TAO drops over 20%: Covenant AI's exit triggers Bittensor governance controversy

In early April 2026, the decentralized AI network Bittensor faced its most severe governance crisis since its inception. Core subnet operator Covenant AI publicly accused Bittensor co-founder Jacob Steeves of implementing “centralized control” over the network and announced their exit from the entire ecosystem. Subsequently, Covenant AI’s founder sold approximately 37,000 TAO tokens, triggering a large-scale liquidation of long positions, causing TAO’s price to plummet over 25% within 24 hours. This incident not only directly impacted TAO holders but also brought the governance risks of decentralized AI blockchains into the spotlight.

Crisis Eruption: A Statement Ignites Market Panic

As of April 16, 2026, TAO’s price was $242.50, down about 24.69% over the past 7 days, with a market cap of $2.32 billion. The immediate trigger for the sharp price volatility can be traced back to an open statement released on April 10.

On April 10, Covenant AI, one of the most well-known subnet operators on Bittensor, officially announced their exit from the network. Founder Sam Dare bluntly stated in the announcement: “We are officially withdrawing from the Bittensor network. Its governance is a decentralized show, with true control concentrated in Jacob Steeves’s hands.” Dare further pointed out that the reason Bittensor attracted builders, miners, validators, and investors was because of its promise of no single entity control—“but that promise is a lie.”

Following the statement, TAO’s price quickly dropped from about $338 to $285, a 15% decline. However, the market’s real shock was yet to come—Covenant AI’s founder then sold about 37,000 TAO subnet tokens (worth roughly $9 million to $10 million), triggering a chain of liquidations, with the price falling from a weekly high of $341 to around $248.8.

From Nvidia’s Praise to Public Break

Before analyzing the controversy, it is necessary to understand Bittensor’s underlying architecture and the background before the incident.

Bittensor is a decentralized machine learning network centered on token incentives. Its basic building block is the “subnet,” which functions as a specialized AI task marketplace covering storage, inference computation, model training, and data processing. Currently, there are 129 active subnets in operation.

Covenant AI operates three subnets on Bittensor: Templar (SN3, focused on decentralized pretraining), Basilica (SN39, focused on decentralized computation), and Grail. The Templar subnet’s Covenant-72B model—a large model with 72 billion parameters, collaboratively trained on general hardware by over 70 independent contributors without permission—was mentioned by Chamath Palihapitiya, founder of Social Capital, on the “All-In Podcast,” and received high praise from Nvidia CEO Jensen Huang as “a pretty remarkable technical achievement.”

This positive news once drove TAO from about $247 in March to over $370.

Key timeline points:

• April 10: Covenant AI issues a public statement announcing their exit from Bittensor, accusing Jacob Steeves of implementing centralized control. TAO’s price briefly fell from $338 to $285.
• April 10: Covenant AI’s founder sold about 37,000 TAO subnet tokens, sharply worsening market sentiment. The price further plummeted from a high of $341 to a low of $248.8, with a 24-hour volatility of 36.5%.
• April 10: Steeves responded to the accusations on X, denying having the power to pause subnet emissions and explaining that his sales were normal operations for inactive subnets.
• April 10: Steeves further responded on Discord, proposing to restart community voting governance and criticizing Dare’s decisions as “obviously malicious and greedy.”
• April 12-13: Bittensor co-founder Const (Jacob Steeves) issued a statement apologizing to affected users, proposing a “locked staking” reform, and confirming the development of subnets 3, 39, and 81 will continue with community involvement.

Data Perspective: A $72B Trust Cost

This incident left clear traces in on-chain data and market indicators.

Price and Market Cap Impact

As of April 16, 2026, data from Gate.io shows TAO at $242.50, with a 24-hour high of $250.40 and a low of $239.30. Over the past 7 days, it declined about 24.69%; over 30 days, down 13.91%; year-to-date, still up approximately 5.25%. The current market cap is $2.32 billion, with a circulating supply of 9.59 million TAO out of a total supply of 21 million.

Compared to before the incident, TAO fell from a weekly high of $337 to $263, evaporating nearly $900 million in market value.

Liquidation Scale and Trading Activity

On-chain data shows that the market volatility on April 10 led to over $9 million in TAO long positions being forcibly liquidated, with 24-hour trading volume spiking to about $1.98 billion. Analyst Michaël van de Poppe pointed out that the real damage came from Covenant AI’s sale of 37,000 TAO, which triggered panic selling and leverage liquidations.

Structurally, the sell-off triggered a typical negative spiral: validator staked amounts decline → consensus weight drops → rewards decrease → incentives weaken → market confidence erodes → user outflow accelerates. This chain reaction directly undermines trust.

Subnet-Level Chain Reactions

After Covenant AI’s exit, the three subnets they operated appeared as “deprecated” on Taostats blockchain explorer. These subnets are among the largest in the Bittensor ecosystem, and their shutdown significantly impacted overall network activity.

Public Discourse: Two Divergent Narratives

Within the crisis’s public opinion arena, two contrasting narratives have emerged, each side holding firm.

Covenant AI’s Core Allegations

Sam Dare listed several specific accusations against Jacob Steeves:

• Pause subnet emissions: Alleging Steeves has unilateral power to pause TAO rewards distribution.
• Community control interference: Accusing Steeves of stripping Covenant AI’s team management rights in their community space.
• Infrastructure abandonment: Claiming Steeves unilaterally abandoned subnet infrastructure without due process.
• Economic coercion: Alleging Steeves used large-scale token sales as pressure to force compliance.

Dare summarized these actions as: “When a single actor can pause emissions, overthrow the rights of owners in their own community, publicly discredit projects without due process, and use token sales as a coercive mechanism, this is not decentralization. It’s centralized control masquerading as decentralization.”

Jacob Steeves’s Counterarguments

Steeves responded to each point on X:

• Regarding pausing emissions: “I do not have the ability to pause emissions.” He explicitly denied this power.
• Regarding token sales: He admitted selling some Alpha holdings on the Covenant AI subnets but explained that these subnets were inactive and nearly fully burned. He emphasized his sales are no different from other TAO holders: “I do not have any privileges beyond normal TAO ownership.”
• Regarding Discord management: He said Dare himself “pinned comments and posts” to “abandon” the channel. Steeves acknowledged temporarily blocking Dare from deleting posts because Dare was removing “honest, genuine criticism.” He later restored permissions and did not remove Dare’s admin role.
• Regarding infrastructure abandonment: Steeves stated, “I am even unsure what this accusation refers to.”
• Regarding the scale of token sales: He claimed the sales were “not large,” less than his investment in Dare’s team.

Joint Founder Apology and Reform Proposal

Days after the incident, Bittensor co-founder Const issued a statement apologizing to affected holders. He proposed advancing a “locked staking” mechanism, introducing a “time + stake” commitment layer at the protocol level to enhance transparency and investor protection. He also confirmed that development of subnets 3, 39, and 81 will continue with community involvement.

Additionally, Const revealed on Discord that a year ago, during the launch of dTAO upgrade, the team planned to implement community-led subnet governance—where subnet alpha holders could vote via wallet on hyperparameter choices—but delayed it due to early control needs. He said now is the right time to restart that discussion.

Industry Reflection: Stress Testing the Decentralized AI Track

Direct Impact on Bittensor Ecosystem

Covenant AI’s exit caused multiple layers of impact. First, the subnets they operated—3 and 39—are among the most important in the network, with the Covenant-72B model once representing Bittensor’s strongest showcase of decentralized AI capability. Their departure not only halts these subnets but may also weaken external developer and investor engagement.

Second, the governance dispute shakes the core narrative of TAO’s value. As the governance token of Bittensor, TAO’s value partly depends on the promise of decentralized governance. When accusations of “decentralized show” surfaced, investors began reassessing this valuation foundation.

Broader Impact on the Decentralized AI Sector

Bittensor has long been regarded as one of the most significant projects in the “AI + crypto” narrative. Its governance crisis could have spillover effects across the sector.

Some suggest this incident prompts a rigorous review of Bittensor’s decentralization claims, especially in competing for talent and capital with other decentralized AI platforms. If Bittensor cannot transparently resolve internal governance disputes, investors might impose stricter scrutiny on all decentralized AI projects.

Warning from Multi-Signature Governance

Dare’s accusations also touch on a technical detail: Bittensor’s network upgrades are reportedly controlled via multi-signature involving three individuals, including Steeves. While Steeves did not directly respond, the fact that “a small core group controls protocol upgrades” is not uncommon in crypto projects. This event underscores a recurring industry warning: the gap between promised decentralization and actual governance structures can evolve into systemic risks under extreme conditions.

Conclusion

The governance crisis at Bittensor is one of the most cautionary events in the 2026 crypto AI landscape. It exposes a fundamental tension: how to smoothly transition from early centralized decision-making to long-term decentralized governance as projects grow rapidly.

From Covenant AI’s fierce exit, Steeves’s detailed rebuttals, to Const’s proposed lock-staking reforms—these series of events are not just price shocks but a stress test on whether “decentralization promises can be fulfilled.” For industry observers, whether Bittensor can rebuild trust through governance reforms will be a case to watch.

For TAO holders and potential participants, understanding the root causes of this crisis and tracking the implementation of governance reforms may be more valuable than short-term price movements. Ultimately, the true value of decentralized governance depends on its performance during crises, not just during periods of prosperity.