The departure of Covenant AI from the Bittensor network has erased roughly $880 million to $900 million in TAO market capitalization in a single trading day, with the token falling from approximately $332 to an intraday low near $254 before stabilizing around $263 to $270. Bittensor co-founder Jacob Steeves, known on-chain as "Const," has publicly denied allegations of manipulating subnet emissions and using token sales as financial leverage against the team. The fallout raises pointed questions about how much real autonomy developers have on a network that markets itself as a decentralized AI marketplace.

What Happened

Covenant AI founder Sam Dare announced the team's immediate exit from Bittensor on April 10, pulling three subnets (Templar, Basilica, and Grail), including their flagship Subnet 3, from the network simultaneously. In a public statement, Dare said the team "cannot in good conscience" continue building on infrastructure whose decentralized and permissionless guarantees, the claims Covenant used with its own investors, do not hold in practice. "It is decentralization theatre," Dare wrote.

The accusations are specific. Dare alleges that Steeves suspended emissions to Covenant's subnets without any written policy, public vote, or advance notice, cutting off the team's income stream from the network. He also claims Covenant was stripped of moderation privileges over its own community channels and that subnet infrastructure was deprecated unilaterally. Most provocatively, Dare alleges that Steeves timed personal token sales to periods of operational conflict, using downward price pressure as a coercive tool.

Steeves disputes the framing. He reportedly stated that his token sales totaled less than 1% of his overall holdings and involved alpha tokens tied to subnets that were no longer operating; that figure was attributed to The Block but could not be independently confirmed at the time of publication. Rather than addressing each accusation directly, he reframed the exit as a technical milestone: "This will prove to birth the first subnets on Bittensor that run headless and as true commodities."

The Governance Question

An independent document published at taopapers.com provides data that is difficult to dismiss, though the site should not be treated as a neutral party. According to its analysis, 38 of 41 Bittensor runtime upgrades between 2023 and 2026 were proposed, first-signed, and deployed from infrastructure tied to Steeves. The other two multisig co-signers, part of a governance structure Bittensor calls a triumvirate, approved each one within minutes and, in each case examined, left no public discussion thread on record. The document also identifies seven subnets that had emissions throttled or zeroed within 72 hours of their operators publicly criticizing Steeves on Discord, X, or private Telegram groups, with technical justifications published after the throttle was applied. None of the 11 subnet deprecations it examined referenced a written policy, a public vote, a quorum requirement, or a minimum notice period; the median time between internal mention and public deprecation was under nine hours.

The Tao Papers document further alleges that, during Covenant AI's emission suspension, four wallets reportedly linked to Opentensor moved 1.2 million TAO to exchanges in coordinated tranches. This allegation, sourced via Tao Papers and reported by Unchained Crypto, has not been independently confirmed, and Opentensor has not publicly addressed it. Readers should treat it as an unverified claim pending further investigation.

Bittensor runs up to 128 active subnets, currently all filled, where developers contribute compute and AI model work in exchange for TAO emissions. The Dynamic TAO upgrade changed how those emissions are calculated. Rewards now flow based on net staking inflows rather than fixed allocations, which gives anyone with root-level access to the protocol considerable discretionary power over which subnets receive rewards and at what rate.

Covenant AI's Own Exit Raises Questions

The moral clarity of Dare's position is complicated by Covenant AI's own on-chain activity. Community observers and multiple outlets report that the team offloaded approximately 37,000 TAO tokens, worth over $10 million at pre-crash prices, around the time of the exit announcement. Critics called it a rug pull, the term for a scenario in which developers exit a project while offloading holdings at users' expense, and characterized the move as an opportunistic exit timed to benefit insiders. The simultaneous price drop and large-volume sell do not resolve cleanly in either party's favor.

Covenant AI was widely regarded as the most technically ambitious team in the ecosystem. Their Covenant-72B model, a 72-billion-parameter language model trained across more than 70 independent contributors on consumer hardware, was described as the largest decentralized LLM pre-training effort on record and drew public praise from Nvidia CEO Jensen Huang and investor Chamath Palihapitiya. The team's work is broadly credited for a roughly 90% TAO price rally in March 2026, with related subnet tokens returning up to 400% during that window. Today's crash wiped much of those gains, triggering around $9.2 million in long liquidations and sending subnet tokens down more than 55%.

Regional Impact

For developers outside the United States, particularly in Nigeria, South Africa, and Uganda, the governance dispute carries concrete financial weight. Luno, the continent's largest regulated crypto exchange with over 13 million users and operations across more than 40 countries, listed TAO in May 2025, making it directly accessible to retail participants in markets where peer-to-peer crypto activity is among the highest globally. Subnet emissions for African contributors are not a passive investment vehicle in many cases; they represent a real income stream in economies dealing with persistent currency depreciation and limited access to dollar-denominated financial infrastructure. The allegation that those emissions can be suspended without policy, notice, or recourse fundamentally changes the risk calculation for anyone weighing participation in the network.

Developer interest across South Asia, particularly on the Indian subcontinent, adds a parallel dimension to the governance stakes. India has been advancing AI and crypto regulatory frameworks through 2025 and 2026, and a growing number of developers in the region have been building on decentralized AI networks as an alternative to infrastructure controlled by US- and European-headquartered companies. The structural risks for these operators closely mirror those facing African contributors: income streams that can be suspended without written policy, public vote, or notice, with no guaranteed recourse. No Luno listings have been confirmed for India, Pakistan, or Bangladesh as of this writing, which limits regulated retail entry points but does not diminish the governance exposure for active subnet operators in those markets.

This dispute arrives at a moment when decentralized AI networks have been actively marketed to developers across the Global South as a meaningful alternative to AI infrastructure controlled by a small number of Western incumbents. The Covenant AI episode complicates that pitch in ways the broader ecosystem has not yet resolved.

What Comes Next

Steeves' response suggests Bittensor intends to treat the Covenant departure as proof of concept rather than a crisis: subnets operating without a central team as a dependency. That argument may appeal to protocol maximalists, but it sidesteps the governance transparency issues at the center of the dispute. TAO remains well below its all-time high of $767 from early 2025, and the next scheduled halving in December 2026 will cut daily emissions from 3,600 to 1,800 TAO. Whether the network can attract replacement talent at that emissions rate, and under the current governance structure, is now an open question.

The stakes for institutional investors have also grown more visible. The Grayscale Bittensor Trust gained SEC-reporting status in March 2026, meaning a broader class of institutional capital now holds formal exposure to TAO price movements. How those investors respond to sustained governance uncertainty may shape the network's ability to recover credibility alongside its market capitalization.