Bittensor Token TAO Plummets 25% Following Covenant AI Exit Over Governance Dispute

Covenant AI, a major subnet developer, has officially withdrawn from the Bittensor network. The exit follows serious allegations that co-founder Jacob Steeves exercises unilateral control over the ecosystem. This development has triggered a sharp decline in the value of the native TAO token.

The token price fell by as much as 25% in a matter of hours. This sell-off erased approximately $900 million from the network's total market capitalization. Over $9 million in long positions were liquidated during the volatility.

Covenant AI founder Sam Dare released an open letter detailing the reasons for the departure. The statement accused Steeves of using token sales as a punitive tool to enforce compliance. The network's decentralized claims are now under intense scrutiny by the market.

Why Did Covenant AI Leave Bittensor?

Covenant AI cited a fundamental breach of the network's core promises. The team claimed that Steeves suspended token emissions as a punitive measure against the subnet. They also alleged that he revoked their management control over community channels without established processes.

Dare described the current governance structure as a decentralized theater. The team asserted that the Triple Multi-sig structure serves merely as legal shields while Steeves retains ultimate authority. This concentration of power contradicts the permissionless nature of the platform.

The conflict escalated when Steeves allegedly deprecated subnet infrastructure unilaterally. Covenant AI stated that the leadership applied downward market pressure using large token holdings. These actions were described as economic sabotage designed to coerce the team into submission.

How Did Markets React to the Governance Crisis?

The market reaction was immediate and severe across multiple trading venues. TAO dropped from a weekly high near $337 to below $265 in a single day. Trading volume surged to $1.72 billion as investors rushed to exit positions.

Covenant AI reportedly offloaded 37,000 TAO tokens worth over $10 million following the announcement. Critics labeled this move a rug pull due to the timing and magnitude of the sale. The liquidation of long positions exacerbated the downward price pressure.

Despite the crash, the token had previously traded above $330 amid institutional interest. The recent praise from Nvidia CEO Jensen Huang regarding Bittensor's capabilities was overshadowed by the controversy. The disconnect between marketing and operational reality has shaken investor confidence.

What Are the Implications for Bittensor Governance?

The incident highlights significant risks regarding the structural integrity of the network. Covenant AI claimed that the three-person multi-sig governance is a charade in practice. They argued that Steeves effectively controls the triumvirate and bypasses consensus mechanisms.

Steeves has responded to the allegations by denying unilateral control over token releases. He stated that changes in release amounts were due to the sale of his own alpha holdings. The co-founder emphasized that transaction transparency remains a core principle of the dTao system.

The network now faces a critical test of its decentralized claims. Other developers must decide whether to remain or follow Covenant AI's lead. The future stability of Bittensor depends on resolving these governance disputes and restoring trust.

Covenant AI confirmed it will continue its research division on alternative platforms. The departure of a key subnet operator creates a vacuum in the ecosystem. The event marks one of the most significant public controversies in Bittensor's history.

Investors are now scrutinizing the potential for further exodus from the network. The fragility of the operational structure has been exposed by this internal power struggle. Market participants are re-evaluating the long-term viability of the protocol in light of these events.