Alpha) × (total TAO issuance per Block). This formula allocates TAO issuance based on the relative Market Cap of each subnet's Alpha Token, incentivizing valuable services and user attractiveness. The Alpha injection follows a similar but modified formula: Alpha injection = min ([total TAO issuance per Block / total price of all subnet Alpha], [subnet Alpha issuance limit] ). The injection provides liquidity to subnet AMM and prevents excessive inflation. In addition to Alpha injected into the liquidity pool, additional Alpha issuance is distributed to subnet owners, validators, and Miners. Each subnet can receive a maximum of 1 Alpha per Block and follows the TAO Halving plan. The distribution details are as follows: 18% to subnet owners, 41% to validators, and 41% to Miners. This reward mechanism encourages contributions to the operation, security, and growth of subnets. It is important to note that both forms of Alpha issuance - injected into the liquidity pool (Alpha-in) and distributed to subnet participants (Alpha-out) - follow the same Halving plan as TAO. Each subnet follows its own Halving plan. Subnets that started earlier will experience a higher issuance rate period, while those that started later must accept their current (lower) issuance rate. Synchronized Halving of all issuances helps maintain predictable token supply growth and control the overall system's inflation. For example, with three subnets and Alpha prices of 2 TAO, 1 TAO, and 1 TAO (a total of 4 TAO), the TAO issuance per Block is as follows: the first subnet receives 0.5 TAO, and the other two subnets receive 0.25 TAO each. This creates a powerful dynamic where higher-value subnets naturally attract more TAO issuance, while the combination of injection limits and fixed rewards maintains economic stability. Subnets that account for 50% of the total Alpha market value will receive 50% of the TAO issuance, establishing a direct link between market value and resource allocation. Concerned about Alpha price manipulation? As trading volume relative to subnet pool liquidity grows, slippage costs increase, and the constant product AMM provides a defense mechanism against Alpha price manipulation. For example, if a subnet's Alpha/TAO pool has 100,000 Alpha and 50,000 TAO, with an Alpha price of 0.5 TAO, purchasing 10,000 Alpha will cost 5,556 TAO, creating a defense mechanism against Alpha price manipulation.