Bittensor TAO fell 38% after Covenant AI’s exit, yet Grayscale made its largest single-asset reallocation ever. Here’s what that tells you about what’s coming.
Covenant AI didn’t just leave Bittensor quietly. The team behind Subnet 3 sold roughly $10 million worth of TAO and alpha tokens before publicly accusing co-founder Const of running what they called “decentralized theatre.” The accusations spread fast. TAO crashed roughly 27% in hours, wiping close to $900 million from its market cap. Spot outflows ran above $70 million for multiple days straight.
That’s the part everyone saw.
What followed got far less attention. Community miners rebuilt the three affected subnets, SN3, SN39, and SN81, entirely from open-source code. No central operator. No request to the founder to intervene. The chain kept routing emissions and subnet ownership without stopping.
Grayscale Moved Before the Crash Hit
Three days before the Covenant exit, Grayscale raised TAO’s weighting inside its AI fund to 43.06%. According to crypto analyst Karamata2_2 on X, that marked the largest single-asset reallocation that fund has ever made. Either they had visibility on the structural picture or they ran independent analysis that said the network holds regardless of the drama.
Then came the filings. Grayscale submitted S-1 Amendment No. 1 on April 2 for a spot TAO ETF on NYSE Arca. Bitwise filed a parallel TAO strategy ETF the same day. The SEC decision window tracks for August 2026.
Karamata2_2 pointed out the market doesn’t wait for approval. Bitcoin and Ethereum both repriced during the review phase, not after. The same dynamic could apply to TAO.
70% of Supply Still Staked After the Blowup
That number held even through the drawdown. Karamata2_2 flagged it directly, noting that 70% of supply remains staked despite spot outflows running heavy for days.
There’s also a protocol-level proposal gaining attention. BIT-0011, the Conviction Mechanism put forward by co-founder Const, would require subnet founders and stakers to lock alpha tokens over 30-day intervals. The highest conviction staker earns ownership. Locked tokens can’t exit while active.
As Karamata2_2 noted in an earlier post on April 13, the current subnet ownership structure concentrates too much power in individuals. Alpha tokens give owners full control over emissions, but without any long-term commitment attached. One exit decision can damage the entire holder base. BIT-0011 changes that calculation by making ownership a staked economic position, not just a personal trust arrangement.
The mechanism, Karamata2_2 wrote, makes alpha tokens far more investable for institutions. That matters now, with ETF applications already in the SEC pipeline.
Active Subnets Still Shipping
The network hasn’t stalled. Bittensor’s 3-scenario analysis published this week shows TAO near $249 with weak short-term momentum, but the subnet infrastructure continues operating.
According to data shared by Karamata2_2 on X, Chutes AI is pulling 14.39% of daily emissions with over 50 billion tokens processed per day and a revenue-funded buyback running live. Targon Compute co-authored an Intel TDX whitepaper and closed a $10.5M Series A. GeneralTensor closed a $5M round anchored by a Goldman-backed fund and DCG in March. TAO Institute launched April 15 with a subnet risk index. Active subnet count sits at 128, with expansion to 256 ongoing. Subnet alpha market cap stands near $1.03 billion.
Teutonic, formerly operating under the Templar name, is targeting a 1-trillion-parameter training run in mid-to-late May. If that ships while the ETF application sits in its most visible SEC review window, the narrative around decentralized AI training scaling beyond Covenant’s exit becomes much harder to ignore.
Karamata2_2 put a number on where all of this starts or breaks. The $218 to $240 demand zone needs to hold to support any of the catalysts above. The analyst stated they have been accumulating heavily in that zone.
Disclaimer: This article is for informational purposes only and does not constitute financial or investment advice. Price analysis and commentary reflect the views of cited sources.
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