TAO's First Halving: What You Should Know

The crypto world is about to experience another halving, but this time the protagonist isn't Bitcoin, but Bittensor—a decentralized AI network dubbed "smart Bitcoin." Its first halving is expected to occur between December 2025 and February 2026. Similar to Bitcoin, TAO has a total supply of 21 million, with periodic halvings to control inflation. However, Bittensor's incentive structure spans multiple subnets, each with its own native token, Alpha (denoted as 'α'), and independent liquidity mechanisms. This structural complexity makes the chain reaction of this halving even more difficult to predict. The question isn't just whether TAO's price will rise, but whether the entire multi-subnet ecosystem can withstand the reduced liquidity injection after the halving, the increased dilution of Alpha relative to TAO, and the potential for sustained selling pressure on Alpha across subnets. This article aims to explain the mechanics of the TAO halving and predict the potential impact on different participants in the ecosystem. Let's first review the known facts. The halving occurs when the circulating supply exceeds 10.5M TAO (exactly 50% of the 21M total cap). At the time of writing, the network currently has approximately 9.4M TAO in circulation, and the Taostats live schedule projects that threshold to be reached on December 13, 2025. Because the halving is based on circulating supply rather than block height, its exact timing is affected by the rate of TAO recovery. Activities like miner/validator deregistration, subnet registration fees, and cold key rollovers can recycle TAO into the unissued pool, thus delaying the halving. If these activities decrease and TAO recovery decreases, the halving will occur earlier. Contrary to what you might think, the TAO halving is not a halving of participant rewards. When the halving occurs, the following occurs: The block reward and issuance are halved. 0.5 TAO will be minted per block instead of 1 TAO. Given that blocks are produced approximately every 12 seconds, this means that approximately 3,600 TAO will be issued per day (post-halving), rather than approximately 7,200 TAO per day (pre-halving). Decreased network inflation. TAO inflation will decrease from approximately 25% per year to approximately 12.5% per year (based on a base supply of 10.5 million, although the actual supply increase will be lower as some tokens will be destroyed). Alpha_in (the alpha injected into each subnet's transaction pool) has been halved. This is because Alpha_in is calculated by dividing TAO issuance by the alpha price, and TAO issuance has halved. Since Alpha_in is responsible for balancing liquidity, its halving will shallow the pool, meaning that any transaction—whether buying or selling—will generate greater price volatility. This effect will be more pronounced in subnets with lower liquidity before the halving. Alpha_out (the alpha rewarded to miners/validators/owners) remains unchanged. This means that issuance will remain constant. Alpha_out will only halve during each subnet's individual halving, which follows an independent schedule. This increases downward price pressure on subnet alpha. With Alpha_in halving (at least initially) and Alpha_out unchanged, there will be stronger selling pressure, especially in the shallower subnet trading pools. To clarify, "stronger selling pressure" doesn't necessarily mean more people are selling—I mean that due to the lower liquidity of alpha in the subnet trading pools, selling the same amount of alpha will have a greater impact on price and cause more slippage.

Root APY moderately decreased.

• Since Root rewards are distributed in TAO, increased slippage experienced when redeeming from Alpha (especially in low-liquidity pools) will gradually reduce the USD value of rewards distributed to Root stakers. This does not account for broader market dynamics.

Block times, burns/reclamations, and subnet reward distributions remain unchanged unless separately upgraded via governance.

What does that mean?

Now let’s talk about how these structural changes will impact the various participants in the Bittensor ecosystem. If you're unfamiliar with the roles of subnet owners, miners, or validators, you can refer to this documentation.

Subnet Owners

With the liquidity injection halving, building a successful subnet becomes exponentially more difficult.

All subnets will be affected over time, but new subnets will be most directly affected because their trading pools haven't yet accumulated sufficient liquidity. For example, a subnet launched six months ago might already have $100,000 in TAO supporting its trading pool; a new subnet launched after the halving might struggle to reach $50,000 in the same amount of time.

With the amount of TAO available for trading halved, each buy and sell order will have a greater impact on the price of Alpha. The downward price pressure mentioned earlier will have a cascading impact on Alpha, and will be particularly unbearable for new subnets without pool reserves. To alleviate this pressure sooner rather than later, I believe new subnet owners need to: Find product-market fit (PMF) in weeks, not months, or miners and investors will be forced to migrate to more liquid alternatives. The timeframe will become increasingly tight.

Focus more on generating external revenue, for example:

• Charging for customer inference services (e.g., Targon),

• Selling and licensing data (e.g., Data Universe, Masa),

• or other forms of application-based revenue.

Currently, a small number of subnet owners do operate like startup CEOs, with real customers and revenue streams, rather than relying on yield farming. The halving will accelerate the urgency for everyone to transition to this model. The impact on miners and validators is more complex—their alpha rewards (alpha_out) and operating costs (such as electricity, hardware, and maintenance) remain unchanged, but the risk to their returns increases significantly due to the decline in liquidity supported by each subnet's transaction pool. Amidst this squeezed profit margin, the price performance of alpha will determine whether miners and validators can remain profitable. If alpha remains stable, they can still profit on the subnet; however, if alpha plummets due to increased volatility or selling pressure, operating costs could wipe out all returns, leading to losses. I expect most miners and validators to exit subnets experiencing high volatility and insufficient liquidity, concentrating on subnets with strong TAO support and clear business models. We will see a shift from a "quantity-first" approach to a "quality-first" approach—UIDs (subnet identities) will become scarce on subnets with sufficient liquidity and validation. As competition for UIDs intensifies, miners will no longer be able to cast a wide net and achieve significant returns with minimal effort across multiple subnets. They will be forced to focus on one or two high-quality subnets and deliver truly valuable computational work to achieve sustained returns. After the halving, the key to success will be specialization and consistent, high-quality contributions to compete for limited alpha rewards. By contrast, validators face a much easier adaptation process, as most run validation scripts provided by the subnets, requiring minimal specialized skills or operational changes. Their primary challenge is choosing the right subnet. Validators' primary rewards are still determined by their stake weight (their alpha holdings, plus 18% of TAO held or delegated), allowing them to maintain diversification across multiple subnets and reallocate their stake to the most robust opportunities. Ultimately, both miners and validators will face a "stronger-than-ever" situation: participants will concentrate their hashing power and stake on the most liquid and top-performing subnets. This could result in a more even distribution of rewards on these popular subnets, potentially reducing the unit return per participant even within the "winning" subnets. So what does this mean for investors? Now, we finally get to the part you're probably most eagerly awaiting.

Staking Dynamics: Funds "Flight to Safety"

The halving will trigger a massive reallocation of capital as stakers face uneven yield compression across the ecosystem. We can already see early signs of this shift.

As shown in the above chart, the amount of TAO staked on Alpha has been steadily increasing, but the rate of growth is beginning to slow. The slowdown in the past month doesn't mean more people are staking Alpha instead of Root—it simply means that new TAO has entered circulation, some of which has been allocated to the dTAO (subnet). However, TAO staked on Root (as shown in the figure) exhibits an interesting trend. As investors become more familiar with dTAO staking and pressured by the declining annualized yield on Root (currently around 8–10%, as shown in the figure below), Root stakers have gradually reduced their holdings. While Root stake has seen a significant rebound since the end of June, from approximately 5.7 million to 6.1 million, this jump was primarily due to a technical correction—approximately 400,000 TAO tokens were already sitting in wallets on-chain but were not correctly counted towards the total stake. The key question is: will this upward trend in Root stake continue after the halving? I believe it will, and significantly so. As we've discussed, most Alpha tokens will become more volatile and riskier to hold after the halving. I don't believe many rational investors would be willing to accept the same alpha yield as before, given the increased downside risk. While Root's annualized yield will be somewhat impacted by increased slippage, it provides stability and TAO exposure without the volatility of thinly liquid Alpha pools. I believe holding TAO directly through Root staking will be a more risk-adjusted option. For those investors who choose to continue staking on subnets instead of Root, I expect they will focus on subnets with established liquidity, clear revenue models, and real-world use cases.

Conclusion

This TAO halving will form a screening mechanism, which may benefit TAO itself in the long run. Halving the liquidity injection will weaken the safety buffers that weak subnetworks that rely solely on emissions to survive rely on, forcing them to shift from "dependence on emissions" to "real revenue generation."

This stress test is likely to eliminate inefficient subnetworks while also forcing survivors to further maximize their advantages. Those strong subnetworks that can successfully generate external income will become the only sustainable destination for miners, validators, and stakers.