Bittensor token TAO drops sharply after Covenant AI exit dispute

Covenant AI details allegations behind exit

Covenant AI outlined a series of actions it attributed to Bittensor leadership, including suspending emissions to its subnets, removing or restricting moderation powers, deprecating infrastructure, and applying economic pressure through token sales.

The team said: “When a single actor can suspend a subnet’s emissions, override an owner’s authority over their own community spaces, publicly deprecate projects without process, and use token sales as a coercive mechanism to compel compliance, that is not decentralization. It is centralized control with decentralized branding.”

Covenant AI framed the issue as a business risk, stating: “We cannot raise capital, attract talent, or ask our community to commit resources on top of a foundation that one person can undermine at will. That is not a risk we are willing to pass on to the people who trust us.”

Co-founder denies control and emissions claims

Bittensor co-founder Jacob Steeves rejected the allegations on April 10, 2026, saying he does not have the authority Covenant AI described. He said: “I do not have the ability to suspend emissions,” adding that he holds “no privilege beyond what normal TAO holders have.”

Steeves attributed the emissions-related changes to market activity rather than governance intervention. He said he sold part of his “alpha holdings” across Covenant AI’s three subnets because they were “not running” and operating on “near 100% burn code,” adding that changes occurred through the same mechanism “all buys and sells on Bittensor do.”

On moderation actions, Steeves said he temporarily removed Covenant AI’s ability to delete posts before restoring it and denied removing Dare’s moderator role. Addressing claims of infrastructure deprecation, he said: “Not even sure what this one means.”

Steeves also disputed the scale of token sales, stating: “Not large. Less than 1% of what i had invested in his teams. Visibility is impossible to avoid in my position. I reserve my right to buy and sell tokens which is what underpins the entire system of dTao.”

Market reaction and liquidation impact

The governance dispute triggered sharp volatility in TAO, with the token falling 19% intraday to $264.5 at the time of writing, down from a daily high of $340.4 and recovering from a daily low of $254.5.

TAO’s crypto price, tracked via the COIN360 crypto price index, reflects the immediate impact of the dispute on market sentiment.

Liquidations followed the move, with $11.36 million in total positions wiped out over 24 hours, including more than $9.44 million in long positions. The sell-off extended beyond the intraday move, with losses reaching 13.3% at one stage and approaching 25% over 72 hours, while another measure placed the broader decline at 27% from recent highs.

Broader context and ecosystem impact

The fallout affected a contributor described as one of the busiest subnets on Bittensor, with its departure linked to a reported loss of liquidity and activity on the network.

Covenant AI had previously been associated with a major technical milestone. Nvidia CEO Jensen Huang, speaking on the All-In Podcast on March 19, described the decentralized training run on Bittensor Subnet 3 as a “remarkable technical achievement,” referring to the pre-training of the largest decentralized large language model.

Steeves said the exit could shift the network toward a different structure, writing: “This will prove to birth the first subnets on Bittensor that run headless and as true commodities.”

TAO’s decline followed a period of strong performance tied to AI-related momentum, including a nearly 40% gain in Q1 and a broader environment in which AI token market capitalization rose nearly 13% and trading volume increased close to 70%.