Pool Reserves and Native Lending

One pool migration, two uses of liquidity

This upgrade puts balances outside subnet pools' trading range to work as lending inventory. Existing pools move to a translated ellipse while preserving their opening prices and local price sensitivity. The migration uses the baseline ellipse for every pool, without additional tightening of its depth.

Every subnet starts with its minimum price-impact target disabled; a network-wide 1% target remains deferred. Very small trades preserve their opening price response; finite trades differ because the curve has a different shape. The ellipse still has finite buy and sell endpoints, so complete swaps must fit its remaining range and any caller price limits.

The migration transfers globally unreachable alpha and TAO balances into separate vaults. It adjusts the ellipse centers by the same amounts, preserving the rebuilt swap quotes. The assets can be extracted independently, without paired liquidity withdrawal or token creation. Borrowing is enabled only after the complete migration succeeds; an incomplete migration leaves it disabled. Governance can pause new loans without disabling repayments.

A governance dial for price impact

Root governance can set a subnet's minimum ending spot-price movement with Lending.set_min_price_impact(netuid, bps). The fixed reference adds 500 net TAO to the curve on a buy, or sells net alpha worth 500 TAO at the price before that trade. Swap fees are paid in addition to these inputs. Setting 100 basis points selects a 1% minimum in both directions; nonzero settings range from 1 to 5,000 basis points. This measures mechanical price impact, rather than realised volatility or average execution slippage. It does not override fees, caller limits or finite trading endpoints.

Tightening contracts the curve's remaining range around its current trading point, preserving the spot price within fixed-point rounding. Its least-sensitive regions determine a conservative geometric minimum for later complete reference trades, so current impact can exceed the selected minimum. This minimum describes the continuous curve; future executable quotes also include atomic token and fixed-point rounding. Both reference trades must still fit when the target is set; otherwise the call fails atomically. Curve parameters then stay fixed through swaps, without per-trade recalibration.

Newly unreachable alpha and TAO move to the ready lending vault. Existing debt, coupons, collateral and the 24-hour reference stay unchanged. Buy and sell capacity becomes smaller, which can block a short's optional collateral-funded buyback; wallet repayment of its fixed alpha principal remains available. Lowering the target or setting zero relaxes the policy without widening the curve or returning inventory to the AMM. The dial is unavailable during dissolution and adds no public lending CLI command.

Fixed principal, collateral coupons

A short posts TAO collateral and receives real alpha on its selected hotkey. That alpha can be sold, transferred, used or pledged elsewhere; opening makes no AMM sale and locks no sale proceeds. Closing returns the total alpha debt from the saved hotkey and refunds remaining TAO. The owner can instead request a buyback using only remaining collateral. A long posts existing alpha collateral and receives freely transferable TAO. Closing repays the total TAO debt and returns the remaining alpha.

• 25% initial LTV. Historical lending prices and complete, fee-inclusive simulated swap quotes bound each opening; vault inventory must fund it. Shorts protect the delivered alpha and its opening TAO valuation separately.
• Alpha loans also require funded-claim coverage. The combined alpha debt's conservative immediate deregistration value, including payout rounding, cannot exceed 25% of remaining TAO collateral. The bound overestimates the possible payout pot and counts only guaranteed alpha claims after the proposed withdrawal. Legacy subnets protect only protocol alpha because their ordinary payout excludes pool alpha; newer subnets also protect active and latent pool alpha and remaining unloaned vault alpha. Missing bounds or a zero protected claim count with a positive pot refuse borrowing. Every other alpha loan must remain fully covered by its own collateral after accrued interest. Quotes and opening enforce the same checks.
• TAO loans also require funded redemption backing. A new loan cannot exceed 25% of its alpha collateral's conservative funded deregistration value after the withdrawal. This assumes all active AMM TAO could be sold out and counts only unloaned TAO vault inventory. Every existing TAO loan must remain fully covered by its own collateral after accrued interest; one position's surplus cannot cover another's deficit. The runtime quote and opening enforce the same limits.
• 100% nominal annual interest on opening loan value. Coupons are fixed in collateral units, accrue per block and are collected weekly. A 250-TAO opening loan pays about 4.79 TAO per seven days, not 1,000 TAO annually merely because it has 1,000 TAO collateral. There is no additional opening or closing fee.
• Both short and long coupons burn TAO. Short coupons move to the reserve account and then directly to the canonical inaccessible TAO burn address, without an AMM swap or mature price reference. Long coupons sell alpha for TAO only when the full fee-inclusive quote returns at least 98% of the mature lending EMA’s fair output after fees and price impact. Bounded chunking permits smaller acceptable sales. Each sale atomically burns exactly the TAO received; a failed sale or burn retains the backed pending coupon. Favorable prices remain allowed.
• No price-triggered liquidation. Collateral exhaustion forfeits the position and retains assets still held in custody. Unrecovered principal is recorded as a loss. The mechanism accepts credit losses.
• 10% aggregate borrowing cap per asset. The denominator is available vault inventory plus outstanding principal, excluding AMM reserves, borrower collateral and pending interest. Interest burns do not replenish inventory or enlarge the cap; principal repayments replenish the original borrowed asset.

The canonical burn transfers TAO to its inaccessible burn address while both the currency and Subtensor total-issuance counters stay unchanged. Tiny amounts that cannot be credited remain an explicit recycling exception, recorded as DustForfeited.

Debt never falls merely because interest was collected. Each coldkey can hold one position per subnet. Repeating the open command with the same side and hotkey adds collateral and debt to that position. Accrued interest is collected first and the combined position must pass current opening limits. The new annual coupon adds to earlier coupons without repricing them or restarting the weekly schedule. Quotes describe the additional borrowing; closing repays the total principal.

The lending reference is a dedicated geometric EMA with a 24-hour half-life, fixed before the current block's trades and updated with clipped observations. This limits abrupt valuation changes without claiming that manipulation is impossible.

V1 bounds processing to 256 funded subnet vaults, 256 open positions across the chain and 128 per subnet. When vault capacity is full, additional pools keep their reserves in the AMM until a retired subnet vault frees a slot for automatic admission. Borrowers must close before changing their own keys. Nominated positions follow actual validator hotkey stake migrations.

Subnet deregistration

Deregistration freezes interest and both the 24-hour lending EMA and existing 2-hour fast EMA. Existing beta-basket holdings convert to funded root cash first; endpoint-blocked holdings receive funded redemption into their original fund. Pending TAO coupons are burned and unloaned reserve assets return before the ordinary funded payout pot and eligible alpha claims are fixed. Alpha holders, including holders of freely borrowed alpha, then receive ordinary pro-rata redemption.

A short's fixed alpha debt is valued at the higher of the two frozen EMAs and its actual funded redemption value, with conservative rounding. That debt is recovered from remaining TAO collateral; any surplus returns to the owner and any shortfall is recorded. Longs accumulate their collateral's actual TAO redemption receipts and repay fixed TAO debt from those receipts. Both kinds of principal recovery remain outside the already-fixed payout pot and go to global protocol recovery. There are no terminal lending swaps or assumed repayments of freely transferred assets.

Terminal recovery from a short cannot exceed its remaining TAO collateral. The 25% opening market LTV and conservative funded-claim checks constrain admission, while subsequent pool or claim changes and interest deductions can still weaken coverage. Conservative terminal valuation cannot create missing funds; the design accepts unrecovered principal as a loss.

Pending alpha coupons stay ordinary vault stake through global settlement; only their actual funded TAO receipts are burned. Unfunded alpha produces no TAO burn. Tiny refunds that cannot recreate a reaped account are explicitly recycled and recorded as DustForfeited. Cleanup finishes before the subnet identifier can be reused.

Alpha collateral receives ordinary funded pro-rata redemption, with no priority over other holders and no promised EMA payout. The additional borrowing check constrains withdrawals rather than changing settlement. Interest deductions and changes in alpha claims can still weaken future coverage, so the design continues to accept credit losses.

Three CLI commands

btcli lending open --netuid 64 --side short --collateral 1000 -w mywallet
btcli lending close --netuid 64 -w mywallet
btcli lending list --netuid 64

Use the SDK shipped with the lending runtime. Open and close take full runtime quotes for the owner and hotkey, and default to a 1% margin on caller protections. The same open command can increase a matching position. Failed quotes stop submission, and failed bounds roll back the complete transaction. The pool lending guide explains long collateral, wallet alpha repayment, optional collateral-only buyback, reserve accounting and settlement in detail.