Evolving the Roko dTAO Staking Strategy

Proposal No. [40]

Introduction

With the recent launch of dTAO, it has become clear that the ecosystem is highly fluid, requiring careful attention and strategic decision-making. Market conditions can shift quickly, and investments must be made with both awareness and adaptability in mind. Our initial strategy, which focused on a small set of subnets, provided limited flexibility to respond to changing opportunities and risks.

Recognizing the need for a more dynamic approach, we have evolved our staking strategy to be highly adaptable. Rather than strictly adhering to a predefined set of priority subnets, we will maintain the flexibility to allocate based on performance, utility, and market conditions. Additionally, we will consider taking on calculated risks by participating in early-stage subnet launches, allowing us to capitalize on short-term upside from initial growth phases while maintaining a long-term strategic outlook.

This refined approach ensures that we remain agile, maximizing returns while mitigating risk in an ever-changing ecosystem.

Core Staking Principles

• Flexibility: Enable strategic adjustments to subnet allocations in response to evolving market dynamics, subnet performance, and ecosystem developments.
• Risk Management: Diversify staking approaches to balance stable yields from the root subnet with dynamic growth opportunities in subnets.
• Profit Optimization: Continuously evaluate subnet performance to optimize staking strategies and maximize profitability.

Risk Management Approaches The staking strategy considers three distinct approaches to address alpha TAO price volatility:

• Dollar-Cost Averaging (DCA): Gradually accumulate alpha tokens by consistently investing fixed amounts over time to reduce exposure to price volatility.

  • Pros: - Lower risk - Smoother price entry - Ideal for long-term accumulation
  • Cons:
    • May result in higher average cost if prices rise steadily

• Subnet Initial Investments Make strategic initial investment in promising new subnets upon launch to capitalize on early growth and price volatility

  • Pros:
    • Significant upside potential from early subnet growth
  • Cons:
    • High risk due to early-stage price volatility and uncertain liquidity

Liquidity Stabilization Strategy: Delay subnet investment until liquidity pools stabilize to minimize slippage and achieve better pricing accuracy. - Pros: - Avoids early price volatility and slippage - Better pricing accuracy - Cons: - May miss early low-price entry opportunities if prices rise rapidly

Allocation Strategy To balance stable returns and dynamic growth, the DAO proposes:

• Root Subnet: 70% of TAO allocation to maintain consistent, secure yields.
• Selected Subnets: 30% dynamically allocated based on performance, utility, and market conditions.

Initial Subnet Candidates Priority Subnets

• SN4 (World-class LLM verification): Proven reliability and strong long-term growth.
• SN64 (Serverless compute): High performance metrics and significant usage.
• SN8 (Trading prediction): Backed by established crypto trading interest.
• SN51 (High-performance AI compute): Strong management and consistent demand growth.
• SN27 (Decentralized compute): Long-standing strategic partnership with strong potential.

Lower Priority (Runner-up) Subnets

• SN1 (Sample subnet): Demonstrates baseline utility and potential.
• SN13 (Data support subnet): Addresses key data infrastructure challenges.
• SN19 (Inference and Image generation): Offers decentralized, scalable AI inference services with robust potential for user adoption and network growth.
• SN29 (Collaborative AI model development): Strong community-driven innovation.
• SN45 (Code generation subnet): Useful utility with consistent developer adoption.
• SN53 (Cumulative trading subnet): Stable trading performance and adoption.
• SN54 (Website auto-generation subnet): Innovative service with growing demand.
• SN56 (On-demand fine-tuning subnet): Critical service in AI model deployment.

Subnet Allocation Flexibility

The initial subnet list, including both priority and runner-up subnets, is subject to periodic review and reallocation based on subnet evolution, performance, and strategic alignment. Runner-up subnets can potentially rise in priority or be fully reallocated depending on their performance metrics, community support, business model evolution, and overall contribution to ecosystem growth.

Key Considerations for Reallocation:

• Team stability: Evaluating the commitment, experience, and track record of subnet teams.
• Technical and philosophical alignment: Ensuring subnets align with the broader vision and infrastructure of the ecosystem.
• Historical performance: Reviewing past performance, adoption, and contribution to network utility.
• Community support: Assessing subnet engagement, developer activity, and miner participation.

Governance and Execution Upon approval, the DAO's multi-sig treasury management team will have authority to dynamically execute staking strategies, deploying the subnet allocation through:

• Structured DCA schedules, optimizing entry points and reducing volatility impact.
• Targeted aggressive initial investments when justified by compelling subnet launches.
• Strategic liquidity-based entry timing to ensure favorable trading conditions.

Periodic Performance Review Regular reviews will assess:

• Root subnet yield.
• Performance, growth potential, and profitability of subnet investments.
• Need for strategic reallocation or initial investments into new promising subnets.

Conclusion Approval of this proposal positions the DAO to dynamically optimize staking strategy, balancing risk, growth potential, and profitability within the evolving Bittensor ecosystem. This structured yet flexible approach ensures efficient capital allocation aligned with long-term strategic goals.