BIT-0006: Subnet lending

bits/BIT-0006-Subnet-lending.md

@@ -0,0 +1,85 @@
+# BIT-0006: Subnet Lending
+
+- **BIT Number:** 0006
+- **Title:** Subnet Lending
+- **Author(s):** [Name(s) and contact information]
+- **Discussions-to:** [Github discussion](https://github.com/opentensor/bits/discussions/16)
+- **Status:** Draft
+- **Type:** Subtensor
+- **Created:** 24/03/2025
+- **Updated:** 25/03/2025
+- **Requires:** NA
+- **Replaces:** NA
+
+## Abstract
+
+The high upfront cost of creating a subnet can deter many users, stifling innovation on Bit Tensor by favoring those with deep pockets or strong networks. To address this, we propose a lending mechanism where a pool of token holders funds the initial subnet creation fee, recouping their investment over time through a share of the subnet owner’s emissions, as agreed upon for a set period.
+
+## Motivation
+
+Bit Tensor’s growth hinges on an ecosystem that fuels innovation and invites diverse talent to experiment with subnets. Yet, the steep upfront costs of launching a subnet can deter skilled individuals and teams—precisely the people who could drive thriving, market-ready subnets aligned with Bit Tensor’s vision. By limiting subnet creation to the well-funded or well-connected, we’re sidelining brilliant minds who could spark breakthroughs and rally communities around them. A native subnet lending solution would break this barrier, empowering more innovators to build, while letting the community back promising projects, accelerating Bit Tensor’s evolution.
+
+## Specification
+
+A Substrate pallet will manage the subnet lending process. A potential subnet creator can submit an initial lending proposal, restricted to one active proposal per AccountId. To deter spam, a small deposit fee—much lower than the subnet creation cost—is required, alongside an expiration date for the proposal. Optionally, a global cap on active proposals could be enforced.
+
+Lenders can express interest in one or more proposals by locking a TAO balance. These funds remain locked until the proposal is fully funded or expires. If a proposal expires without reaching the required amount, the locked TAO is returned to the lenders.
+
+When a proposal’s locked TAO matches the subnet creation cost (dynamically determined by the registration fee at the current block, or capped by a maximum bid), the pallet executes the following:
+
+1. Calculates each lender’s participation share for the proposal based on their contribution.
+2. Retrieves the current subnet registration cost from the subtensor pallet.
+3. If the maximum bid is below the actual cost, the pallet delays subnet creation until the registration cost decreases to or below the bid amount.
+4. If the total locked TAO exceeds the registration cost, the excess is refunded proportionally to each lender.
+
+Upon successful funding, the pallet creates a chain-managed LendingPoolAccount. This account:
+
+1. Generates an on-chain hotkey (TODO: feasible?) linked to the LendingPoolAccount.
+2. Registers the subnet, setting LendingPoolAccount as the owner and the pallet-generated hotkey for subnet operations.
+3. Delegates operational control of this hotkey to the subnet creator’s AccountId via some delegation mechanism. (TODO: feasible?)
+4. Receives TAO emissions into LendingPoolAccount at the end of each tempo.
+5. Distributes these emissions to lenders (and potentially the operator) per the proposal’s shares, up to the repayment limit (TODO: could include interest?).
+
+The pallet retains authority over the hotkey hence the subnet. If the operator misbehaves, the pallet could revoke delegation and reassign it to a new operator via governance (TODO: additional complexity?) ensuring lender protection without upfront collateral. 
+
+Post-repayment, subnet ownership transfer to the operator’s hotkey.
+
+## Rationale
+
+TODO
+
+This section describes why particular design decisions were made. It should address alternative
+designs and why they were not chosen, and should discuss the potential impact of the proposal
+on the existing system.
+
+## Backwards Compatibility
+
+TODO
+
+All BITs that introduce backward incompatibilities must include a section describing these
+incompatibilities and their severity. The BIT must explain how the author proposes to deal with
+these incompatibilities. BIT submissions without a sufficient backward compatibility treatise
+may be rejected outright.
+
+## Reference Implementation (Optional)
+
+TODO
+
+If applicable, include a link to a reference implementation that demonstrates the feasibility
+of the proposal. This implementation may be partial or fully complete.
+
+## Security Considerations
+
+WIP
+
+- The actual registration logic of a subnet requires a hotkey, and for this to works, we would need to have a way to have automated control of a hotkey on chain or eventually another way to register a subnet without hotkey but linked to a lending account or a more generic abstraction.
+
+- In the case of deregistration, lenders needs to be aware that their funds will be lost.
+
+All BITs should consider the security implications of their proposals. This section should
+address potential attack vectors, vulnerabilities, and how the proposed changes affect the
+overall security of the Bittensor protocol.
+
+## Copyright
+
+This document is licensed under [The Unlicense](https://unlicense.org/).