Bittensor (TAO) becomes top gainer among recovering AI narrative

Bittensor (TAO) is becoming the leader in the AI narrative, as well as the biggest short-term gainer. The AI narrative also recovered fast after the recent market dip. 

Bittensor (TAO) is gaining importance in the AI narrative. Recently, the asset became the top gainer among AI tokens, up more than 100% in the past month. TAO traded at $548.70, rising from the $230 range at the beginning of September. 

The past month was also the most successful for TAO in the year to date, higher than January’s growth of more than 78%. Barring the initial launch and vertical rally after TAO was launched, the most successful month for the token was November 2023, when TAO rose by 238.7%. The entire AI sector rallied from a valuation of $24B in September to the current level of $34B, with a peak at $38.

TAO gained attention in the past day, with a quick dip to the $475 range and a fast recovery. TAO now trades at levels not seen since April, though still far from its yearly peak above $713. 

TAO is also gaining importance in Grayscale’s Decentralized AI Fund. The asset has the second-biggest allocation in the portfolio, after NEAR. TAO started with a 2.6% allocation and expanded to a weight of 27.6%, almost on par with NEAR Protocol. Bittensor’s allocation easily surpassed former stars Render (RNDR) and Filecoin (FIL). 

Grayscale’s AI fund is considered riskier and is only open for private placement to accredited investors. TAO remains a volatile asset, still mostly depending on staking, DeFi yield and speculative trading. TAO remains even more attractive than Render, despite not focusing on renting out GPU, but instead relying on DeFi yield and staking.

TAO and NEAR make up around 8.2% of the entire AI token market, but are responsible for nearly 60% of Grayscale’s selection. The recent changes in weights followed the TAO trend of breaking out from the pack. 

AI narrative accelerated in September

AI and DePin remained two narratives that kept returning in 2024, despite altcoin and token slumps. The real-life usage of generative AI and LLM put more attention on the available physical infrastructure and shared GPU that some of the projects provide. 

Bittensor focuses on the decentralized, community-based creation of models, while also tokenizing consensus and activity. Bittensor is also not a single project, but an ecosystem of projects, including AIT Protocol, Architex, Commune AI, LuminousTAO, Tatsu, and Neural Tensor. The project is also categorized as a provider of AI infrastructure, or a DePin project. 

In any case, TAO itself is a highly active asset, which is responsive to market trends. TAO is also one of the most staked tokens, due to the validator structure of Bittensor. A total of 78.28% of TAO tokens are staked, creating significant scarcity. The other reason for staking TAO are the high yields from validators and the daily payout of incentives. 

TAO also has a limited free float of around 7.38M tokens, or around 16.78% of the total supply. The Bittensor network mimics the mining of Bitcoin, with a total of 21M TAO to be produced. TAO tokens are now in the steepest stage of their production until November 2025. After that, new TAO will be produced at a more gradual pace. 

Bittensor also functions as an L1 network with more than 129K active accounts as of October 2024. The L1 chain was built on Polkadot’s Substrate, though it still has limited usage. The validators still perform computational work, but one related to AI models and trainings. 

The outputs of models are tested for accuracy and some validators win the right to produce a block based on their model. Validators like Subnet 10 use AI models to perform DeFi operations and algorithmic predictions. All subnet validators on Bittensor perform slightly different roles. The success of the models is used as measuring the ‘proof of intelligence’ to produce the next Bittensor block.

Bittensor has recovered from its hack in July, when compromised wallets leaked $8M worth of TAO. The reason for the attack were compromised wallets where a hacker managed to acquire the private keys. The attack turned out to be directed to stealing private keys, and the Bittensor protocol was deemed safe. Despite this, the project’s team shut down block production temporarily and partnered with exchanges to claw back the assets.

Cryptopolitan reporting by Hristina Vasileva.