Wrapped TAO on Ethereum soars to $82m — but it’s all controlled by one person

Cryptocurrencies tied with artificial intelligence projects have been some of the buzziest lately, and Bittensor and its native TAO token is the biggest of all by market value.

A crypto bridge letting users send Bittensor’s TAO token to Ethereum has soared in popularity in recent months, as Ethereum users clamour for exposure to the buzzy AI token.

The bridge, which is community-run and independent of the project, now holds $82 million worth of TAO — all at the mercy of one person.

Onchain records analysed by DL News show that the bridge creator must sign off every time someone holding wTAO on Ethereum wishes to redeem it for TAO tokens on the Bittensor network.

In DeFi, permissioned bridges are unusual. It means one individual or entity has total control over funds deposited into the bridge.

The pattern of these onchain movements is further explained through chat records in the project’s official Discord server, a messaging app.

“Verification happens at least once a day morning/night or whenever I see a [transaction] come through,” CreativeBuilds, the pseudonymous developer who built the bridge said in the Bittensor Discord on July 9.

“Withdrawals are verified manually but automatically processed once verified,” CreativeBuilds said.

DL News attempted to contact CreativeBuilds for comments on Discord and via email but has not heard back.

Usually, developers use smart contracts to shift control of crypto bridges from humans to immutable computer code.

But the Bittensor network cannot handle smart contracts, making it difficult to create a bridge that functions in this way. This bridge was set up by CreativeBuilds, independently from those developing the Bittensor network.

Bittensor says it is transforming machine learning by decentralising it, creating a global marketplace for AI knowledge. It enables AI models to share intelligence, forming a digital collective brain.

The Tao Bridge

The Tao Bridge works by letting users deposit TAO tokens on the Bittensor side, and issuing Wrapped TAO — or wTAO for short — on Ethereum, which represent the TAO held in the bridge.

In the context of crypto bridges, wrapped tokens are placeholder tokens which represent tokens held by a bridge.

Bittensor’s TAO token has a maximum supply of 21 million tokens and thus the same tokenomics as Bitcoin. As with Bitcoin, there is a halving of the token rewards every four years. The current circulating supply amounts to 6.2 million TAO.

The project uses a proof-of-stake validation mechanism, meaning the network is secured by TAO holders staking their tokens. Currently, 89% of the supply is staked and the staking yield, paid in TAO, sits at 15.99% annually. For those who run their own staking validator, yields increase to 19.49%.

$16 million a year

Onchain data from TaoStats shows that 150,000 TAO tokens held in CreativeBuilds’ bridge are staked through a connected validator, earning a nearly 20% yield.

In Discord posts from January 2023, CreativeBuilds said he had been “very clear” about the fact that the funds were staked, and said the staking yield would be used to “to offset the cost of bridge [transactions].”

With some 150,000 TAO deposited into the bridge, its owner is set to earn around 29,250 TAO over the coming year. If TAO continues to trade at its current value of $550 per token, this haul will be worth over $16 million.

In the same Discord posts from January, CreativeBuilds said he would “create a system which passes through the rewards to an onchain contract in which users can stake wTAO and receive rewards.”

The Tao Bridge website does not appear to link to such an onchain staking contract.

‘Just want to make sure it’s safe’

Since October, TAO has rallied 990% amid a broader ETF-fueled rally in crypto assets.

As the only option to buy the TAO token without using a centralised crypto exchange, the Tao Bridge has surged in use. Since October, the amount of wTAO issued on Ethereum through the bridge has almost tripled.

Many users appear to trust the bridge due to CreativeBuilds’ active role in the Bittensor community.

Some are still wary.

The Tao Bridge’s code is closed-source meaning that other users and developers cannot check it for bugs, or make sure it does what it is advertised to do.

“Can’t find anything on the team behind it. Are they doxxed? It’s way easier to purchase and store wTao for me. Just want to make sure it’s safe,” said one user in the Bittensor Discord posting under the name The_1Legend.

“The team is me and no I’m not doxxed,” CreativeBuilds replied.

Tim Craig is DL News’ Edinburgh-based DeFi Correspondent. Ryan Celaj is DL News’ New York-based Data Correspondent. Reach out with tips at tim@dlnews.com and ryan@dlnews.com.