Shorting (PR #2764) — Fixed-Liability Covered Continuous-Unwind Model

Status

Pending — not yet on mainnet

Last reviewed

2026-06-27

Source PR

opentensor/subtensor#2764

Not live on mainnet

This page describes Subtensor PR #2764, the v3.6.1 Fixed-Liability Covered Continuous-Unwind Model for shorting alpha tokens. The runtime flag ShortsEnabled defaults to false and the feature is gated behind the trading-games activation. Do not make production decisions assuming shorts are available on mainnet. When the flag flips, this section will be re-reviewed and cross-cut into tokenomics, staking, and chain pages.

What covered shorting is

A covered short on Bittensor is a leveraged bearish bet on a subnet’s alpha token. You fund a TAO floor P (your max loss), borrow a fixed quantity of alpha Q from the subnet pool at today’s price, and profit if alpha depreciates. To close, you buy Q back from the pool — if the price fell, the buyback costs less than your retained buffer R and you keep the difference. If the price rose, the buyback eats into R and then into P.

Crucially, there is no margin liquidation. There is no liquidation price to target, no short squeeze, no MEV-driven forced close. Default happens only on time — when the retained buffer decays to a dust threshold — or on subnet deregistration. Your maximum loss is capped at the floor P you funded at open.

The model matters for subnet economics because it injects discipline without leaving TAO stranded. Every τ removed from the pool at open is returned: via daily decay (R and E drift back into reserves over the position’s life), via the close settlement, or — if the trader abandons — via recycling P into the TAO emission pool as tao_in. There is no path that permanently drains pool reserves.

Pages in this section

• Explainer — conceptual walkthrough: the letter glossary, opening a short, daily decay, the three close scenarios, how you lose, and why subnets benefit from this model.
• Flow — ledger story — the same short followed in three parts (open / decay / three closes) with full TAO/α/Price/P/E/R/Q ledger tables and the close-decision rule at the end.
• Technical reference — spec-to-Subtensor notation map, closed-form open math, per-block decay pseudocode, the three close paths, storage layout (ShortPosition and ShortAgg Rust structs), governance parameters, the four extrinsics (call indices 139–142), reserve accounting model, and terminal deregistration settlement.
• Simulator — interactive simulator for opens, closes, and decay trajectories. Loads Chart.js from a CDN; otherwise self-contained.

Source

These pages are the canonical migration of Rufus’s HTML explainers, authored against the PR #2764 specification (DESIGN.md §1–17 and IMPLEMENTATION_PLAN.md). Where wording works, it has been preserved lock, stock, and barrel.