Decentralization Theater Exposed in Bittensor and Covenant

Decentralization Theater: Bittensor and Covenant Exposed

Covenant, a company operating within the Bittensor network, has been accused of perpetuating 'decentralization theater' by a rival entity. However, an investigation reveals that Covenant itself was engaged in similar practices, inflating its revenue through self-dealing subnets. This is not a one-off incident, as Bittensor pays $148M/year in subsidies against a mere $3-15M in real external revenue, a 10-50x gap.

The Bittensor network, which issues tokens called TAO, rewards alpha-token activity rather than external customer revenue. As a result, building vertical pipelines of self-dealing subnets becomes the optimal strategy, with each inter-subnet transaction counting as 'ecosystem growth' and boosting emissions. Covenant, for instance, owned three subnets, Templar, Basilica, and Grail, which paid each other with subsidized TAO, counting each internal transfer as revenue.

TAO's tokenomics prioritize emissions over outcomes, leading to a situation where external customer revenue is virtually non-existent. A year into the network's operation, not a single subnet has publicly shown real external customer revenue, such as signed contracts, enterprise invoices, or dollar figures.