$TAO quickly recovered its price after the brutal altcoin liquidation on October 10, demonstrating its strong resilience.

Author: Sami Kassab

Translation: Deep Tide TechFlow

In December 2025, Bittensor is set to experience its first halving, which has sparked various emotional reactions within the community. Some are calmly confident that the network can adapt to this change; others feel uneasy, believing that the protocol may need adjustments. Such reactions are not surprising.

Looking back at the history of Bitcoin's first halving, you'll find that the sentiments at that time were very similar to those now: pessimists firmly believed that Bitcoin would fall into a death spiral, while optimists thought the system would adapt, as the incentive mechanisms themselves demanded it.

In short, the pessimists were wrong. Bitcoin still exists today and has proven the effectiveness of programmatic monetary policy. We believe that Bittensor's halving will 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, complicating the situation.

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

Overview

If you do not want to delve into the details, here is a brief version:

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

It can be understood this way: in the Bitcoin network, miners directly earn BTC, and halving reduces their earnings and the amount they can sell. In Bittensor, subnets earn TAO, and halving means that the TAO flowing into these subnets will decrease, thus reducing the amount of TAO that miners, validators, and token holders can sell.

For subnet tokens, the situation is more complex. The core of the subnet is a liquidity pool, and the halving of TAO will reduce the on-chain liquidity injection by half. A tightening of liquidity will lead to higher volatility, amplifying price movements in both directions.

For example, if the subnet market (the total price) increased by 1% last week under the current liquidity, this increase could marginally double in the post-halving liquidity environment. The net flow direction will become the only variable affecting subnet prices.

Our view is as follows:

• Bittensor remains the undisputed leader in AI and crypto.

• TAO quickly recovered its price after the 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 leading subnets are improving, and buybacks are starting to bring actual revenue to the tokens.

• Subnet asset management products like Yuma, Grayscale's public TAO trust application, and the launch of more Bittensor DATs will make it easier for institutions and retail investors to access subnets.

• The yield on TAO staking (Root) continues to decline, which may drive TAO into subnets as investors seek to avoid dilution and capture upside potential.

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

Detailed Analysis

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

The design of injecting TAO into liquidity pools aims to stabilize the price of subnet tokens. When TAO is injected into one side of the pool, Alpha is simultaneously injected into the other side to maintain balance. After halving, the amount of TAO injected will decrease by 50%, and the corresponding amount of Alpha injected will also automatically decrease to prevent price fluctuations.

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

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

This has the greatest impact on miners. They are structural sellers facing dollar-denominated costs, so they regularly convert Alpha to TAO (and then convert TAO to dollars) to cover expenses. After halving, reduced liquidity means that each time they sell Alpha, they receive less TAO, as the depth of TAO decreases and slippage increases. Therefore, the amount of TAO extracted and sold from the subnet pool will decrease.

Subnet owners can address this imbalance by reducing miner issuance by about 50%, effectively creating an "Alpha halving." While this may not fully restore conditions to pre-halving levels, it can bring the system closer to balance. By reducing the amount of Alpha entering circulation, the subnet can slow down the sales pace of Alpha in the thinner TAO pool, preventing liquidity from depleting more quickly. Reducing Alpha issuance in sync with the TAO halving can stabilize subnet prices and mitigate volatility across the network.

Alternatively, subnets can offset the impact of halving by gradually increasing structural demand (possibly through buybacks), reducing the need to cut miner issuance.

Impact Analysis

The direct impact of halving is that subnets will receive less TAO. This pressure will drive less efficient miners out of the network, a pattern that occurs after every Bitcoin halving.

Weaker subnets will also face difficulties. With the inflow of TAO halved, liquidity growth will slow, and miner profit margins will shrink, making it more challenging to maintain participation. This will reinforce the Pareto distribution, leading to a concentration of issuance in stronger subnets. In effect, the network will reallocate TAO from weaker subnets to stronger ones.

At the same time, new subnets will face more challenges in initiating liquidity. They will compete for a smaller TAO issuance, meaning that the value flowing into the dynamic TAO system will decrease, while new subnets start from zero. Since the amount of Alpha injected into the liquidity pool is also halved, the growth rate of circulating supply for new subnets will be slower than for older subnets. A lower circulating supply keeps the fundamental ratio (Root Prop) at a higher level for a longer time, meaning that the systematic selling pressure on new subnets is more pronounced than for their 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 even cut it at all. Miner profit margins may recover to pre-halving levels, and the challenges of initiating liquidity for new subnets may 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.

Antifragility

Halving will bring shocks and volatility. The impact of reduced supply on the system will take time to manifest. However, after Bitcoin successfully validated programmatic monetary policy, there is no reason to doubt its effectiveness. With a similarly steadfast community, we believe Bittensor will follow the same path.

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

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