Bittensor (TAO) dropped nearly 25% after Covenant AI made an exit, accusing co-founder Jacob Steeves of having too much control over governance. Analyst Michaël van de Poppe explained that the real damage came when Covenant’s founder dumped 37K TAO, triggering panic selling and liquidations.

That triggered a deeper chain reaction:

• Validators lost stake = consensus power dropped
• Rewards declined = incentives weakened
• Confidence slipped = more users exited

All of this created a classic negative spiral, with trust taking a direct hit.

Despite the chaos, the team responded with updates like Teutonic-I and a new proposal (BIT-0011) aimed at preventing similar sell-offs in the future.

However, the analyst sees this as a major stress test and…