Collateralization & Pegging
Every TUSDT in circulation is backed by excess collateral (overcollateralization), meaning the market value of collateral is higher than the value of outstanding TUSDT debt at the protocol’s target price. All positions, collateral movements, liquidations, and protocol-level settlement flows are transparently verifiable on-chain.
TUSDT is also the settlement asset of the TensorUSD Protocol (borrowers use TUSDT to pay interest fees).
TUSDT is minted against TAO in Phase 1. Asset Backing Collateral Vault primarily includes only TAO and US-Dollar in combination. However, in Phase 2 TUSDT can be minted through lending protocol of few approved assets like subnet alpha tokens linked with TAO.
There are risk parameters appropriate to volatility and liquidity profile of every associated assets. More stable assets can be assigned more permissive parameters; riskier assets require stricter settings.
Common risk parameters include:
Liquidation Ratio (LR) (minimum collateralization requirement)
Stability / Interest Fee (cost of maintaining debt over time)
Liquidation Penalty (extra haircut charged on liquidation)
Debt Ceiling / Supply Cap (max TUSDT minted against a collateral type at a time)
Oracle configuration (feeds, delays, fallback rules)
Liquidation Ratio (LR)
TUSDT maintains the minimum required collateralization in its vault to back 1:1 redemption of TUSDT for US dollar at any time called Liquidation Ratio (LR). During phase 1, TUSDT are issued against minter-level TAO with excess collateral from protocol-level subnet liquidity. During phase 2, TUSDT are issued against lending assets like TAO or subnet tokens with excess collateral from minter-level assets.
Phase 1: Since $1 worth TAO mints 1 TUSDT, it is immediately liquidated for user-side. But Asset Backing Collateral Vault (ABCV) maintains collateral TAO with LR at 150% through subnet liquidity and DMM protocol. User can redeem 1 TUSDT for $1 USD value at anytime anywhere.
Phase 2: Minting TUSDT with other approved high risk asset - Subnet Tokens, it requires higher LR up to 500%.
Example, user can lock $5 worth of SN64 Chutes token to mint 1 TUSDT when LR = 500%. After paying backing 1 TUSDT + interests, user can unlock the collateral of SN64 Chutes.
Collateralization Ratio
TensorUSD maintains it Asset Backing Collateral Vault (ABCV) to soft-peg TUSDT for US dollar. This ensures each TUSDT is redeemable 1:1 for US dollars with 24/7 liquidity for near-instant, low-cost boderless payments. Collateralization Ratio (CR) is defined as:
CR = (Collateral Amount × Collateral Price) / Outstanding TUSDT Supply in Circulation × 100%
Collateralization Ratio (CR) is always maintained above Liquidation Ratio (LR).
TensorUSD requires timely market price data for the collateral held in its Collateral Vaults to determine when to initiate liquidations and conduct collateral auctions.
To reduce the risk of manipulation—the protocol does not consume oracle prices directly. Instead, it ingests pricing data via an Oracle Security Module (OSM), which functions as a protective intermediary between the oracle layer and the core protocol. Emergency Oracles or TensorUSD governance can intervene, including freezing a compromised oracle before erroneous prices propagate into liquidation logic.
Stability / Interest Fee
Phase 1: There is no interest fee for minting TUSDT against TAO as liquidation is immediate on user-side.
Phase 2: There are varying interest rates for minting TUSDT against lending other assets like subnet tokens. Interest rates must be paid using TUSDT on due dates to avoid penalty fee. Interest rates accumulate over time that increases Liquidation Ratio. To unlock the collateral used, total minted TUSDT + unpaid interests must be cleared.
Liquidation Penalty
Phase 1: Not applicable.
Phase 2: Liquidation Penalty is a percentage (starting off with 11%) of the Vault's contents when the Vaults are liquidated.
Debt Ceiling / Supply Cap
There is no hard cap on TUSDT tokenomics. However, supply cap is dynamically maintained through subnet architecture on DMM (decentralized market making).
Phase 1: There is a real-time cap on how much TUSDT can circulated at any time. It is defined by subnet emission and DMM activities of miners.
Calculation:
Let:
C = current ABCV value in USD (use a conservative TAO price Pmin)
S = current TUSDT supply (USD)
CRt = 150%
Rd = rd⋅Pmin = net TAO inflow today (USD/day)
m ∈ (0,1] = safety factor (e.g., 0.5–0.8)
ΔS = net new TUSDT minted today (USD)
Simplifying this,
Daily supply growth supported while holding 150% is about:
At m = 0.7, Rd = 2, Pmin = 250, ΔSmax,day = 2 * 0.7 * 2 * 250 = 700 TUSDT
Phase 2: On each asset type Subnet Token, a debt ceiling is dynamically defined based on liquidity of subnet pool.
Liquidation Price (Lp)
Liquidation Price (Lp) is the price at which collateral vault becomes vulnerable to Liquidation. It is defined as:
Liquidation Price (Lp) = (Minted TUSDT * Threshold Liquidation Ratio)/(Current Collateral Backing Asset Ratio * New Collateral)
Phase 1: TUSDT is always overcollateralized through subnet even if user can mint 1 TUSDT for $1 worth TAO. It is immediately liquidated for user-side. But Asset Backing Collateral Vault (ABCV) maintains collateral TAO with LR at 150% through subnet liquidity and DMM activities. Example: 1 TAO worth $250 is used to mint 250 TUSDT. ABCV has CR of 150%, Level 0 LR is 110% then, Lp = (250 * 110%) / (150% * 1) = $183.33 TensorUSD protocol holds the TAO deposit up to low range of $183.33 at this collateralization and below this price, liquidation occurs.
Phase 2: TUSDT is overcollateralized from user-side. If ABCV maintains collateral of SN64 Chutes with LR at 500%, user needs at least $50 worth of 1 SN64 to mint 10 TUSDT. Example: 1 SN64 worth $80 is used to mint 10 TUSDT. ABCV has CR of 100% (always). SN64 has LR of 110% then, Lp = (10 * 500%) / (100% * 1) = $50 Liquidation occurs when $50 is breached on this vault for SN64.
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