Interpretation of Bittensor Halving mechanism: Why is TAO said to be the BTC of the AI field?

Author: Sami Kassab

Compiled by: Deep Tide TechFlow

In December 2025, Bittensor is about to welcome its first halving, which has triggered different emotional reactions within the community. Some are calm and confident, believing the network can adapt to this change; others feel uneasy, thinking the protocol might need adjustments. Such reactions are not surprising.

If we look back at the history of Bitcoin's first halving, we find that the sentiment at that time was very similar to now: pessimists firmly believed that Bitcoin would fall into a death spiral, while optimists believed that the system would adapt, as the incentive mechanism itself demands.

In short, the pessimists are wrong. Bitcoin still exists and has proven the effectiveness of programmatic monetary policy. We believe that Bittensor's halving will also yield similar results.

However, there is a key difference between Bitcoin and Bittensor: Bittensor has two tokens - TAO and Alpha (subnet token), which follow different halving schedules, making the situation more complex.

We will analyze in detail, but first, let's clarify our long-term view: the halving is beneficial for both TAO and subnet tokens, even though, like Bitcoin, the specific timing of this impact is difficult to predict.

Overview

If you don't want to delve into the details, here's the brief version:

For TAO, the halving will reduce the token issuance by half, meaning that the circulating TAO will decrease, and the TAO available for sale will also decrease. This is clearly a positive development.

This can be understood as follows: in the Bitcoin network, miners directly earn BTC, and halving will reduce their earnings and the amount available for sale. In Bittensor, subnets earn TAO, and halving means a decrease in the TAO flowing into these subnets, thus reducing the amount of TAO that miners, validators, and token holders can sell.

The situation is more complicated for subnet tokens. The core of the subnet is a liquidity pool, and the TAO halving will reduce on-chain liquidity injection by half. The tightening of liquidity will bring about higher volatility, amplifying price changes in both directions.

For example, if the subnet market (total price) increased by 1% last week under the current liquidity, this increase could be marginally amplified to twice as much in the liquidity environment after the halving. The net flow direction will become the sole variable affecting the subnet price.

Our view is as follows:

• Bittensor remains the undisputed leader in the AI and crypto space.
• TAO quickly recovered its price after experiencing a brutal altcoin liquidation on October 10, demonstrating its strong resilience.
• The subnet market (i.e., total price) seems to have bottomed out.
• The fundamentals of the leading subnet are improving, and buybacks are starting to bring actual income to the tokens.
• Products like Yuma's subnet asset management, Grayscale's publicly filed TAO trust application, and the launch of more Bittensor DATs will make it easier for institutions and retail investors to access subnets.
• The yield of TAO staking (Root) continues to decline, which may drive TAO into the subnet as investors seek to avoid dilution and capture upside potential.

Therefore, our view is: we believe that the fund flow of subnets is about to turn positive. In an environment with higher volatility and tighter liquidity after the halving, this is a tailwind for subnet tokens.

Detail Analysis

The Bittensor protocol allocates TAO by injecting it into the liquidity pools of each subnet, proportionally to the price of the subnet tokens (Alpha). This mechanism was introduced in February 2025 through a dynamic TAO upgrade, marking a shift in Bittensor's token distribution system towards a market-driven model.

The design purpose of injecting TAO into the liquidity pool is to maintain the stability of the subnet token price. When TAO is injected into one side of the pool, Alpha is simultaneously injected into the other side to maintain balance. After the halving, the amount of TAO injected will be reduced by 50%, and the corresponding amount of Alpha injected will also be automatically reduced to prevent price fluctuations.

For example, if a subnet currently has a 10% issuance share and trades at 0.1 TAO (assuming the total price is 1 for simplification), it receives 0.1 TAO and 1 Alpha per block. After the halving, the same subnet will receive 0.05 TAO and 0.5 Alpha per block.

The main impact is that the liquidity growth rate of TAO and Alpha in the subnet pool slows down. A decrease in liquidity means an increase in price volatility, whether up or down. Essentially, the trading of subnet tokens will exhibit a higher Beta value.

This has the greatest impact on miners. They are structural sellers facing costs denominated in dollars, and therefore they will regularly exchange Alpha for TAO (and then convert TAO to dollars) to cover expenses. After the halving, the reduced liquidity means that each sale of Alpha yields less TAO due to decreased TAO depth and increased slippage. As a result, the amount of TAO extracted and sold from the subnet pool will decrease.

Subnet owners can address this imbalance by reducing the miner issuance by about 50%, effectively creating an “Alpha halving.” While this cannot fully restore the conditions prior to the halving, it can bring the system closer to balance. By reducing the amount of Alpha entering circulation, the subnet can slow down the selling speed of Alpha in the thinner TAO pool, preventing liquidity from being depleted more quickly. Reducing Alpha issuance in sync with the TAO halving can stabilize subnet prices and alleviate volatility across the entire network.

Alternatively, the subnet can offset the impact of halving by gradually increasing structural demand (possibly through buybacks), reducing the demand for the reduction in miner issuance.

Impact Analysis

The direct impact of the halving is that subnets will receive less TAO. This pressure will cause less efficient miners to exit the network, which is a pattern that occurs after each Bitcoin halving.

Weaker subnets will also face difficulties. As the inflow of TAO is halved, the growth of liquidity slows, and miner profit margins shrink, maintaining participation becomes increasingly difficult. This will reinforce the Pareto distribution, leading to the concentration of issuance in stronger subnets. In fact, the network will redistribute TAO from weaker subnets to stronger subnets.

At the same time, new subnets will face more challenges when launching liquidity. They will compete for a smaller TAO issuance, which means a decrease in the value flowing into the dynamic TAO system, while new subnets start from scratch. As the Alpha injection in the liquidity pool is also halved, the circulation supply growth rate of the new subnet will be slower than that of the old subnet. A lower circulation supply keeps the fundamental ratio (Root Prop) at a higher level for a longer time, which means that the systemic selling pressure of the new subnet is more pronounced than that of its predecessors.

But this is only one side of the issue. If the price of TAO rises due to reduced selling pressure, subnet owners may not need to significantly cut miner issuance or may not need to cut it at all. Miner profit margins could return to levels seen before the halving, and the challenges of launching new subnet liquidity could also ease as the dollar value of TAO issuance increases. Similar to Bitcoin, this effect may not be immediately apparent, but will gradually manifest as supply decreases and demand catches up.

Anti Fragility

The halving will bring impacts and fluctuations. The effect of reduced supply on the system takes time to manifest. However, after Bitcoin successfully validates programmatic monetary policy, there is no reason to doubt its effectiveness. With the same strong community, we believe Bittensor will follow the same path.

Nassim Taleb argues that low volatility leads to fragility as it hides stress until the system collapses. In contrast, systems that face regular shocks become stronger. The halving of Bittensor is such a shock. It is an unintentional stress test that can make the network more resilient. This is the first among many shocks, and if the network is to thrive in the coming decades, it must undergo such tempering.