$TAO Collapse After the Bittensor Civil War: When the DeAI Dream Meets Reality of Power

The capital market has long placed high expectations on the story of “Decentralized AI” (DeAI) – a model considered as the Web3 version of OpenAI. However, recent internal turmoil at Bittensor has dealt a heavy blow to that trust.
The token $TAO plummeted 15–25% in just one day after one of the leading technical teams in the ecosystem – Covenant AI – announced their departure from the network and publicly criticized founder Jacob Steeves for “autocratic” control. This was not just a price shock; it sparked a profound debate: Is DeAI truly feasible, or is it merely a decentralized veneer covering centralized power structures?
Covenant AI And The Shock Withdrawal
Within Bittensor’s multi-subnet ecosystem, most projects only reach the level of calling APIs, fine-tuning models, or handling simple tasks. Covenant AI is one of the very few teams capable of training large-scale models from scratch.
Just before leaving, they had completed training a 72-billion-parameter language model (72B) in a decentralized environment – an achievement requiring massive GPU clusters and tens of millions of USD in costs. Their strong investment motivation stemmed from Bittensor’s “Emissions” mechanism: high-quality contributions are continuously rewarded.
However, according to Covenant AI, after deploying the 72B model, the token reward flow to their subnet was cut without a transparent process or clear on-chain grievance mechanism. For teams that have invested enormous computational costs, losing emissions means ROI instantly drops to zero.
This led to their decision to leave the network – along with accusations that “decentralization” is just a “show.”
Core Issue: Centralized Power in a Decentralized System?
In theory, Bittensor operates based on the Yuma consensus mechanism, where validators evaluate miners’ contributions and decide token distribution. However, in practice, voting power is heavily concentrated among validator groups holding large stakes – believed to be linked to the founder and early investors.
This creates a paradox:
Computational resources can be distributed.
But reward distribution is concentrated.
If Covenant AI’s allegations are accurate, the greatest risk isn’t in the algorithm but in human factors. When an individual or small group can influence token allocation flows, the protocol’s “trustworthy neutrality” is called into question.
For institutional investors, this is the most unacceptable risk: governance risk.
Why Did $TAO Drop Sharply?
The 15–25% drop in $TAO is not just short-term panic. The market is re-evaluating governance risk.
Bittensor was valued highly because it was seen as a “decentralized OpenAI.” But to maintain that narrative, the system must ensure an immutable principle:
Whoever contributes resources and quality should be rewarded transparently, automatically, and without bias.
If a team capable of training a 72B model can still lose rewards due to centralized decisions, other resource providers will question: Are they participating in a game where the rules can change at any moment?
If high-quality supply leaves, the intrinsic value of the token also weakens.
The “Impossible Trinity” of DeAI
This event is not just a crisis for Bittensor alone but also exposes the “impossible triangle” in DeAI:

1. Large Scale vs. Decentralization
   Training advanced models with $TAO 70B+ parameters( is a capital-intensive task, requiring centralized infrastructure and tight coordination. This conflicts with the philosophy of permissionless distributed networks.
2. Anti-Fraud vs. Neutrality
   To prevent spam, reward washing, or Sybil attacks, quality assessment mechanisms are needed. But when evaluation standards are not fully objective, power tends to favor evaluators.
3. Economic Incentives vs. Long-term Stability
   Tokenomics can attract rapid participation, but if governance isn’t strong enough, the reward mechanisms themselves become critical vulnerabilities.
   Bittensor has tried to balance these factors with tokens. But the Covenant incident shows that the current governance structure remains fragile.
   Conclusion
   Covenant AI’s departure may be a major shock for $TAO$, but it also serves as a wake-up call for the entire DeAI industry.
   If transparent and truly decentralized governance isn’t addressed, “decentralization” will remain just a marketing slogan.
   Conversely, if this crisis is overcome through governance reforms, Bittensor could enter a more mature phase – where trust is not based on promises but on verifiable mechanisms.
   In the crypto market, narratives can quickly drive prices up. But ultimately, sustainable value always depends on the underlying power structure behind the protocol.