TensorUSD Whitepaper v1.0
Date: September 24, 2025
1.0 Executive Summary
The TAO-Backed Stablecoin (TUSDT) represents a groundbreaking dual-layer stablecoin architecture that leverages Bittensor's TAO ecosystem and EVM compatibility. This project introduces a novel "Portal-Subnet Architecture" where a hybrid model combines crypto-collateralized stability with subnet-native tokenomics. The system uses a two-token system: an EVM-based TUSDT that maintains a soft peg to $1 worth of TAO, and a subnet-native SUSD that provides deep liquidity and decentralized market-making through AI-powered validators and miners.
Key Innovation: The core innovation lies in using the Bittensor network's competitive intelligence and incentive-based framework to create a self-correcting, resilient stablecoin. Miners, acting as Decentralized Market Makers (DMMs), are incentivized to maintain the SUSD:TUSDT peg. This dynamic model mitigates the volatility inherent in crypto-backed stablecoins and positions TUSDT to capture significant value from the growing Bittensor ecosystem, with TAO's projected price growth.
2.0 Technical Architecture Overview
The TAO-Peg protocol is a multi-layered system designed for security, efficiency, and scalability.
2.1 Portal Side (EVM-Compatible)
The Portal Side serves as the user interface and on-chain financial layer. We recommend deployment on Arbitrum or Optimism due to their lower gas costs, mature DeFi infrastructure, and established Chainlink oracle integrations.
Vault Manager Contract: The central orchestrator of the system. This contract manages key parameters, including:
Collateralization Ratios: A starting over-collateralization ratio of 200% with a liquidation threshold of 150% is recommended to absorb TAO's inherent volatility.
Fees and Penalties: Manages stability fees and liquidation penalties.
Emergency Mechanisms: Contains the logic for emergency pause functions and circuit breakers.
TUSDT Token Contract: An ERC-20 compliant stablecoin. Its minting and burning functions are exclusively controlled by the Vault Manager. It will utilize pausable and upgradeable proxy patterns for enhanced security and future-proofing.
TAO Bridge Infrastructure: A critical component for cross-chain functionality, this infrastructure will follow security best practices, including:
Multi-layered validation requires verification across independent systems.
Time-locked transactions for large transfers to allow for manual intervention if needed.
2.2 Subnet Side (Bittensor Native)
The Subnet Side is the AI-driven core of the project, built upon a dedicated Bittensor subnet leveraging the recent Dynamic TAO (dTAO) upgrade.
SUSD Token Mechanics:
A native subnet token with a floating market value.
The primary constraint is that the market capitalization of SUSD must be greater than or equal to the market capitalization of TUSDT.
Miners function as DMMs, maintaining the SUSD:TUSDT peg through algorithmic trading.
Validators benchmark miner performance using AI models, ensuring oracle accuracy and peg stability.
Dynamic TAO Integration: The protocol benefits directly from dTAO's design, which allocates 18% of TAO emissions to subnet incentives. This creates a powerful economic engine for the SUSD subnet, with registration fees contributing to a deflationary pressure on TAO supply.
3.0 Stablecoin Model Analysis and Risk Mitigation
Our model is an enhanced crypto-collateralized system, chosen for its alignment with decentralized principles and its potential to increase TAO utility.
Advantages: It is fully on-chain, transparent, and increases demand for TAO by locking it as collateral.
Risk Mitigation:
Over-collateralization: The 200% ratio is specifically adapted for TAO's volatility profile.
Liquidation Engine: We will implement a robust, automated liquidation engine, similar to MakerDAO and Compound, with keeper bots to maintain system solvency.
Circuit Breakers: A critical, on-chain mechanism to halt withdrawals during extreme price drops in TAO.
We have explicitly rejected the purely algorithmic model due to its high failure rate (e.g., the Terra/Luna collapse) and its "death spiral" vulnerability during bear markets. Similarly, the fiat-collateralized model was rejected for its centralization and regulatory complexities.
4.0 Oracle Infrastructure and Security
A reliable and secure oracle system is paramount to the protocol's integrity.
Primary Oracle System: We will integrate with Chainlink, the industry-standard decentralized oracle network. Chainlink's multi-node aggregation and proven track record in DeFi (over $6.9 trillion in transaction value enabled) make it the optimal choice. Implementation will include multiple price feed validation and heartbeat mechanisms.
AI-Enhanced Oracle Layer: The SUSD subnet provides a second layer of oracle security. Validators and miners will run AI models for price prediction and anomaly detection, creating a decentralized validation system that cross-references Chainlink data. This enhances security and prevents single points of failure.
5.0 Liquidation and Emergency Mechanisms
Drawing lessons from historical events like "Black Thursday," our liquidation mechanism is designed for resilience.
Automated Liquidation Engine:
Triggers: When a collateralization ratio drops below 150%.
Process: An automated Dutch auction system managed by an incentivized keeper network.
Penalty: A 10-15% liquidation penalty protects protocol reserves.
Emergency Protocols: The system will implement circuit breakers and an emergency pause mechanism. The on-chain CircuitBreaker contract will halt withdrawals:
5% TAO Drop: Withdrawals paused for one hour.
20% TAO Drop: A full shutdown of the withdrawal function. The system will only restart when the TAO price recovers to 100% of its value before the shutdown.
6.0 Governance, Risk Management, and Regulatory Compliance
Decentralized Governance: The protocol will be governed by a DAO with a community-first approach to token distribution. Critical functions, like smart contract upgrades, will require multi-signature approval and timelock mechanisms.
Operational Security: Multi-signature wallets with independent, geographically distributed key holders will be used for all critical operations.
Regulatory Compliance: We are closely monitoring the evolving regulatory landscape, including the GENIUS Act of 2025 in the US and the EU's MiCA regulation. The protocol will maintain transparent reserve reporting and implement a legal framework to ensure compliance.
7.0 Economic Model and Future Vision
Revenue Streams: The protocol will be sustained by stability fees, liquidation penalties, and transaction fees. A portion of subnet emissions and profits from liquidity pool management will also be directed to the treasury.
Future Vision:
Short-Term: Establish TUSDT as the primary payment method for AI services within the Bittensor ecosystem, aiming for a $100M+ market capitalization.
Long-Term: Become the dominant stablecoin for AI/ML blockchain ecosystems, facilitating billions in AI service transactions and launching advanced financial products with lending and browning.
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