Why Subnets Will Outperform Traditional Companies

Note: Full article below was written by Phil.

From economics to biology, decentralization combined with competition has repeatedly proven to be the best environment for producing resilient, high-performance systems. This article looks at subnets as an organizational methodology and compares them to traditional hierarchical (boomer) companies.

Competition as the Edge

Centralized systems with limited competition tend to stagnate. A frequently cited example is the planned economy of the Soviet Union: production quotas were centrally defined, competition was absent, and incentives were misaligned. The result was chronic shortages, long waiting periods for basic consumer goods, and low product quality – famously illustrated by the years-long wait for a Trabant.

In contrast, the Western automotive industry evolved within decentralized and highly competitive markets. Manufacturers competed on price, quality, and innovation, leading to rapid technological advancement and increasingly affordable products.

Biology follows a similar principle. Through competition and selection pressure – often summarized as “survival of the fittest” – nature produces highly specialized and efficient organisms. Weak adaptations disappear; strong ones compound.

Subnets apply these same principles to organizational design.

Subnets vs. Traditional Companies

At a high level, subnets resemble classical organizational hierarchies.

Subnets

• Owner – Defines the challenge and publishes validator code
• Miners – Compete to solve the challenge
• Validators – Evaluate and score miner performance

Traditional Companies

• Founder – Sets the strategic goal
• Workers – Execute on the goal
• Managers – Evaluate performance and allocate rewards

Structurally, these systems appear similar. The critical difference lies in how incentives, competition, and accountability are enforced.

The Core Difference: Market Competition

Miners vs. Workers

Miners operate without employment contracts and without guaranteed salaries. Every epoch, they must outperform competing miners to earn rewards. Performance is continuously measured, and underperforming miners are displaced by better ones.

Workers in traditional organizations, by contrast, typically receive fixed monthly salaries. While many perform excellently, the system allows for extended periods of low productivity with limited downside. Competition is muted, and replacement costs – organizational, legal, and social – are high.

Subnets enforce continuous performance pressure by design.

Validators vs. Managers

Managers are usually compensated through fixed salaries and discretionary bonuses. In many organizations, bonuses depend on internal reporting and subjective evaluation, which can incentivize short-term optimization or cosmetic improvements rather than genuine value creation. Competition among managers is limited.

Validators, however, compete directly with one another. They earn a fee – up to 18% of 42% of alpha token emissions -only as long as users delegate stake to them. If another validator offers better performance or lower fees, stake can be reallocated with minimal friction.

This creates a permissionless, market-driven accountability mechanism that traditional management structures struggle to replicate.

Subnet Owners vs. Founders

Founders must ensure they can meet payroll every month, regardless of short-term performance. This creates fixed cost pressure and often requires raising capital – frequently by selling tokens at lower valuations.

Subnet owners, by contrast, benefit from Bittensor’s tokenomics, which subsidize miner and validator incentives through emissions. This does not remove responsibility – it reframes it.

TAO emissions via TAO Flow are tied to the net buy volume of a subnet’s alpha token. To keep the system funded, subnet owners must continuously attract external demand for their alpha. In practice, this means steering the subnet toward real, external value creation.

The make-or-break condition remains the same in both systems: leadership must successfully capture external value. Subnets simply surface failure faster.

Conclusion

Subnets outperform traditional organizational forms because they hard-code competition, performance pressure, and market feedback into their structure. There are no guaranteed salaries, no protected middle layers, and no long-term shelter for underperformance.

Like competitive markets and biological systems, subnets reward efficiency, adaptability, and real output. Weak participants are replaced. Strong ones compound.