Bittensor is facing a deeper problem than a volatile week in the market. Covenant AI, a major subnet operator, said it exited the network in mid-April after selling roughly 37,000 TAO tokens worth more than $10 million, turning what might have been a large but isolated liquidation into a direct challenge to the project’s decentralization narrative.
The departure did not come quietly. Covenant AI publicly accused co-founder Jacob Steeves of maintaining concentrated control over governance and described the network as a form of “decentralization theater,” framing its exit as both a financial and political break with the project. That public accusation gave the sell-off sharper significance because the market was suddenly reacting not just to token supply, but to a dispute over who really controls the system.
Bittensor is rebuilding
Stronger than before https://t.co/7i3h8lQWs0 pic.twitter.com/FqfhxpiCpg— Mars (@infinitetensor) April 14, 2026
A Governance Dispute Became a Market Event
According to Covenant AI’s account, the fallout centered on a series of actions it says were taken against its position inside the network. The group alleged that token rewards tied to Covenant subnets had been suspended, moderation rights had been removed and network upgrades were being pushed from infrastructure linked to Steeves. Whether those claims ultimately hold up in full or not, the core damage came from the perception that governance power may be far more centralized than the protocol’s image suggests.
The market response was immediate and severe. TAO fell by roughly 25% during the sell-off, wiping out about $900 million in market value in a short period, while trading volume surged to an estimated $1.75 billion over 24 hours. That kind of activity pointed to more than routine volatility; it reflected a fast repricing of governance risk inside a project built around decentralized AI infrastructure.
The On-Chain Picture Is More Complicated
Not everyone ran for the exit. On-chain observers noted that seven large wallets increased their holdings by about 18,400 TAO during the drawdown, a pattern that suggested some larger players treated the collapse as an opportunity rather than a warning. Their behavior stood in sharp contrast to broader panic selling and implied that whale accumulation is beginning to compete with retail distrust as the dominant market signal.
The network’s operating data sent a similarly mixed message. Validator count reportedly rose around 8.3% week over week, while server registrations fell about 3.1%, a split that may point to consolidation rather than broad-based participation. In practical terms, the network appears to be stabilizing in some areas while narrowing in others, which is not the same thing as renewed confidence.
Bittensor’s leadership has responded by proposing a Locked Stake mechanism intended to signal commitment and reduce short-term exit risk. That may help address some immediate concerns, but it will not resolve the larger credibility issue unless governance reforms become transparent, verifiable and harder to contest. For now, the protocol is no longer being judged only on technical ambition, but on whether its power structure can withstand public scrutiny.
The real test starts here. If Bittensor can turn this rupture into a meaningful governance reset, confidence may recover and the current sell-off may come to look like a stress event rather than a structural break. If it cannot, Covenant AI’s exit may be remembered as the moment a decentralization dispute became a reputational turning point for the network.