Subnet

TensorUSD Subnet Architecture (SN113)

Introduction

TensorUSD (SN113) is a reserve-backed stablecoin subsystem within the Bittensor ecosystem designed to maintain 1:1 redeemability with the US Dollar. The subnet operates through a dual-mechanism incentive model that coordinates decentralized liquidation execution and price oracle maintenance.

The subnet implements two parallel incentive mechanisms:

• Mechanism 0: Liquidation Auction Participation (99% of total miner rewards)
• Mechanism 1: Price Oracle Contributions (1% of total miner rewards)

Both mechanisms run independently with separate reward systems, allowing miners to specialize or participate in both for maximum earnings.

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Dual-Mechanism Architecture

Mechanism 0: Liquidation Auctions

When collateral backing a vault becomes insufficient (collateral ratio drops below threshold), the system liquidates collateral via an auction process. Miners compete to acquire collateral at profitable prices while covering vault debt.

Key Activities:

• Monitor liquidation auctions in real-time
• Evaluate profitability using live collateral prices
• Submit competitive bids on-chain
• Execute winning bids to acquire collateral

Reward Model:

• Base reward: 1.0 for paying exactly the debt amount
• Bonus scaling: Up to 1.2x for overbidding 20%+ above debt
• Multiple auction wins accumulate rewards
• Rewards distributed via mechid=0 weights

Mechanism 1: Price Oracle

Maintains accurate TAO/USD pricing by aggregating price submissions from multiple miners. The oracle uses a median-based consensus mechanism to ensure price reliability for the vault system.

Key Activities:

• Fetch TAO/USD price from CoinMarketCap API ( Room for improvement for miners)
• Submit price data to oracle contract periodically (every 5 minutes)
• Participate in multi-reporter consensus rounds
• Maintain price accuracy for collateral valuation

Reward Model:

• Rewards based on price submission accuracy and timeliness
• Consensus participation (submitting prices close to median)
• Consistent oracle uptime and reliability
• Rewards distributed via mechid=1 weights

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System Components

A) Miners

Miners participate in one or both mechanisms to earn TAO emissions.

Mechanism 0 Miner (Liquidation)

Core Responsibilities:

1. Monitor Auctions: Listen to auction contract events for new liquidations and outbid events
2. Evaluate Profitability: Calculate expected profit using live collateral price from oracle
3. Bidding Strategy:

   • Initial bid: debt × (1 + initial_percentage)
   • Increment when outbid: current_bid × (1 + increment_rate)
   • Respect max bid limits and minimum profit margins
4. Submit Bids: Execute on-chain transactions with hotkey metadata
5. Token Management: Approve TUSDT spending for auction contract

Configuration Options:

--bid.initial_percentage=0.0005    # Start at debt + 0.05%
--bid.increment_rate=0.0005        # Increase by 0.05% when outbid
--bid.max_percentage=0.95          # Maximum bid as % of collateral value
--bid.min_profit_margin=0.0002     # Minimum 0.02% profit required

Mechanism 1 Miner (Price Oracle)

Core Responsibilities:

1. Fetch Market Price: Query CoinMarketCap API for TAO/USD spot price
2. Format Price: Convert to u128 ratio format (price × 10^18)
3. Submit to Oracle: Submit price on oracle contract with hotkey metadata
4. Maintain Uptime: Submit prices at regular intervals (default: 300 seconds)
5. Monitor Rounds: Track current round ID and submission status

Configuration Options:

--oracle_contract.address=5FHneW...  # Oracle contract address
--cmc.api_key=YOUR_API_KEY           # CoinMarketCap API key
--price.submission_interval_seconds=300  # Submit every 5 minutes

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B) Validators

Validators ensure correctness and fairness by tracking on-chain activity and distributing rewards appropriately. Each mechanism has its own independent validation and reward calculation logic.

Dual-Mechanism Validation Architecture

Validators run two independent forward passes that sync separately:

┌─────────────────────────────────────────────────────────────┐
│                    Validator Main Loop                      │
│                                                             │
│  ┌──────────────────────┐      ┌──────────────────────┐     │
│  │   Forward Mech 0     │      │   Forward Mech 1     │     │
│  │  (Liquidations)      │      │   (Price Oracle)     │     │
│  │                      │      │                      │     │
│  │  1. Query DB for     │      │  1. Get round data   │     │
│  │     auction wins     │      │     from oracle      │     │
│  │  2. Calculate        │      │  2. Calculate        │     │
│  │     rewards          │      │     rewards          │     │
│  │  3. Update scores    │      │  3. Update scores    │     │
│  │                      │      │                      │     │
│  │  ↓ (on completion)   │      │  ↓ (on completion)   │     │
│  │                      │      │                      │     │
│  │  - set_weights(0)    │      │  - set_weights(1)    │     │
│  └──────────────────────┘      └──────────────────────┘     │
│           ↑                              ↑                  │
│           └──────── Run Concurrently ────┘                  │
│              (Independent sync cycles)                      │
└─────────────────────────────────────────────────────────────┘

Key Features:

• Both mechanisms run in parallel
• Each mechanism syncs independently when its forward completes
• Faster mechanism doesn't wait for slower one
• Separate scores for each mechanisms

Mechanism 0 Validator (Liquidation)

Core Responsibilities:

1. Event Listening: Background thread monitors auction contract events

   • AuctionCreated: New liquidation auctions
   • BidPlaced: Miner bids submitted
   • AuctionFinalized: Auction winners determined
2. Database Persistence: Store auction outcomes in SQLite

   • Table: auction_wins
   • Schema: auction_id, vault_id, vault_owner, bidder, hotkey, amount, tempo_block
3. Reward Calculation (every ~180 blocks):

   • Query unprocessed wins within tempo window
   • Calculate per-miner rewards:

     base_reward = 1.0
     BONUS_THRESHOLD = 0.20  # 20% overpay for max bonus
     if bid_amount > debt:
         bonus_ratio = min((winning_bid - debt_balance) / debt_balance, BONUS_THRESHOLD)
         reward = bonus_ratio + BASE_REWARD
         return reward    reward = base_reward + bonus

   • Aggregate rewards by hotkey UID
   • Mark processed wins with current tempo_block
4. Weight Setting: set weights with mechid=0

Mechanism 1 Validator (Price Oracle)

Core Responsibilities:

1. Round Monitoring: Track oracle contract rounds

   • Get current round ID via current_round_id()
   • Monitor round progression and finalization
2. Submission Tracking: Query price submissions per round

   • Call get_round_submissions(round_id)
   • Extract miner hotkeys from submission metadata
   • Verify submission timeliness and accuracy
3. Reward Calculation:

   • Fetch median price for completed rounds via get_round_price(round_id)
   • Calculate accuracy scores (submissions close to oracle price)
   • Reward consistent participants
4. Weight Setting: set weights with mechid=1