Common Risk Factors in Decentralized AI Subnets
Abstract
I derive a size premium from the constant-product automated market maker used to price Bittensor subnet tokens and test the prediction using daily data on 128 subnets. A small-minus-big factor earns 1.01% daily (Newey-West t = 3.28). The December 2025 halving of token emissions, which the theory predicts should halve the premium, reduces it from 1.17% to 0.51% (p = 0.044). Exact slippage calculations show the premium is implementable only below \10K in assets under management; at \100K, transaction costs exceed gross returns.
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