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Analysis of AI track Bittensor (TAO): project goals, technical composition, and token valuation

2023-11-20 16:51

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Original Title: "Interpreting Bittensor (TAO): The Ambitious AI Lego That Makes Algorithms Composable"

Source: DeepTech TechFlow

The market trend is changing, and multiple sectors are becoming active again.

Other than the Bitcoin ecosystem under the spotlight, the AI track has been a continuous hot topic this year and has always been a stage for the emergence of various cryptocurrencies.

Aside from the hotly traded tokens in the market such as FET, RNDR, and OCEAN, a token called TAO has recently surged threefold in the past month. However, the project behind it, Bittensor, has not been thoroughly analyzed in the Chinese market.

而对岸的节奏，远比我们的反应更快。

The rhythm on the other side of the strait is much faster than our reaction.

The explosive price has also caught the attention of savvy investors. On Thursday, the community announcement of the Bittensor project revealed that well-known crypto VCs Pantera and Collab Currency have become holders of TAO tokens and will provide more support for the project's ecosystem.

VCs are good at capturing the evolution of trends and even better at driving their development.

This TAO, which is favored and has rapidly risen in price, what are its outstanding features behind it? What are the significant differences in its narrative, product, and token economy compared to mainstream projects in the AI field?

In this issue, we will delve into Bittensor and conduct a comprehensive analysis of its track background, project goals, technical composition, token valuation, etc., to provide reference for your judgment and decision-making.

Don't rush, first understand the investment logic of Cyrpto + AI

Any rise in tokens is supported by basic investment logic and the overall narrative of the industry. Before researching TAO, it may be helpful to first look at the overview of the entire AI industry.

债券泡沫下的 AI 热潮

Bond Bubble and AI Craze

The tokens related to the concept of AI are hot, but in reality, the lack of Crypto does not affect the independent popularity of AI.

According to data from CB Insights, the market's interest in generative AI will significantly increase by 2023, with the total financing amount for AI-related companies and projects skyrocketing to $14 billion; last year, this number was only $2.5 billion.

Image source: CB INSIGHTS

Therefore, regardless of whether it is TAO, RNDR, or FET, the underlying driving force behind them is far more complex than a superficial ChatGPT and NVIDIA.

Industry leader Arthur Hayes recently showcased a possible or ongoing situation in his blog - a collective funding frenzy driven by a bond bubble.

According to estimates, the total amount of government debt that must be extended and issued due to fiscal deficits in the world's major economies, led by the United States, is expected to reach 33.58 trillion in the next 3 years.

The government issues bonds and promises to repay the principal and interest upon maturity. If the bond interest rate is high, it means that funds are being invested in government bonds, which will absorb the capital of the private sector (corresponding to the government public sector) and inevitably squeeze out other investment opportunities in society, such as other companies unable to obtain financing or a sluggish stock market.

Therefore, Arthur believes that the US Federal Reserve will inevitably require printing money and buying its own issued debt to reduce the impact on the private sector; this is expected to lead to a significant increase in the world's legal currency supply in 2026 (even exceeding the COVID period).

Where will all the extra money flow to?

"Money will flow to those new technology companies that promise crazy returns when they mature. Every legal liquidity bubble has a new form of technology to attract investors and attract a lot of capital."

In the 90s, there was the internet bubble, followed by online advertising and social media after the 08 financial crisis; and now it's AI's turn.

Perhaps this is also one of the deeper reasons why generative AI has received numerous investments this year. The technology of GPT is evident, but in a larger perspective, it is only the most brilliant pearl in the capital torrent. The trend of capital collectively pouring into AI has already emerged.

Crypto + AI, Narrative Direction Division

Money has come in, the next question is what to invest in. Let's take a closer look at the investment logic of Crypto + AI.

It's a cliché, but AI is essentially an advanced productive force, and its rapid development relies on three core elements: data, algorithms, and computing power. Cryptocurrencies and blockchain, on the other hand, are more about production relations, promoting changes in the above three elements through incentives, coordination, and organizational forms.

Which tokens can enhance these three elements, there is a possibility of combining with popularity.

(Note: Currently, the validators seem to be mostly from the project's own affiliated organizations, which may not be fully decentralized. However, as the network develops, it may absorb other organizations to serve as validators.)

Nominator: Entrusting tokens to a specific validator to show support, and can also switch to delegate to different validators. It's similar to staking your tokens with Lido to earn rewards in DeFi.

Users: Bittensor provides AI models for the ultimate users. They can be individuals or developers seeking AI models for applications.

Relationships between roles:

Users need better AI models. Validators are responsible for selecting better AI models for different purposes, while miners provide their own AI models and nominators choose to support different validators.

Simply put, it is an open AI supply and demand chain: some people provide different models, some people evaluate different models, and some people use the results provided by the best model.

The content you provided is:

Source: ReveloIntel

The above image provides a simple explanation: users input their requirements, and validators route the requirements to miners in the Bittensor network; miners output answers, validators then evaluate the quality of the answers, and ultimately return them to the users.

What is TAO Token incentivizing?

To validators: The more accurate and consistent the screening and evaluation of AI models, the more rewards you will receive. Obviously, to become a validator, you need to pledge a certain amount of TAO tokens.

To miners: Respond to user needs by providing your own model and earn TAO tokens based on your contributions.

To the nominee: Delegate your TAO to validators, similar to liquidity staking rewards.

To users: Paying with TAO tokens to start a task is equivalent to consumption.

In an ideal scenario, different AI models in this network would collaborate, and different tasks would likely have different model performances. Since the visible network nodes on these task chains, the models can actually learn from each other and make different adjustments based on the tasks.

The content you provided is:

Source: ReveloIntel

A better analogy is: Bittensor is a bit like an AI "oracle". In DeFi, oracles "feed the best price" to applications in need. Bittensor "feeds the best model" to users with AI needs.

As for how to participate in this network as a validator and miner, due to the involvement of technical code and development interfaces, it will not be described here. Interested readers can visit the official documentation for more information.

$TAO Token: How to Determine the Most Appropriate Valuation?

Token Economic Model

According to the official documentation, Bittensor launched "fairly" (without pre-mined tokens) in 2021, and the token is called TAO.

TAO has a supply of 21,000,000 (paying homage to BTC), and also has a 4-year halving cycle, with the reward for each block halving every 10.5 million blocks. There will be a total of 64 halving events, with the most recent one occurring in August of 25th year.

It's a bit sci-fi, but according to this halving cycle, it will take 256 years for these tokens to be completely mined out.

Currently, a TAO is sent to the network every 12 seconds. Roughly speaking, there are 7200 TAOs produced per day, with half going to miners and half going to validators.

TAO's fair launch means that there are no common practices such as VC rounds, private rounds, ICO/IEO/IDO, foundation reserves, etc. It can be understood as a pure mining coin.

For each round of mining rewards, TAO will distribute them between validators and miners.

However, on the official website of Bittensor, we also see well-known funding parties and market makers such as DCG, GSR, Polychain, and Firstmask.

One reasonable speculation is that since most validators in the network are currently associated with Bittensor's official organization, the mined coins can be attributed to their own hands and then distributed to market makers for market making.

At the same time, these large institutions can also participate as validation nodes or even miners in the mining of TAO.

We also mentioned at the beginning of the article that Pantera and other crypto VCs have recently become holders of TAO. Therefore, Bittensor itself is launched fairly, but it does not mean that there is no VC involvement;