Which Subnet Can You Trust? - ALPHA Burns vs Locks Explained

[00:00:00]Can you imagine setting up a SaaS company, saying, "Well, we paid a one-time fee to pay all of our development costs for eternity. I don't even have to know who the owner is."

[00:00:10]It's this way to build trustless subnets on Bittensor, and there's no way that you can forge that. Don't trust, verify.

[00:00:18]Hey, this is Travis, and in today's video we're talking about trust. How to gain trust on Bittensor. And specifically, what I mean is within Bittensor subnets, how do you gain the trust of stakers? How do you convince somebody like me to invest in your subnet? Now, you might not want somebody like me investing in your subnet, but how do you convince a staker to invest in your subnet? Now, many people have this idea that, you know, buyback and burns is a waste. Now, for those of us who don't know what buyback and burns are, it's when you go and you sell the commodity you've produced through your Bittensor subnet, as say the subnet owner or maybe the validator, you go and you sold that commodity, somebody wanted it, and then you use that income to buy the alpha token for your subnet, and then you burn that token. Therefore, reducing the supply of that alpha token within Bittensor, making it more scarce and driving more value to that alpha token.

[00:01:15]Now, for me as a staker, I think that is S-tier. I think that is the best way to give me the most confidence about investing in your subnet. It tells me a couple things. It tells me A, you've got revenue, or you're crazy, and you just like burning your own money. But, it tells me that you have revenue, and it tells me that you're invested in your Bittensor subnet, that you want your subnet to be here for the long haul, and that you just understand that that is important, right? Because you can get deregistered on Bittensor, you know, your price can slowly decline and does slowly decline if you're not driving value to your alpha token.

[00:01:56]Everything else that I talk about in this video is worse than that. They're still good maybe, but they're worse. The buyback and burn mechanism is a way that gives me so much conviction about a subnet that I don't even have to know who the owner is, right? Like that is something that we see with subnet 51 Liam. The subnet owner on that subnet is not doxed. We don't know who he is. We don't know his name. However, he's buying back and burning the alpha of his subnet, thereby reducing the maximum supply of the subnet and driving more value to that subnet. And I think that is probably the way forward or one of the ways forward for many BitTensor subnets because it makes the subnet trustless because I don't have to trust that the subnet owner is at some point in the future going to drive value to his alpha token. He's just doing it. I don't know who he is, but he's driving value to it. And there's no way that you can forge that. So, it's this way to build trustless subnets on BitTensor.

[00:03:00]You know, subnets that don't even need a human behind them. Anyways, I hope you can understand where I'm coming from with that, but there are others who say that when a subnet owner gets revenue, right? When they've sold their product, that they should take that revenue and instead of putting it into the alpha token to drive up the value of their alpha token, they should reinvest that somewhere else in their business to maybe grow their subnet faster. Now, I think there is merit to this idea.

[00:03:27]However, it requires me to trust the subnet owner. Just think about that, right? Buyback and burns requires no trust from me, right? I can just see that it's happening. You know, don't trust, verify. Whereas buybacks and reinject into your subnet somehow, or as I like to put it, buybacks and trust me, bro, that still requires me to take risk as a staker to stake in the subnet. And I think it's worth considering from the subnet owner's perspective as well, right? They paid a few hundred or maybe a few thousand now Tao to register a subnet slot, and then as soon as they have that subnet slot, they no longer need to pay for somebody to actually produce the commodity for their subnet, right? And minor emissions are from Bittensor, they're not from the subnet owner, right? So a subnet owner needs to have, you know, their marketing team, their sales team, and they need to have somebody building out the subnet code, but they don't have to pay all the miners on their subnet. Now, that to me is a pretty darn sweet deal. Like, can you imagine setting up a SaaS company and just saying, "Well, we paid a one-time fee to pay all of our development costs for eternity." And then somebody asks, "Well, how much was that one-time fee?" And they're like, "It amounts to like one developer salary for the year." It's like, "Holy crap, that's a great freaking deal." And so the subnet owner is getting a really good deal for their subnet slot, at least right now, I think. And a typical startup like actually does have those costs, and so they got to fund it somehow, they got to get a VC maybe to help, but in Bittensor, maybe you don't need that help. And so you can kind of think of it as, you know, the subnet owner doesn't have to pay, you know, this is part of the regular cost of running a business. However, the emissions still go out. So, where does it come from? Is it magic? Well, no, in the case where a subnet owner is not doing buyback and burns and not covering their minor emissions with revenue, that comes from new stakers coming on board.

[00:05:24]And those new stakers, you know, they're trusting the subnet owner now. But again, I would prefer not to trust. I don't want to trust, I want to verify.

[00:05:35]So I would say that buyback and trust me, bro, is nice to hear, but it doesn't fill me with very much conviction about the subnet. It's certainly better than a subnet that is not doing any buybacks, but it's just not at the same level as buyback and burns. And so we now we have this new mechanism, the conviction locks, where subnet owners can lock up their alpha visibly on chain showing that they're not going to dump on their investors. And it's new at the time that I'm making this video, but I think it's going to be fantastic because it's going to show us the subnets that are actually going to be here for a long time and therefore which subnets might be deserving of more investment. And subnet owners can't get out of their locks very easily. It's very time delayed to get out of a lock. So your investors are going to have a big heads up if there's any indications that you plan to sell a large amount in the future. And again, that's like at a protocol level where you just can't change that as a subnet owner. And so for me, looking at the subnets doing conviction locks and buyback and burns, that is like the creme de la creme. That is as good as you can get as a subnet owner because you're going to have maximum trust that way. I know that the subnet owner is not planning on dumping and I know that they're continuing to drive value to their alpha token. So I can see a world in which, you know, buyback and trust me bro is used a little bit along with buyback and burns. You know, maybe a portion is burned and a portion is reinvested, but for me the best is a buyback and burn. Next down from that is locks conviction and then next down from that is buyback and trust me bro. And then next down from that is just no communication or, you know, you're funding us. You're the exit liquidity.

[00:07:15]Sorry, guys. And for myself personally, I don't like investing long-term in any subnet that is not doing buyback and burns. And they need to at the very least be doing locks. Otherwise, they may never actually drive value to their alpha token and then you as the staker become the exit liquidity. So myself, I like to jump in and out of subnets that I think are currently undervalued, but I don't like having any long-term holds.

[00:07:44]And if I do have any long-term holds, they need to at the very least have conviction, have lots of locked alpha in their subnet, and then also buybacks and burns. I just really want you to understand that >> [snorts] >> when a subnet is not doing these things, they're asking you to trust them. And then it's up to you as the staker to determine whether or not you should trust them. We already have examples on Bittensor of subnet owners who have dumped, who were docked. So, please be very careful about which subnets you're investing in. Now, if what I'm saying here is jiving for you, you can go to taoflu.com, and you can actually look at the burn column there, and compare subnets against each other by how much they are burning, and also how much conviction each subnet has. And then you can also sort based on those columns to find the ones that have burned the most in the last 30 days, to find the subnets with the most conviction. And then if the subnet that you're invested in doesn't look very good on those fronts, it might be a good time to either get out of the subnet or to ask the subnet owner why you should trust them.