The Rug Pull of Covenant AI

When news of Covenant AI's departure from the Bittensor ecosystem broke yesterday, there was initially heavy confusion.

Is the account hacked?

Is this malicious?

Are these claims even valid?

So when we published initial coverage of the event, we largely reserved judgment, waiting for clearer conclusions to be made. Now, the day after, what's emerged from the chaos is a pretty obvious picture. This was an exit scam, and it was likely planned for quite some time.

Let's dive into all the details you should know.

Covenant Bails on Bittensor, Citing Centralization Concerns

Covenant AI exits Bittensor over governance and centralization concerns, triggering a market reaction as TAO drops and subnets decline.

Intelligence | Bittensor News, Insights, StoriesBart Hillerich

The TL;DR Timeline

As outlined by @_g_x_g, the sequence of events that occurred is as follows:

1. Const called out Sam for burning miners' emissions.
2. Const sold, according to his own post, "less than 1%" of what he had invested in Sam's teams (also important to note here that Const buys and sells alpha tokens all the time).
3. This led to a drop in emissions and brought up an old idea for Bittensor that would give more power to SN token holders.
4. This made Sam, who seemingly has been planning an exit (view video below) for the future, realize that it'd be harder to pull off his scam after the feature to delay token sales is implemented.
5. Sam then decided to act. He published the AI slop statement blasting Bittensor and Const as a cover-up for his rug.
6. Covenant AI, as part of their exit, dumped ~37,000 TAO worth of alpha tokens from their subnets, roughly $11 million at the time.
7. TAO and alpha token prices across the board dump.
8. KOLs spread Bittensor FUD, fueling further selling.

The Invalidation of Sam's Criticism

At the time of Covenant AI's statement publishing, thanks especially to how KOLs spread the message, there were many questions across CT about the validity of the criticism of Const and the Bittensor network.

The allegations were that:

1. Const exercises centralized control over the network despite its decentralization claims
2. Const can suspend subnet emissions at will
3. Const can override subnet owners’ authority, including control over their own community spaces
4. Const has unilaterally deprecated projects without transparent process or consensus
5. Token sales were used as economic pressure to force compliance during conflicts
6. The network’s governance structure is “decentralization theatre,” not genuinely distributed
7. Real decision-making power has never left one individual’s hands
8. These actions were punitive and specifically targeted at Covenant AI
9. The network’s core promise of decentralization is misleading/false

Considering these claims, what's important to first note is that, as we mentioned in our initial coverage, Const stepped down from his role as CEO of Opentensor Foundation back in February:

"[Const] stated he no longer controls OTF, the validators, or chain development, but he made it clear that he is not leaving Bittensor. He plans to push deeper into the ecosystem as an active participant (perhaps as a miner or building subnets, he said) as OTF works to decentralize chain nodes."

Doesn't sound like someone trying to exercise heavy control over the network, does it?

There's also been plenty of CT posts since the exit that have surfaced Sam's recent positive outlook on Bittensor and Const, degrading his claims that he's been unhappy with the ecosystem.

As for addressing the allegations directly, Const responded to them himself, stating that:

1. He can't suspend emissions.
2. He didn't remove Sam as a Discord mod. He gave Sam a temporary timeout for deleting honest criticism from his own community channel. The mod role was later reinstated.
3. “deprecating infrastructure” - Not sure what that means.
4. He sold less than 1% of what he'd invested in Sam's teams. He has the same rights as everyone else in the ecosystem to buy and sell alpha tokens.

Notably, Const "did everything for Sam," helping Sam build Templar and donating startup funds:

Stronger From Here

It's pretty common sense to note that if Sam were in the right here, and was therefore making a genuine exit from Bittensor with a positive future for his companies in mind, there's not a chance he'd screw over investors and bail with $11 million.

This was a rug pull masked as a frustrated, genuine builder's final resort. We have no doubt that Sam is actively running away to Dubai, or that he's already there.

On a positive note, Sam's gone, but the potential of his subnets to add value to Bittensor isn't (and we'd wager that potential now increases as better leadership can carry the torch). With Sam out of the picture, others can now take over his emissions and build a better version of Covenant's open-source ideas. Moving forward, changes to Bittensor will be made to mitigate a similar situation from happening in the future.

Const said in a post that exploits such as this are where systems learn its weak spots, and that:

"The outcome of this eventful evening is that Bittensor will invent lock-based subnet ownership – specifically: ownership of a subnet determined by a team's long term economic commitment to the project."

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