By Sami Kassab

Compiled by: TechFlow

The upcoming Bittensor halving in December 2025 has sparked mixed reactions within the community. Some are calm and confident, believing the network can adapt to the change; others are uneasy, suggesting the protocol may need adjustments. This reaction is unsurprising.

If you look back at the history of Bitcoin’s first halving, you’ll find sentiment very similar to today: pessimists were convinced Bitcoin would go into a death spiral, while optimists believed the system would adapt because the incentives inherently demanded it.

In short, the pessimists were wrong. Bitcoin still exists today, demonstrating the effectiveness of programmatic monetary policy. We believe the Bittensor halving will have similar consequences.

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

We’ll break this down in detail, but first, let’s clarify our long-term view: the halving is bullish for both TAO and subnet tokens, even if, like Bitcoin, the exact timing of this impact is difficult to predict.

Overview

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

For TAO, the halving will reduce the number of tokens issued by half, which means that there will be less TAO in circulation and less TAO available for sale. This is obviously a positive development.

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

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

For example, if the subnet market (aggregate price) rose 1% last week under current liquidity, this increase could be magnified by a factor of two in the post-halving liquidity environment. The net flow direction will be the only variable influencing subnet prices.

Our view is this:

• Bittensor remains the undisputed leader in AI and encryption.

• TAO’s rapid price recovery after the brutal altcoin liquidation on October 10th demonstrated its strong resilience.

• The subnet market (i.e., price aggregate) appears to have bottomed out.

• The fundamentals of the leading subnet are improving, and buybacks are starting to generate real income for the tokens.

• Projects like Yuma’s subnet asset management product, Grayscale’s public TAO Trust application, and the launch of more Bittensor DATs will make subnets more accessible to both institutional and retail investors.

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

Therefore, our view is that we believe subnet fund flows are about to turn positive. This is a tailwind for subnet tokens in the post-halving environment of higher volatility and tighter liquidity.

Detailed analysis

The Bittensor protocol distributes TAO tokens proportionally to the price of the subnet's alpha token by injecting them into each subnet's liquidity pool. This mechanism, introduced in February 2025 through the dynamic TAO upgrade, marked the transition of Bittensor's token distribution system to a market-driven model.

The TAO injection into the liquidity pool is designed to maintain subnet token price stability. When the chain injects TAO 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 volatility.

For example, if a subnet currently holds 10% of the issuance and trades at 0.1 TAO (assuming the price sums to 1 to simplify calculations), 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 primary impact is slower growth in TAO and Alpha liquidity within the subnet pool. Reduced liquidity means increased price volatility, both upward and downward. Essentially, subnet tokens will trade with higher Beta values.

This impacts miners the most. As structural sellers facing USD-denominated costs, they regularly exchange alpha for TAO (and then TAO for USD) to cover these costs. After the halving, reduced liquidity means each alpha sale yields less TAO, as TAO depth decreases and slippage increases. Consequently, the amount of TAO withdrawn from the subnet pool for sale will decrease.

Subnet owners can address this imbalance by reducing miner issuance by approximately 50%, effectively creating an "alpha halving." While this won't fully restore pre-halving conditions, it will bring the system closer to equilibrium. By reducing the amount of alpha entering circulation, subnets can slow the rate at which alpha is sold into the thinner TAO pool, preventing faster liquidity depletion. Reducing alpha issuance in sync with the TAO halving can stabilize subnet prices and mitigate volatility across the network.

Alternatively, subnets could offset the impact of the halving by gradually increasing structural demand (perhaps through buybacks), reducing the need for miner issuance cuts.

Impact Analysis

The immediate impact of the halving is that the subnet will receive less TAO. This pressure will cause less efficient miners to exit the network, a pattern that has emerged after every Bitcoin halving.

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

At the same time, new subnets will face increased challenges in launching liquidity. They will compete for less TAO issuance, meaning less value flows into the dynamic TAO system, while new subnets start from scratch. Because the amount of alpha injected into the liquidity pool is also halved, the circulating supply of new subnets will grow more slowly than that of existing subnets. Lower circulating supply allows the Root Prop to remain higher for longer periods of time, meaning systemic selling pressure on new subnets is more pronounced than on their predecessors.

But that's only one side of the story. If TAO prices rise due to reduced selling pressure, subnet owners might not need to significantly reduce miner issuance, or even completely. Miner profit margins could return to pre-halving levels, and the liquidity challenges of launching new subnets would be alleviated as the dollar value of TAO issuance rises. Similar to Bitcoin, this effect might not be immediately apparent but will unfold gradually as the dwindling supply catches up with demand.

Antifragility​

The halving will bring shocks and volatility. The impact of the supply reduction on the system will take time to manifest. However, after Bitcoin's successful validation of programmatic monetary policy, there is no reason to doubt its effectiveness. With a similarly committed community, we believe Bittensor will follow the same path.

Nassim Taleb argues that low volatility fosters fragility because it hides stress until the system breaks. In contrast, a system that withstands regular shocks becomes stronger. The Bitcoin halving is just such a shock. It's an unintended stress test that strengthens the network. This is the first of many shocks the network must endure if it is to thrive in the decades ahead.