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Collateral and Risk

Forge is a Bittensor-native money market, so its most important job is risk control. Suppliers need confidence that borrowed TAO is backed by enough collateral. Borrowers need clear rules for how much they can borrow and when liquidation happens.

Forge uses a conservative money-market risk model adapted for Bittensor-native assets.

Collateral factor

The collateral factor controls how much a user can borrow against a supplied asset.

If an Alpha market has a 25% collateral factor, then 100 TAO worth of eligible Alpha collateral supports up to 25 TAO of borrowing.

Lower collateral factors are more conservative. They give the protocol more room to react if collateral value falls.

Liquidation threshold

The liquidation threshold is the account-health boundary. If a borrower's debt becomes too large relative to collateral value, the account can be liquidated.

Liquidation lets a third party repay part of the borrower's TAO debt and receive collateral in return. This is how Forge keeps risky accounts backed by enough collateral and protects TAO suppliers.

Current per-market collateral factors and liquidation thresholds are listed in Markets, Rates, and Parameters.

Why Alpha is collateral-only

Forge treats Alpha markets as collateral-only. Users can supply Alpha exposure and borrow TAO, but they cannot borrow Alpha from the protocol.

This keeps the market focused on the primary user need: unlocking TAO liquidity from Alpha exposure. It also avoids adding extra complexity around native Alpha custody, oracle pricing, liquidation conversion, and staking-reward accounting.

Native Alpha custody

Native Bittensor Alpha is not a normal ERC20 token. It is stake associated with a subnet, a hotkey, and a coldkey. That means Forge cannot treat Alpha collateral exactly like a standard token balance.

The wAlpha / vWAlpha design uses the Bittensor staking precompile so that an EVM contract can own and manage Alpha stake through its mapped Substrate coldkey. The contract-aware transfer path is made possible by staking precompile support for approve and transferStakeFrom, added in opentensor/subtensor PR #2478.

Forge contracts can:

  • hold native Alpha stake
  • receive Alpha through stake transfer flows
  • convert Alpha stake back into TAO only when the price is within the allowed limit
  • receive native TAO in the same transaction after a successful Alpha exit.

This is what makes Alpha-backed TAO borrowing possible without pretending Alpha is a standard ERC20 asset.

Liquidations with Alpha collateral

Liquidations are routed through Forge's Liquidator contract. The liquidation bonus is split between the liquidator (the caller) and the protocol, with the protocol share routed to the protocol reserve.

For Alpha-backed collateral, the liquidation flow has an Alpha-aware path:

  1. The liquidator repays part of the borrower's TAO debt.
  2. Forge seizes the borrower's vWAlpha collateral.
  3. The seized Alpha position is converted to native TAO through the staking precompile, using a price limit to avoid a bad exit price.
  4. The liquidator receives the liquidator share in native TAO.
  5. The protocol share is routed to the protocol reserve.

Price protection means the Alpha exit must happen at an acceptable price. If the exit would happen outside that limit, Forge cancels the whole liquidation transaction instead of completing it at a bad price.

Liquidation terms users may see

Forge uses a few liquidation settings that are useful to understand:

  • Liquidation incentive: the bonus paid out when a liquidator repays unhealthy debt and takes collateral. Forge's Liquidator splits this bonus between the liquidator and the protocol.
  • Protocol seize share: the portion of seized collateral that the Liquidator routes to the protocol reserve rather than the liquidator.
  • Bad debt: debt that remains when collateral is not enough to repay the borrower's position. Reserves and protocol policies determine how bad debt is handled if it ever occurs.

Current values are listed in Markets, Rates, and Parameters and shown in the Forge app.

Alpha exit and dust risk

Bittensor staking has runtime rules that can affect small residual positions. A partial Alpha exit can remove more Alpha than requested when the remaining nomination falls below the runtime minimum. Forge checks live Alpha stake before and after custody-changing calls so accounting follows what actually happened on Bittensor.

For users, the simple takeaway is:

Small Alpha positions and partial exits can behave differently from ordinary ERC20 withdrawals. Forge accounts from live Bittensor stake, not only from requested transaction amounts.

Main user risks

Forge users should understand these risks before supplying or borrowing:

  • Market risk: Alpha value can fall, reducing borrowing power.
  • Liquidation risk: borrowing too close to the limit can lead to liquidation.
  • Interest-rate risk: borrow rates can rise when TAO liquidity is heavily used.
  • Oracle risk: collateral value depends on pricing infrastructure and update policy.
  • Liquidity risk: liquidators must be able to exit or value seized collateral.
  • Bittensor runtime risk: staking precompile behavior, minimum stake rules, and rate limits can affect Alpha movement.
  • Smart-contract risk: see Audits for review status.
  • Parameter-change risk: caps, rates, oracle settings, collateral factors, and pause settings are controlled by the Forge Guardian Multisig (see Markets, Rates, and Parameters).

Practical safety tips

Borrowers should leave a buffer below their maximum borrow amount, repay early if collateral value falls, and avoid relying on instant exits from small Alpha positions.

Suppliers should remember that their yield depends on root yield, borrower demand, and protocol solvency. Conservative parameters, functioning liquidations, and reliable oracle pricing are what protect supplied TAO.