In early April 2026, decentralized AI network Bittensor faced its most severe governance crisis since inception. Covenant AI, a core subnet operator, publicly accused Bittensor co-founder Jacob Steeves of exercising "centralized control" over the network and announced its complete withdrawal from the ecosystem. Shortly after, Covenant AI’s founder sold approximately 37,000 TAO tokens, triggering widespread liquidation of long positions. Within 24 hours, TAO’s price plummeted by over 25%. This incident not only dealt a direct blow to TAO holders but also thrust the governance risks of decentralized AI blockchains into the spotlight.
Crisis Ignites: A Public Statement Sparks Market Panic
As of April 16, 2026, TAO was trading at $242.5, marking a seven-day decline of about 24.69% and a market cap of $2.32 billion. The immediate catalyst for this volatility traces back to an open statement issued on April 10.
On April 10, Covenant AI—one of the most prominent subnet operators on the Bittensor network—formally announced its exit. Founder Sam Dare stated bluntly in the announcement: "We are officially exiting the Bittensor network. Its governance is a decentralized performance; real control is concentrated in the hands of Jacob Steeves." Dare further argued that Bittensor attracted builders, miners, validators, and investors by promising freedom from any single controlling entity—"but that promise is a lie."
Following the statement, TAO’s price quickly dropped from around $338 to $285, a 15% decline. However, the real market turmoil was just beginning. Covenant AI’s founder then sold roughly 37,000 TAO subnet tokens (valued between $9 million and $10 million), sparking a cascade of liquidations. Prices plunged from the weekly high of $341 to near $248.8.
From Nvidia Praise to Public Fallout
Before dissecting the controversy, it’s important to understand Bittensor’s underlying architecture and the context leading up to the event.
Bittensor is a decentralized machine learning network built around token incentives. Its fundamental units are "subnets," each functioning as a specialized AI task marketplace covering storage, inference, model training, and data processing. The network currently operates 129 active subnets.
Covenant AI managed three subnets on Bittensor: Templar (SN3, focused on decentralized pre-training), Basilica (SN39, focused on decentralized computation), and Grail. The Templar subnet produced the Covenant-72B model—a large model with 72 billion parameters, collaboratively trained by over 70 independent contributors on general-purpose hardware without permission requirements. This model was mentioned by Social Capital founder Chamath Palihapitiya on the "All-In Podcast" and received high praise from Nvidia CEO Jensen Huang, who called it "a remarkable technological achievement."
This positive news drove TAO’s price from about $247 in March to over $370.
Key timeline of events:
- April 10: Covenant AI issues a public statement announcing its exit from Bittensor, accusing Jacob Steeves of centralized control. TAO price drops from $338 to $285 in a short period.
- April 10 (same day): Covenant AI’s founder sells roughly 37,000 TAO subnet tokens, causing a rapid deterioration in market sentiment. Price falls further from a high of $341 to a low of $248.8, with a 24-hour swing of 36.5%.
- April 10 (same day): Jacob Steeves responds to the accusations point-by-point on X, denying any authority to halt subnet emissions and explaining his sales as normal operations for inactive subnets.
- April 10 (same day): Steeves further responds on Discord, proposing to restart the community voting governance mechanism and criticizing Sam Dare’s decisions as "clearly malicious and greedy."
- April 12–13: Bittensor co-founder Const (Jacob Steeves) issues a statement apologizing to affected users, proposes a "locked staking" reform, and confirms plans to restart development of subnets 3, 39, and 81.
Data Perspective: A $900 Million Trust Cost
This event left clear marks on on-chain data and market metrics.
Price and Market Cap Impact
As of April 16, 2026, Gate market data shows TAO trading at $242.5, with a 24-hour high of $250.4 and a low of $239.3. Over the past seven days, TAO declined 24.69%; over the past 30 days, it fell 13.91%. Year-to-date, it still holds a gain of about 5.25%. The current market cap is $2.32 billion, with a circulating supply of 9.59 million TAO and a total supply of 21 million TAO.
Compared to pre-event levels, TAO dropped from a weekly high of $337 to $263, wiping out nearly $900 million in market capitalization.
Liquidation Scale and Trading Activity
On-chain data shows that the April 10 volatility triggered forced liquidation of over $9 million in TAO long positions. The 24-hour trading volume surged to about $1.98 billion. Analyst Michaël van de Poppe noted that the real damage stemmed from Covenant’s founder dumping 37,000 TAO, which sparked panic selling and leveraged liquidations.
Structurally, the sell-off triggered a typical negative spiral: validator staking decreased → consensus weight dropped → rewards diminished → incentives weakened → market confidence eroded → user attrition accelerated. This chain reaction directly undermined trust.
Subnet-Level Chain Reaction
After Covenant AI’s exit, its three operated subnets were marked as "deprecated" on the Taostats block explorer. These were among the largest subnets in the Bittensor ecosystem, and their shutdown significantly impacted overall network activity.
Public Opinion Battlefield: Divergent Narratives
The crisis unfolded amid two sharply contrasting narratives, with both sides sticking to their positions.
Covenant AI’s Core Accusations
Sam Dare’s public statement listed several specific allegations against Jacob Steeves:
- Halting Subnet Emissions: Accused Steeves of having unilateral power to pause subnet TAO reward distribution.
- Community Control Interference: Accused Steeves of stripping the Covenant AI team of management rights in their community space.
- Infrastructure Abandonment: Accused Steeves of unilaterally abandoning subnet infrastructure without due process.
- Economic Coercion: Accused Steeves of using large-scale token sales as leverage to force Covenant AI’s compliance.
Dare summarized these actions: "When a single actor can halt subnet emissions, override owners’ authority in their own community spaces, publicly disparage projects without process, and use token sales as a coercive mechanism for compliance, this is not decentralization. This is centralized control masquerading as decentralization."
Jacob Steeves’ Point-by-Point Rebuttal
Jacob Steeves responded to each accusation on X:
- On Halting Emissions: "I do not have the ability to pause emissions." Steeves categorically denied having such power.
- On Token Sales: Steeves admitted to selling some Alpha positions in Covenant AI’s three subnets, explaining that these subnets were inactive and their code was nearly 100% burned. He emphasized his sales were no different from other TAO holders: "I do not possess any privileges beyond those of ordinary TAO holders."
- On Discord Management: Steeves said Dare himself "deprecated" the channel via pinned comments and X posts. Steeves admitted to temporarily blocking Dare from deleting posts, as Dare was removing "real, honest criticism." He later restored permissions and did not remove Dare’s admin role.
- On Infrastructure Abandonment: Steeves stated, "I’m not even sure what this accusation refers to."
- On Token Sale Scale: Steeves described the sale as "not large," less than 1% of his investment in the Dare team.
Co-Founder Apology and Reform Proposal
A few days after the event, Bittensor co-founder Const issued a statement apologizing to holders affected in the impacted subnets. He proposed advancing a "locked staking" mechanism—adding a "time + stake" commitment dimension at the protocol level to improve transparency and strengthen investor protection. He also confirmed that development of subnets 3, 39, and 81 would continue under community leadership.
Additionally, Const revealed on Discord that when the dTAO upgrade was launched a year ago, the team originally planned to implement community-led subnet governance—allowing subnet Alpha holders to vote for hyperparameter teams via wallet voting—but postponed it to give subnet owners more control in the early stages. He stated that now is the right time to restart this discussion.
Industry Lessons: Stress Test for Decentralized AI
Direct Impact on Bittensor Ecosystem
Covenant AI’s exit dealt a multi-layered blow to Bittensor. Subnets 3 and 39, operated by Covenant AI, were among the network’s most crucial subnets. The Covenant-72B model was Bittensor’s strongest showcase of decentralized AI capabilities. The departure not only halted three major subnets but may also dampen external developers’ and investors’ willingness to participate.
Moreover, the governance dispute directly shook TAO’s core value proposition. As Bittensor’s governance token, TAO’s value partly depends on the network’s promise of decentralization. With accusations of "decentralized theater" made public, investors began to reassess this valuation basis.
Broader Impact on Decentralized AI Sector
Bittensor has long been seen as one of the most important projects in the "AI + crypto" narrative. Its governance crisis could have spillover effects across the entire sector.
Some observers suggest that this event subjects Bittensor’s decentralization claims to intense scrutiny—especially as it competes for talent and capital with other decentralized AI platforms. If Bittensor fails to transparently resolve its internal governance disputes, investors may apply stricter standards to all decentralized AI projects.
Warning on Multisig Governance Structures
Covenant AI’s accusations also highlighted a technical detail: according to Dare, Bittensor’s network upgrades are controlled by a three-person multisig, including Steeves. While Steeves did not directly address this claim, "protocol upgrades controlled by a handful of core members" are common in crypto projects. This event serves as a reminder: the gap between promised decentralization and actual governance structures can become systemic risk under extreme circumstances.
Conclusion
The Bittensor governance crisis stands as one of the most cautionary events in crypto AI for 2026. It exposes a fundamental tension: as decentralized projects grow rapidly, how can they transition smoothly from early-stage centralized decision-making to long-term decentralized governance?
From Covenant AI’s dramatic exit, to Jacob Steeves’ detailed rebuttals, and co-founder Const’s locked staking reform proposal—this sequence of events represents not just a price shock, but a stress test for the promise of decentralization. For industry observers, whether Bittensor can rebuild trust through governance reform will be a case worth watching.
For TAO holders and potential participants, understanding the structural roots of this crisis and tracking the progress of governance reforms may be more important than watching short-term price swings. The true value of decentralized governance ultimately depends on its performance in times of crisis—not on promises made during periods of prosperity.
