Tunable pool depth and reserve lending

This upgrade gives subnet pools a configurable price response and uses balances outside the resulting curve's trading range to fund a separate lending vault. The initial calibration asks for at least a 1% fall in ending spot price when alpha worth 500 TAO at the opening price is sold. Borrowers can then open custodial shorts or borrow transferable TAO against alpha collateral.

This page describes the proposed implementation. It is not a mainnet launch announcement. Borrowing is enabled only after the complete pool migration succeeds. If migration cannot complete, it stays disabled. Governance can pause new loans; repayment remains available independently of that safety switch.

Pool calibration and migration

Each dynamic subnet pool moves from weighted Balancer pricing to a translated ellipse, a superellipse with exponent two. The migration chooses scales and centers that preserve the pool's opening price. If the baseline curve already responds sufficiently to the reference sale, it keeps that sensitivity; otherwise it shrinks the scales until the complete reference sale meets the configured minimum ending price impact. Governance can change that minimum.

The reference is a fixed 500 TAO, converted into an alpha amount at the pool's opening spot price and rounded up to whole atoms. Its 1% target excludes swap fees. It describes the ending spot price, rather than a 1% loss on the trade's average execution price. Purchases use the same curve, but a finite buy and a finite sale need not have exactly equal percentage impact.

Calibration happens once. The parameters do not change after every swap, and later liquidity injections preserve the existing curve response instead of recalibrating it. The target is therefore a property of the calibration state, not a promise that every future 500-TAO-equivalent sale has the same impact.

Some pools cannot execute the entire reference sale within the safe baseline range. Those pools keep that baseline and report reference_limited; they do not claim to meet a target on a trade they cannot complete. Empty pools and root are not funded by this migration. Later tuning must respect the runtime's borrowing checks; it cannot treat inventory already lent out as immediately available.

Where lending inventory comes from

An ellipse has finite trading endpoints. At the sell endpoint its marginal alpha price reaches zero. At the buy endpoint its marginal price grows without bound. A valid swap stays inside that positive-price range, respects the remaining capacity, and never executes at zero or infinite price.

Consequently, some physical alpha and TAO cannot be withdrawn through swaps while these parameters stay fixed. The migration calculates these global reserve floors and transfers them into the lending vault. It subtracts each extracted amount from the corresponding ellipse center as well as the active reserve, preserving the translated coordinates and the calibrated swap quotes. Alpha and TAO can be extracted independently; paired proportional liquidity withdrawal is unnecessary. The transfer creates no new tokens.

The accounting separates active AMM reserves, available lending inventory, outstanding principal, borrower collateral, locked short proceeds and collected interest awaiting a TAO burn or alpha conversion. Extracted balances become real lending assets; they are not also available to pay swaps.

Open and close a short

A short locks TAO collateral and borrows alpha. The contract immediately sells that alpha through the subnet AMM and locks the resulting TAO proceeds. In v1 neither the borrowed alpha nor the proceeds move freely outside the position. There is one position per coldkey and subnet.

For collateral C and lending reference price E, alpha debt D is bounded by both D × E ≤ C / 4 and net actual opening sale proceeds of at most C / 4. The complete sale must execute. This combines the historical reference with current executable depth and includes swap fees; a hypothetical alpha purchase is not required to open a short. Available inventory and the aggregate borrowing cap must also permit the loan. A caller supplies separate minimum alpha principal and minimum net TAO proceeds; the latter protects the opening sale even when the historical reference keeps alpha debt unchanged.

For example, 1,000 TAO collateral can support an opening loan valued at up to 250 TAO. Suppose its fixed debt is 700 alpha. That debt stays 700 alpha until repayment; coupons do not amortize it.

At an ordinary close, the contract buys back the fixed alpha debt using locked TAO through at most six internal orders in one atomic operation, returns the alpha to the vault and refunds the remaining TAO. If the buyback cannot execute within the curve's capacity or the locked funds, that close fails without changing the position. Alternatively, the owner can supply the original alpha principal from the saved hotkey, avoiding the buyback entirely. Both paths collect interest accrued through the closing block.

Borrow TAO against alpha

A long locks existing free alpha stake from a selected hotkey. The contract loans TAO from the separate vault directly to the coldkey's free balance. That TAO may be transferred, used to buy alpha or used elsewhere. Assets purchased with it are not assumed to remain in contract custody.

For alpha collateral A, the TAO debt is the smaller of A × E / 4 and the net TAO proceeds of a simulated sale of A / 4. This simulation does not sell the locked collateral. The full quote must execute and pass the vault inventory and borrowing-cap checks.

Closing requires the owner to repay that original TAO principal from free balance. The remaining alpha collateral is then returned to the saved hotkey. The loan does not automatically reverse trades the borrower made elsewhere.

Interest and forfeiture

The launch rate is 100% nominal annual interest on opening loan value, fixed in collateral units at opening. For shorts, annual TAO interest equals the net TAO proceeds of the actual opening sale. For longs, the TAO principal is converted into alpha at the opening lending reference, rounded up; that fixes annual alpha interest. Later market prices do not change the collateral coupon. There is no additional fee for opening or closing a loan.

Interest accrues per block. Collection is scheduled weekly and processed within the chain's available weight budget. A 250-TAO opening loan pays approximately 4.79 TAO per seven days on a 365-day year. With 1,000 TAO collateral and no earlier close, that corresponds to approximately four years of coupons. It is not 100% interest on the entire 1,000-TAO collateral.

Both short and long coupons burn TAO. A short already pays interest in TAO: the collected coupon moves to the vault's reserve account and then to the canonical inaccessible TAO burn address (BurnAccountId). This needs no AMM swap or mature price reference.

A long pays interest in collateral alpha. The chain sells that alpha through the existing executable AMM path and burns exactly the TAO it receives. The complete, fee-inclusive sale must return at least 98% of a mature lending EMA's fair output, including fees and price impact. Bounded chunking can sell a smaller acceptable amount; favorable prices are allowed. The sale and exact TAO burn are atomic: if either fails, the original alpha remains pending in custody. A failed short-coupon burn likewise retains the collected TAO for retry.

Collected interest does not replenish available loan inventory or enlarge the borrowing cap. The canonical burn transfers TAO to the inaccessible burn address; both the currency and Subtensor total-issuance counters remain unchanged. It does not use TAO recycling, which reduces issuance.

A TAO coupon too small to initialize an empty destination account remains an explicit dust exception: it is recycled and recorded as DustForfeited, rather than credited or reported as an interest burn. This can apply to a tiny first coupon when a vault holds only alpha.

There are no price-triggered liquidations. When collateral is exhausted, the chain forfeits and finalizes the position, retains assets still held in custody, and records unrecovered principal as a loss. In particular, retained short TAO is credited as TAO, not described as repayment of alpha that was never returned. The borrower cannot later revive a forfeited position to recover its assets. This mechanism deliberately accepts credit losses; a high coupon and low LTV do not guarantee principal recovery.

Reference price and borrowing limits

Loans use a dedicated geometric price EMA with a 24-hour half-life at normal 12-second blocks. It is updated once per completed block, so the reference for an opening is fixed before that block's trades. Each observation is clipped between half and twice the previous reference before updating. Existing price history is retained during the price-preserving migration; references without valid history must warm up before borrowing.

The reference does not make manipulation mathematically impossible. The executable-depth checks, custody and borrowing caps provide additional limits. The chain does not impose a blanket borrowing pause merely because spot and the EMA disagree.

At launch, outstanding borrowing in each asset may not exceed 10% of that asset's funded vault inventory: available inventory plus outstanding fixed principal. This is an aggregate subnet cap, not a per-user allowance or a share of circulating subnet supply. Collateral, locked proceeds, AMM reserves and pending interest do not enlarge it. Principal repayments replenish inventory in the original borrowed asset; interest burns do not. Written-off principal reduces the funded base.

V1 supports at most 256 funded subnet vaults, bounding reference-update work. When those slots are full, additional pools retain their reserves in the AMM and cannot open loans. Automatic admission checks at most one subnet per block and resumes funding after a completed subnet deregistration frees a vault slot. The pool calibration still applies to those deferred subnets.

V1 additionally limits open positions to 128 per subnet and 256 across the chain. Closing releases position slots. A borrower's own coldkey and hotkey changes, and curve recalibration on a subnet with open positions, are blocked until closing. If a validator moves a hotkey's nominated stake, positions follow the actual stake migration so their repayment source and collateral destination remain correct. Keeping stake on the old hotkey also keeps the position's source there.

Subnet deregistration

Deregistration stops new loans and freezes a common interest cutoff. The short settlement price is the greater of spot and the lending EMA at that cutoff. Existing beta-basket holdings first convert to funded root cash through their own AMM path. Holdings that cannot fully sell at a curve endpoint retain their alpha for ordinary funded redemption, which is credited to the originating validator's root cash slot. Lending positions then settle in bounded batches without AMM swaps. Custodial shorts settle against their remaining TAO collateral and sale proceeds; the owner receives any surplus and the chain records any shortfall. Collected pending TAO interest is burned before reserve inventory is returned. Recovered cash and remaining uncommitted lending inventory enter the funded dissolution pot before ordinary alpha redemption amounts are fixed.

Pending alpha interest stays ordinary vault stake through global settlement. The chain burns only the actual funded TAO redemption receipts for that interest, without an AMM swap. Alpha with no funded TAO receipt produces no TAO burn; a spot or EMA valuation is not a funded receipt.

Longs accumulate actual funded TAO redemptions across all of the position escrow's alpha holdings, then settle once after every redemption is complete. They do not promise to pay an EMA or spot valuation. A long owing 50 TAO whose collateral redeems for 70 TAO repays 50 and refunds 20. If it redeems for 20 TAO, the chain recovers 20 and records a 30-TAO loss. Freely transferred TAO is not reclaimed from elsewhere. Recovery is routed separately from the already-fixed payout pot to avoid counting the same funds twice.

Tiny terminal refunds below the account minimum cannot recreate a reaped account. These amounts are recycled explicitly and recorded as DustForfeited; the settlement event reports only the refund actually credited.

Position and custody records must finish cleanup before the subnet identifier can be reused. Deregistration is terminal settlement, despite the absence of price-triggered liquidations during normal operation.

Three CLI commands

Install the SDK release shipped with the lending runtime. Use your intended network and wallet; the examples below use subnet 64 as an example, not a statement that its lending vault is enabled or has sufficient inventory.

# Lock 1,000 TAO and open a custodial alpha short.
btcli lending open --netuid 64 --side short --collateral 1000 -w mywallet

# Lock 700 free alpha from this hotkey and receive transferable TAO.
btcli lending open --netuid 64 --side long --collateral 700 --hotkey <hotkey> -w mywallet

# Repay the original debt and release remaining collateral.
btcli lending close --netuid 64 -w mywallet

# A short can instead repay with alpha already held on its saved hotkey.
btcli lending close --netuid 64 --repay-from-wallet -w mywallet

# List all positions on a subnet, or one owner's position.
btcli lending list --netuid 64
btcli lending list --netuid 64 --coldkey <coldkey>

Open and close obtain full fee-inclusive quotes from the runtime. By default, --max-slippage 1 sets an opening principal floor and, for shorts, a separate TAO proceeds floor, or a closing payment ceiling and refund floor, with a 1% margin. The entire call rolls back if its bounds fail. An unavailable quote stops submission instead of silently dropping protection. Writes use the existing wallet, review, signing and MEV-shield submission flow.

The SDK also exposes block-pinned reads through client.read: pool_depth, lending_reserves, lending_position, lending_positions, lending_open_quote and lending_close_quote. Low-level OpenLoan and CloseLoan intents accept exact amounts and explicit quote bounds for callers that build their own transaction flow.