Liquidity Wars: How AI-Powered Market Making Is Redefining Crypto Trading
kenson
March 3, 2025
Bittensor
Bittensor
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Arbitrum is an Ethereum layer-two (L2) scaling solution that uses a technology called optimistic rollups to enhance Ethereum’s scalability, speed, and cost-efficiency. It offloads most computation and storage off-chain, helping Ethereum process more transactions at a fraction of the cost.
Arbitrum’s integration with Ethereum ensures compatibility with existing Ethereum-based applications while significantly reducing transaction fees and increasing throughput.
The platform is powered by its native token ARB, which is also used for governance in the Arbitrum Decentralized Autonomous Organization (DAO). This structure allows ARB token holders to vote on key protocol decisions, including upgrades and fund allocation.
Bittensor is a decentralized, blockchain-powered machine learning network that enables the collaborative training and sharing of AI models. Unlike traditional AI development, which is centralized and controlled by large tech companies, Bittensor operates on a peer-to-peer system where contributors (miners) provide computational power and intelligence to the network. These contributors are rewarded in TAO tokens based on their added informational value. The decentralized nature ensures that AI development remains open, transparent, and permissionless, fostering global innovation.
Traditional AI platforms—such as those run by Google, OpenAI, and Microsoft—are centralized, meaning their models, data, and computing power are controlled by a single entity. Users can interact with these AI systems, but they have no say in how the models are trained, nor do they receive compensation for contributing.
Bittensor introduces a decentralized AI economy, where:
This shift democratizes AI by ensuring that no single entity has control, making AI development more transparent, fair, and censorship-resistant.
TAO is the native cryptocurrency of the Bittensor network and serves multiple essential functions:
Mining Rewards: Contributors (miners) who provide valuable AI models and computations receive TAO tokens as compensation.
Access Fees: Businesses and developers can spend TAO to use AI models and insights generated by the network.
Governance: TAO holders can vote on proposals, upgrades, and network policies, ensuring decentralized decision-making.
Security and Staking: Participants can stake TAO to support the network, adding an additional layer of economic security.
With a fixed supply cap of 21 million TAO, similar to Bitcoin, the tokenomics are designed to maintain scarcity and long-term value appreciation.
Bittensor employs multiple layers of security to maintain the integrity of its decentralized AI network:
Proof-of-Intelligence (PoI): Instead of traditional mining, rewards are based on AI contributions’ quality, preventing wasteful resource use.
Reputation & Ranking System: The network ranks AI models based on their performance and usefulness, discouraging low-value or fraudulent inputs.
Blockchain Transparency: All transactions and AI contributions are recorded on an immutable blockchain, reducing the risk of manipulation.
Decentralized Governance: No single entity controls Bittensor, making censorship or centralized exploitation difficult.
Anti-Sybil Mechanisms: Ensuring that bad actors cannot spam or manipulate the system by creating multiple fake nodes.
These security measures make Bittensor resilient to both traditional cyber threats and economic manipulation.
Bittensor creates a peer-to-peer AI marketplace, where:
This system allows AI developers, businesses, and individuals to benefit financially from their contributions while fostering a more equitable AI economy.
Bittensor governance is decentralized, meaning TAO token holders participate in decision-making. Proposals can cover:
Unlike centralized AI companies, where decisions are made behind closed doors, Bittensor ensures transparent, democratic control over its evolution.
Bittensor’s decentralized AI network has applications across multiple industries:
Finance: AI-driven trading algorithms, fraud detection, and risk assessment.
Healthcare: Decentralized AI models for diagnostics, medical research, and drug discovery.
Cybersecurity: AI-powered threat detection and security automation.
Content Curation: AI-generated news summaries, creative writing, and recommendation systems.
Decentralized AI Assistants: Open-source chatbots and AI tools for businesses.
These use cases highlight the transformative potential of Bittensor in real-world applications.
Bittensor uses a reputation-based ranking system, where AI models are assessed based on:
Performance: Accuracy and efficiency of predictions.
Originality: Avoiding duplicate or redundant contributions.
Usefulness: How much the broader network benefits from the model.
This system ensures that high-quality AI developers are rewarded appropriately while discouraging low-effort participation.
Bittensor is positioned to be a leader in decentralized AI. Potential future developments include:
Integration with DeFi: Using AI for smart contract optimization and risk management.
Cross-chain Compatibility: Expanding to work with Ethereum, Solana, and other blockchains.
Enterprise Adoption: Attracting businesses looking for decentralized AI solutions.
As the AI and blockchain industries continue to evolve, Bittensor is at the forefront of redefining how AI is created, shared, and monetized.
While OpenAI and Fetch.ai are well-known AI initiatives, Bittensor offers a fundamentally different approach:
Feature | Bittensor | OpenAI | Fetch.ai |
Decentralized? | ✅ Yes | ❌ No (Centralized) | ✅ Yes |
Open-source? | ✅ Yes | ❌ No (Proprietary) | ✅ Yes |
Token Rewards? | ✅ Yes (TAO) | ❌ No | ✅ Yes (FET) |
AI Model Control? | Community-driven | Corporate-controlled | Autonomous Agents |
Monetization? | Peer-to-peer AI economy | Paid API access | AI-powered marketplaces |
Bittensor focuses on collaborative AI development, where contributions are fairly rewarded, and users have full control over the AI models they create and use.
Subnets in Bittensor are specialized sections of the network focused on specific AI tasks. Each subnet operates independently but contributes to the overall intelligence of the system.
Examples of potential subnets include:
Natural Language Processing (NLP): AI models trained for text analysis, chatbots, and sentiment detection.
Computer Vision: Image recognition, facial detection, and object classification.
Financial Modeling: AI-powered risk assessments, trading strategies, and fraud detection.
By allowing different subnets to specialize, Bittensor ensures that each AI function is optimized and efficiently trained, making the network more scalable and useful.
Staking TAO allows users to contribute to the network’s security and earn passive rewards.
Staking aligns incentives across all participants, encouraging long-term commitment to the network while enhancing security and fairness.
Bittensor’s environmental impact is generally lower compared to traditional blockchain networks that rely on energy-intensive Proof-of-Work (PoW) mechanisms, like Bitcoin. However, as a decentralized machine learning (ML) network, Bittensor does consume computational power, which in turn requires electricity.
Factors Affecting Bittensor’s Environmental Impact
Unlike Bitcoin, which uses PoW mining that requires massive amounts of electricity, Bittensor operates on a Proof-of-Stake (PoS)-influenced system where miners contribute machine learning models instead of performing complex cryptographic computations. This results in significantly lower energy consumption.
However, training ML models still requires powerful GPUs and high-performance computing, which can consume substantial electricity, especially if hosted on inefficient or fossil-fuel-powered servers.
Centralized AI infrastructures, such as those operated by big tech companies, often rely on massive data centers that consume vast amounts of energy and water for cooling.
Bittensor’s decentralized AI network distributes computational tasks across a globally spread system of participants, potentially reducing the need for large, centralized energy-intensive facilities.
Use of Renewable Energy
Bittensor itself does not mandate how or where participants source their computing power. However, miners and validators can choose to run their hardware on renewable energy, reducing the carbon footprint of the network.
Some participants may leverage green cloud computing services that prioritize sustainable energy sources.
Since Bittensor relies on computational power for ML tasks, long-term use of GPUs and hardware may contribute to electronic waste (e-waste).
Unlike PoW mining, which demands frequent hardware upgrades, Bittensor’s model may extend the lifespan of computing hardware by utilizing it for productive AI tasks rather than brute-force calculations.
Bittensor’s incentive-driven approach to AI development encourages optimized machine learning models, leading to improved computational efficiency.
More efficient models mean less energy spent on redundant tasks, making AI training and inference more sustainable than traditional centralized AI models.
While Bittensor does have an environmental footprint due to its reliance on computational power, its decentralized and incentive-driven AI model presents a more energy-efficient alternative to traditional blockchain networks and centralized AI infrastructures. The actual impact depends on the energy sources used by network participants, the efficiency of machine learning models, and advancements in sustainable computing.
When holding TAO, Bittensor’s native cryptocurrency, choosing the right wallet is essential for security, accessibility, and ease of use. Here’s what you need to know about storing TAO safely.
There are several types of wallets to store TAO, each with different levels of security and convenience:
Examples: Polkadot.js, Subwallet, Talisman
Best for: Frequent transactions and active traders
Pros
Easy to set up and use
Convenient for staking and interacting with Bittensor
Cons
More vulnerable to hacks and phishing attacks
Examples: Ledger (TAO is supported via Polkadot integration)
Best for: Long-term storage and maximum security
Pros
Private keys are stored offline, reducing the risk of hacks
Ideal for large holdings of TAO
Cons
More expensive than software wallets
Less convenient for frequent transactions
Best for: Offline, ultra-secure storage
Pros
Immune to digital threats
No reliance on software or hardware
Cons
Easy to lose or damage
Requires careful handling and secure backup
For maximum security, use a combination of wallets:
✅ Cold wallet (e.g., Ledger) for long-term storage
✅ Hot wallet (e.g., Polkadot.js) for staking and transactions
This strategy ensures both security and easy access to your TAO holdings.
TAO has a structured issuance model that balances inflation and long-term value appreciation.
Inflationary Aspect: New TAO is minted and distributed as rewards to miners, validators, and contributors.
Deflationary Pressures: As adoption grows, more TAO is staked and used for network services, reducing circulating supply.
Adaptive Monetary Policy: Bittensor’s economic model ensures that TAO issuance adjusts based on network needs, preventing oversupply.
This carefully managed tokenomics system makes TAO an essential asset in the AI-driven blockchain economy, encouraging both innovation and sustainable growth.
To stay updated on Bittensor, visit the following resources:
Seamlessly connect with Kenson Investments for specialized assistance on your digital asset journey.
Kenson Investments excels in digital asset management, serving high-net-worth individuals and businesses. We prioritize security and transparency, offering tailored solutions for asset management, diversification, and innovative investment opportunities in the expanding digital asset sector.
Disclaimer: The crypto currency and digital asset space is an emerging asset class that has not yet been regulated by the SEC and US Federal Government. None of the information provided by Kenson LLC should be considered as financial investment advice. Please consultant your Registered Financial Advisor for guidance. Kenson LLC does not offer any products regulated by the SEC including, equities, registered securities, ETFs, stocks, bonds, or equivalents.
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