TAOFU's Mikel & Mitch: Enabling Capital Formation for Subnets on Bittensors $10B+ Network

Tommy welcomes listeners to the Delphi podcast featuring Mitch and Mikael, co-founders of Taufu. Mikael shares his background in Delphi and his experience in creating a regulated yield farming fund and a lending market called Lendl. Mitch discusses his focus on growth in the crypto space and his interest in Tau, sparked by the potential of AI and discussions in a WhatsApp group.

The idea for Taufu emerged from the difficulty in accessing BitTensor, leading to the development of a liquid staking protocol for Tau. Their goal was to create an institutionally friendly method for large capital holders to acquire Tau. After regulatory changes, they established their own custodial setup and spent six months developing the infrastructure before launching DTau. DTau transformed the BitTensor network by shifting from a vote-based to a market-based incentive system, where price dictates allocation. This change requires individuals to invest their own money, altering the dynamics of the network. Emissions on BitTensor are divided among miners, validators, and subnets, with higher token prices resulting in increased emissions for subnet owners. Current challenges include limited access for investors, lack of transparency, and inadequate exit strategies for alpha token holders.

Before TauFu, launching a subnet required significant financial backing, with registration costs exceeding $1 million. Post-DTau, registration costs have decreased to around 150 Tau, making it more accessible and allowing for operational funding rather than large upfront investments. The process for launching a subnet through TauFu involves transferring ownership to a multisig wallet, ensuring security through co-signers. Each subnet generates fungible tokens called subnet seeds (SNSs), with owners deciding the percentage to sell on the launchpad. TauFu acts as a launchpad for subnets, enabling upfront sales of future emissions to minimize negative price impacts.

Launching a subnet requires estimating potential emissions, which involves speculation on team capabilities. A skilled team with locked alpha can mitigate selling pressure and enhance price sentiment. However, competition for limited subnet slots and fixed emissions per block poses challenges, as new subnets dilute existing incentives. The strategy focuses on increasing value capture from external sources to benefit all subnets, ultimately impacting Tau's price and total incentive value. Capital formation is a key use case for Tau, aiming to lower barriers to accessing capital and fostering innovation.

Mitch discusses the evaluation criteria for founders and their projects launching subnets on Taufu, emphasizing the necessity for teams to fulfill their commitments. He highlights the potential for leveraging Tau's incentives to lower costs and enhance profitability, while also noting the intention to collaborate with organizations for thorough due diligence on teams. Mikael outlines Taufu's responsibilities as a permissioned launchpad, stressing the importance of protecting the community from unreasonable subnet valuations. He warns against scenarios where profits might be diverted away from subnets, which could dilute their value.

Mitch reflects on the challenge of balancing support for projects that advance AI with those that align with the BitTensor ecosystem. He mentions a specific subnet focused on creating an open-source platform for global AI, which presents funding challenges due to the crypto space's tendency to favor short-term gains. He also expresses interest in creative projects for Taufu, including music generation and repopulating old games. Mikael shares his vision for the BitEnswer infrastructure, aiming for a broad base of builders to deploy solutions efficiently without needing in-depth knowledge of methodologies. He emphasizes the importance of privacy in using large language models (LLMs), advocating for secure, personalized models on BitEnswer.

The discussion on the Tau Private Network (TPN) reveals it as a developer-friendly infrastructure for global IP tunnels, with a decentralized VPN service as its flagship product. TPN aims to provide secure IP connections across over 80 countries, highlighting the need for IP masking for security and censorship. Future plans for TPN include implementing payment rails for IP connections, requiring microtransactions to buy back the alpha token. As a subnet owner, parameters for rewarding miners can be adjusted based on usage, allowing for incentives like lower latency.

Mikael discusses Taufu's mandatory vesting schedule for subnet owners, which includes a linear vesting period of two years for Taufu's commission and curator commission. Sale participants can access 100% of their tokens immediately after the sale, as the sale price aligns with the liquidity price. Taufu comprises four main components: tokenization, sales, DAX, and a bridge connecting BitTensor EVM to Substrate. A governance module enables SNS holders to vote on validator delegation, and there are plans for detailed analytics per subnet to assist SNS holders in tracking performance.

The conversation shifts to the future of AI, highlighting excitement over advancements such as game repopulation and music generation, as well as AI's potential in fields like drug discovery. Mikael expresses interest in the convergence of robotics and AI, speculating on increased human longevity. The timeline for achieving Artificial General Intelligence (AGI) is discussed, with predictions ranging from 2027 to 2029. Speaker 1 concludes by thanking Mitch and Mikael for discussing Taufu and its significance in capital formation, expressing excitement for the upcoming sale.