In early 2025, Bittensor’s Dynamic TAO upgrade gave every subnet its own token, handing control of emission distribution over to the market. This shift was necessary for the network to scale and decentralize, but it also fundamentally changed how builders and investors engage with the system.

Subnet teams now operate more like startups, competing in public for capital and attention. For investors, Dynamic TAO created an entirely new asset class—one that enables active portfolio construction and more targeted exposure than simply holding TAO.

Three months later, the market is still pricing subnet tokens with yesterday’s playbook. Most investors are applying valuation frameworks shaped by the last cycle’s low-float, high-FDV meta—missing the fact that subnet tokens are a structurally different asset class. They are fairly launched with no insider allocations and follow transparent, Bitcoin-like emissions schedules.

This disconnect is leading to widespread mispricing, and for those paying attention, it’s creating one of the most asymmetric opportunities in crypto right now.

Valuing Subnets

The last crypto cycle was defined by low-float, high-FDV tokens. Circulating supply was intentionally kept low, masking true market cap and suppressing price discovery until large unlocks hit and insiders exited. In response, FDV became the dominant valuation filter across the industry.

But subnet tokens broke that mold entirely. They launch directly into public markets with no pre-sales, no insider allocations, and no preferential pricing. Risk, upside, and emissions are distributed from day one. They follow a transparent, Bitcoin-like emissions curve—front-loaded initially, then tapering over time. Yet investors are still applying last cycle's heuristics to an entirely different asset structure resulting in systematic undervaluation.

While subnet token emissions are roughly around 2x faster than Bitcoin, the circulating supply trajectory is predictable:

~11% (~2.5M tokens) by month 6
~25% (~5M) by month 12
~50% (~10.5M) by month 24

These estimates vary slightly, but they offer a far more grounded way to evaluate risk and exposure than FDV alone, especially considering that full subnet token supply won’t be reached for nearly 65 years.

Most investors operate on a 6–24 month horizon. FDV projections decades into the future are largely irrelevant—which is exactly why no one uses FDV to value Bitcoin. A more practical approach applies a 0.5x multiplier to FDV based on projected circulating supply over a 24 month investment horizon. When evaluated through this lens, subnet tokens are 50% cheaper than what the FDV implies.

And that’s before factoring in staking yield. Subnet tokens currently offer staking rewards >90% APY. For long-term holders, this materially lowers the effective cost basis. A 90% APY over one year nearly doubles the position, cutting the entry price in half.

Over two years, yields are projected to decline, but still average out to a ~120% total return. Applied to a token trading at a 0.5x FDV (based on 24-month supply), that investor’s realized valuation would fall closer to 0.25x FDV. In other words: staking not only compounds returns, it compounds the mispricing. (h/t David Fields for sharing his thoughts on this)

Combing the above:

With a 1-year hold, adjusting for subnet token staking yield and circulating supply, investors are effectively buying at an ~85% discount to FDV.
With a 2-year hold, the discount approaches ~75%.

Reframing the Macro Indicators

Beyond token-level valuation, investors have begun using macro indicators to assess the subnet ecosystem as a whole and gauge sentiment. But two of the most widely referenced metrics are leading to distorted conclusions and both require a closer look.

Sum of Subnet Tokens: A Sentiment Gauge, Not a Valuation Anchor

The Sum of Subnet Tokens (SST) compares the FDV of all subnet tokens to the FDV of TAO. If SST is 2, it means the subnet ecosystem is collectively trading at twice the valuation of TAO.

Many investors have used SST as a valuation framework, where SST = 1 is treated as “equilibrium.” Below that, the subnet ecosystem is said to be undervalued relative to TAO; above it, they’re viewed as trading at a premium.

But the problem with SST is the same point raised earlier with FDV: it’s not the right lens, at least not in this phase of the market. TAO has over 40% of its total supply circulating, while most subnets are still below 6%. Comparing FDVs across such different supply dynamics is like comparing a mature company’s market cap to a seed-stage startup’s projected valuation.

So SST needs to be reframed. It doesn’t tell you what the ecosystem is worth—it tells you how aggressively capital is positioning. SST is best understood not as a valuation anchor, but as a sentiment and rotation indicator. It reflects how willing investors are to move out on the risk curve, from exposure in TAO to sector-specific bets in subnets.

Over the past month, SST has ranged around 2 and now sits closer to 1.8, signaling a cooldown in capital flowing into subnets. This decline has coincided with a sharp move up in TAOUSD, suggesting many investors rotated out of subnet tokens to reduce risk and capture TAO’s price appreciation. An inverse relationship between TAOUSD and SST has emerged over this period.

We don’t expect that to last. In our view, SST is near (or has already found) a bottom—setting the stage for TAO and subnet tokens to re-correlate.

As frameworks for valuing subnet tokens improve, capital will likely begin identifying and targeting undervalued subnet assets. At the same time, investors looking for leveraged exposure to TAO upside (TAO beta) will increasingly find it through subnets.

Reserves Over Injected

The Reserves over Injected (RoI) metric compares how much TAO currently sits in subnet liquidity pools versus how much the protocol has injected since Dynamic TAO launched. Today, RoI sits at -12%, which superficially suggests weak demand but misses two critical dynamics.

First, a large portion of subnet emissions are structurally sold. Miners earn 41% of emissions and typically convert a portion of those rewards into TAO—and eventually fiat—to cover operational costs. Even with better alignment under Dynamic TAO, miner selling remains a persistent source of outflow.

Second, a major sell pressure came from Root network’s (Bittensor’s original staking layer) design. On Root, TAO holders earn passive, risk-free yield without needing to interact with specific subnets. At Dynamic TAO’s launch, 100% of validator emissions were routed to Root stakers—meaning the protocol auto-sold 41% of subnet token emissions into TAO to fund those rewards. This created significant sell pressure on subnet tokens that distorted apparent demand.

But that dynamic is rapidly unwinding. Validator emissions to Root—what we refer to as Root Proportion—follow an exponentially declining curve. In most subnets, the majority of validator emissions now flow to subnet token holders, who are less likely to sell. That share will continue to grow.

This matters because as Root Proportion further declines and validator emissions migrate to subnet token holders, TAO stakers on Root face increasing dilution unless they rotate into subnet pools to capture emissions. Due to this, we expect a major migration of TAO off of Root into subnets within the next year.

What looks like stagnation is actually a setup. The market has been absorbing emissions under unfavorable conditions: protocol-driven selling, miner exits, and limited investor attention. As those structural pressures fade and more attention shifts to subnets, capital inflows could accelerate rapidly—and valuations could rerate quickly once demand becomes more visible.

Subnet Summer: The Inflection Point

From our vantage point, all signs point toward an imminent breakout—what the community is calling “Subnet Summer”. We’re seeing:

Established crypto-AI teams with existing networks developing subnets
Institutional funds exploring subnet token allocations while VCs compete to back subnet teams
Retail participants responding positively to the absence of premines and insider allocations
Bitcoin maximalists accepting TAO as the decentralized AI play
Subnet outputs and services improving meaningfully across verticals
New subnet concepts emerging that push the boundaries of what’s possible

Momentum is building. Infrastructure is improving. Incentives are aligning. The conditions are in place for a breakout phase that could significantly revalue the most competitive subnets as capital, usage, and attention accelerate.

For those who understand the new valuation dynamics, the opportunity window may be closing faster than most realize.

This content is provided for informational purposes only and does not constitute investment advice or a recommendation to buy or sell any security. Unsupervised Capital holds positions in TAO and may hold positions in the subnet tokens or other digital assets discussed herein and may buy, sell, or change positions at any time. Past performance is not indicative of future results. Digital assets involve substantial risk, including potential total loss of capital. Consult your own advisers regarding any investment decisions.

Bittensor Signals #1: Reframing Subnet Valuation

Valuing Subnets

Reframing the Macro Indicators

Sum of Subnet Tokens: A Sentiment Gauge, Not a Valuation Anchor

Reserves Over Injected

Subnet Summer: The Inflection Point

Investing in 404-GEN