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Aug 4

More with Less: An Empirical Study of Turn-Control Strategies for Efficient Coding Agents

LLM-powered coding agents, which operate in iterative loops (turns) to solve software engineering tasks, are becoming increasingly powerful. However, their practical deployment is hindered by significant and unpredictable costs. This challenge arises from a combination of factors: quadratically growing token counts with each turn, the high price of models, the large number of turns required for real-world tasks, and the tendency of agents to take inefficient or unnecessary actions. While existing research focuses on optimizing individual turns, the strategic control of the total number of turns remains an underexplored area for managing agent performance and cost. To address this gap, we conduct a comprehensive empirical study on SWE-bench using three state-of-the-art models and evaluate the impact of three distinct turn-control strategies: an unrestricted baseline, a fixed-turn limit with reminders, and a novel dynamic-turn strategy that grants extensions on-demand. Our findings first reveal a fundamental trade-off in the unrestricted setting, where no single model excels across performance, cost, and turn efficiency. We then show that a fixed-turn limit, specifically at the 75th percentile of the baseline, serves as a "sweet spot", substantially reducing costs (by 24%-68%) with minimal impact on solve rates. Most significantly, the dynamic-turn strategy consistently outperforms fixed-limit approaches, achieving comparable or better solve rates while further reducing costs by an additional 12%-24% by intelligently allocating resources only to tasks that need them. This work provides the first systematic analysis of turn-control strategies, offering simple yet effective guidelines for developers to balance cost and efficacy. We demonstrate that dynamic resource allocation is a superior, easy-to-implement approach for deploying powerful yet economically viable coding agents.

  • 2 authors
·
Oct 19, 2025

Boosting Multi-modal Model Performance with Adaptive Gradient Modulation

While the field of multi-modal learning keeps growing fast, the deficiency of the standard joint training paradigm has become clear through recent studies. They attribute the sub-optimal performance of the jointly trained model to the modality competition phenomenon. Existing works attempt to improve the jointly trained model by modulating the training process. Despite their effectiveness, those methods can only apply to late fusion models. More importantly, the mechanism of the modality competition remains unexplored. In this paper, we first propose an adaptive gradient modulation method that can boost the performance of multi-modal models with various fusion strategies. Extensive experiments show that our method surpasses all existing modulation methods. Furthermore, to have a quantitative understanding of the modality competition and the mechanism behind the effectiveness of our modulation method, we introduce a novel metric to measure the competition strength. This metric is built on the mono-modal concept, a function that is designed to represent the competition-less state of a modality. Through systematic investigation, our results confirm the intuition that the modulation encourages the model to rely on the more informative modality. In addition, we find that the jointly trained model typically has a preferred modality on which the competition is weaker than other modalities. However, this preferred modality need not dominate others. Our code will be available at https://github.com/lihong2303/AGM_ICCV2023.

  • 6 authors
·
Aug 15, 2023

The Price Reversal Phenomenon: When Cheaper Reasoning Models End Up Costing More

Developers and consumers increasingly choose reasoning language models (RLMs) based on their listed API prices. However, how accurately do these prices reflect actual inference costs? We conduct the first systematic study of this question, evaluating 8 frontier RLMs across 9 diverse tasks covering competition math, science QA, code generation, and multi-domain reasoning. We uncover the pricing reversal phenomenon: in 21.8% of model-pair comparisons, the model with a lower listed price actually incurs a higher total cost, with reversal magnitude reaching up to 28x. For example, Gemini 3 Flash's listed price is 78% cheaper than GPT-5.2's, yet its actual cost across all tasks is 22% higher. We trace the root cause to vast heterogeneity in thinking token consumption: on the same query, one model may use 900% more thinking tokens than another. In fact, removing thinking token costs reduces ranking reversals by 70% and raises the rank correlation (Kendall's τ ) between price and cost rankings from 0.563 to 0.873. We further show that per-query cost prediction is fundamentally difficult: repeated runs of the same query yield thinking token variation up to 9.7x, establishing an irreducible noise floor for any predictor. Our findings demonstrate that listed API pricing is an unreliable proxy for actual cost, calling for cost-aware model selection and transparent per-request cost monitoring.

  • 6 authors
·
Mar 24

MHPO: Modulated Hazard-aware Policy Optimization for Stable Reinforcement Learning

Regulating the importance ratio is critical for the training stability of Group Relative Policy Optimization (GRPO) based frameworks. However, prevailing ratio control methods, such as hard clipping, suffer from non-differentiable boundaries and vanishing gradient regions, failing to maintain gradient fidelity. Furthermore, these methods lack a hazard-aware mechanism to adaptively suppress extreme deviations, leaving the optimization process vulnerable to abrupt policy shifts. To address these challenges, we propose Modulated Hazard-aware Policy Optimization (MHPO), a novel framework designed for robust and stable reinforcement learning. The proposed MHPO introduces a Log-Fidelity Modulator (LFM) to map unbounded importance ratios into a bounded, differentiable domain. This mechanism effectively prevents high-variance outlier tokens from destabilizing the loss landscape while ensuring global gradient stability. Complementarily, a Decoupled Hazard Penalty (DHP) integrates cumulative hazard functions from survival analysis to independently regulate positive and negative policy shifts. By shaping the optimization landscape with hazard-aware penalties, the proposed MHPO achieves fine-grained regulation of asymmetric policy shifts simultaneously mitigating mode collapse from over-expansion and preventing policy erosion from catastrophic contraction within a stabilized trust region. Extensive evaluations on diverse reasoning benchmarks across both text-based and vision-language tasks demonstrate that MHPO consistently outperforms existing methods, achieving superior performance while significantly enhancing training stability.

tencent Tencent
·
Mar 13 2

Rotary Positional Embeddings as Phase Modulation: Theoretical Bounds on the RoPE Base for Long-Context Transformers

Rotary positional embeddings (RoPE) are widely used in large language models to encode token positions through multiplicative rotations, yet their behavior at long context lengths remains poorly characterized. In this work, we reinterpret RoPE as phase modulation applied to a bank of complex oscillators, enabling analysis through classical signal processing theory. Under this formulation, we derive principled lower bounds on the RoPE base parameter that are necessary to preserve positional coherence over a target context length. These include a fundamental aliasing bound, analogous to a Nyquist limit, and a DC-component stability bound that constrains phase drift in low-frequency positional modes. We further extend this analysis to deep transformers, showing that repeated rotary modulation across layers compounds angular misalignment, tightening the base requirement as depth increases. Complementing these results, we derive a precision-dependent upper bound on the RoPE base arising from finite floating-point resolution. Beyond this limit, incremental phase updates become numerically indistinguishable, leading to positional erasure even in the absence of aliasing. Together, the lower and upper bounds define a precision- and depth-dependent feasibility region a Goldilocks zone for long-context transformers. We validate the framework through a comprehensive case study of state-of-the-art models, including LLaMA, Mistral, and DeepSeek variants, showing that observed successes, failures, and community retrofits align closely with the predicted bounds. Notably, models that violate the stability bound exhibit attention collapse and long-range degradation, while attempts to scale beyond one million tokens encounter a hard precision wall independent of architecture or training.

  • 1 authors
·
Feb 11

Position Auctions in AI-Generated Content

We consider an extension to the classic position auctions in which sponsored creatives can be added within AI generated content rather than shown in predefined slots. New challenges arise from the natural requirement that sponsored creatives should smoothly fit into the context. With the help of advanced LLM technologies, it becomes viable to accurately estimate the benefits of adding each individual sponsored creatives into each potential positions within the AI generated content by properly taking the context into account. Therefore, we assume one click-through rate estimation for each position-creative pair, rather than one uniform estimation for each sponsored creative across all positions in classic settings. As a result, the underlying optimization becomes a general matching problem, thus the substitution effects should be treated more carefully compared to standard position auction settings, where the slots are independent with each other. In this work, we formalize a concrete mathematical model of the extended position auction problem and study the welfare-maximization and revenue-maximization mechanism design problem. Formally, we consider two different user behavior models and solve the mechanism design problems therein respectively. For the Multinomial Logit (MNL) model, which is order-insensitive, we can efficiently implement the optimal mechanisms. For the cascade model, which is order-sensitive, we provide approximately optimal solutions.

  • 10 authors
·
Jun 3, 2025

Position: LLM Inference Should Be Evaluated as Energy-to-Token Production

LLM inference is still evaluated mainly as a model or software problem: accuracy, latency, throughput, and hardware utilization. This is incomplete. At deployment scale, the relevant output is a quality-conditioned token produced under joint constraints from effective compute, delivered data-center power, cooling capacity, PUE, and utilization. We argue that the ML community should treat inference as energy-to-token production. We formalize this view with a dimensionally consistent Token Production Function in which token rate is bounded by both compute-per-token and energy-per-token ceilings. Listed API prices vary by over an order of magnitude across providers, but we use price dispersion only as directional motivation, not as causal evidence of marginal cost. The core physical question is instead: under fixed quality and service targets, when does the binding constraint move from theoretical peak compute toward delivered power, cooling, and operational efficiency? Under this framing, system optimizations -- latent KV-cache compression, sparse or heavily compressed attention, quantization, routing, and difficulty-adaptive reasoning -- are not merely local engineering tricks. They are energy-to-token levers because they reduce FLOPs/token, joules/token, memory traffic, or utilization losses under fixed (q^{*},s^{*}). We therefore call for inference papers and benchmarks to report Joules/token, active binding constraint, PUE-adjusted delivered power, and utilization-adjusted token output alongside accuracy and latency.

  • 8 authors
·
May 11 1

Token Reduction Is Not Cost Reduction

Context-reduction layers for API-based coding agents, including command-output compressors, retrieval rankers, and API-boundary proxies, are commonly evaluated by how much context or tool output they remove. We ask a different question: which interventions actually reduce end-to-end billed cost while preserving task success? Our primary evidence is a pre-specified, hash-frozen, paired campaign of 2,908 provider-billed Claude Code runs, of which 2,848 were analyzed, covering 103 tasks, seven repositories, and three models. The campaign compared a baseline with two generations of hook-based compression and an API-boundary proxy within a broader measured program of roughly 5,500 billed executions. Three findings emerge. First, prompt-cache traffic dominated cost composition, accounting for about 87% of reconstructed four-component cost (about 80% of the actual bill), with an 8.7% dollar-weighted residual not attributable from retained telemetry. Second, local payload reduction was not a reliable predictor of end-to-end billed cost. An arm that removed 38% of estimated raw tool-output tokens incurred 6.8% higher paired cost (95% CI: +2.8% to +11.3%), while per-task reduction showed only a weak association with cost change (Pearson r = 0.15). Third, aggressive compression can remove action-critical evidence: on SWE-bench-derived Go tasks, compression reduced successful patch application from 27/40 to 15/40 by corrupting verbatim edit anchors. We propose evaluating context-reduction systems by success-adjusted billed cost rather than token reduction alone.

  • 2 authors
·
Jul 14

ProDepth: Boosting Self-Supervised Multi-Frame Monocular Depth with Probabilistic Fusion

Self-supervised multi-frame monocular depth estimation relies on the geometric consistency between successive frames under the assumption of a static scene. However, the presence of moving objects in dynamic scenes introduces inevitable inconsistencies, causing misaligned multi-frame feature matching and misleading self-supervision during training. In this paper, we propose a novel framework called ProDepth, which effectively addresses the mismatch problem caused by dynamic objects using a probabilistic approach. We initially deduce the uncertainty associated with static scene assumption by adopting an auxiliary decoder. This decoder analyzes inconsistencies embedded in the cost volume, inferring the probability of areas being dynamic. We then directly rectify the erroneous cost volume for dynamic areas through a Probabilistic Cost Volume Modulation (PCVM) module. Specifically, we derive probability distributions of depth candidates from both single-frame and multi-frame cues, modulating the cost volume by adaptively fusing those distributions based on the inferred uncertainty. Additionally, we present a self-supervision loss reweighting strategy that not only masks out incorrect supervision with high uncertainty but also mitigates the risks in remaining possible dynamic areas in accordance with the probability. Our proposed method excels over state-of-the-art approaches in all metrics on both Cityscapes and KITTI datasets, and demonstrates superior generalization ability on the Waymo Open dataset.

  • 5 authors
·
Jul 12, 2024

Real-Time Bidding by Reinforcement Learning in Display Advertising

The majority of online display ads are served through real-time bidding (RTB) --- each ad display impression is auctioned off in real-time when it is just being generated from a user visit. To place an ad automatically and optimally, it is critical for advertisers to devise a learning algorithm to cleverly bid an ad impression in real-time. Most previous works consider the bid decision as a static optimization problem of either treating the value of each impression independently or setting a bid price to each segment of ad volume. However, the bidding for a given ad campaign would repeatedly happen during its life span before the budget runs out. As such, each bid is strategically correlated by the constrained budget and the overall effectiveness of the campaign (e.g., the rewards from generated clicks), which is only observed after the campaign has completed. Thus, it is of great interest to devise an optimal bidding strategy sequentially so that the campaign budget can be dynamically allocated across all the available impressions on the basis of both the immediate and future rewards. In this paper, we formulate the bid decision process as a reinforcement learning problem, where the state space is represented by the auction information and the campaign's real-time parameters, while an action is the bid price to set. By modeling the state transition via auction competition, we build a Markov Decision Process framework for learning the optimal bidding policy to optimize the advertising performance in the dynamic real-time bidding environment. Furthermore, the scalability problem from the large real-world auction volume and campaign budget is well handled by state value approximation using neural networks.

  • 7 authors
·
Jan 10, 2017

Coordinate-Aware Modulation for Neural Fields

Neural fields, mapping low-dimensional input coordinates to corresponding signals, have shown promising results in representing various signals. Numerous methodologies have been proposed, and techniques employing MLPs and grid representations have achieved substantial success. MLPs allow compact and high expressibility, yet often suffer from spectral bias and slow convergence speed. On the other hand, methods using grids are free from spectral bias and achieve fast training speed, however, at the expense of high spatial complexity. In this work, we propose a novel way for exploiting both MLPs and grid representations in neural fields. Unlike the prevalent methods that combine them sequentially (extract features from the grids first and feed them to the MLP), we inject spectral bias-free grid representations into the intermediate features in the MLP. More specifically, we suggest a Coordinate-Aware Modulation (CAM), which modulates the intermediate features using scale and shift parameters extracted from the grid representations. This can maintain the strengths of MLPs while mitigating any remaining potential biases, facilitating the rapid learning of high-frequency components. In addition, we empirically found that the feature normalizations, which have not been successful in neural filed literature, proved to be effective when applied in conjunction with the proposed CAM. Experimental results demonstrate that CAM enhances the performance of neural representation and improves learning stability across a range of signals. Especially in the novel view synthesis task, we achieved state-of-the-art performance with the least number of parameters and fast training speed for dynamic scenes and the best performance under 1MB memory for static scenes. CAM also outperforms the best-performing video compression methods using neural fields by a large margin.

  • 5 authors
·
Nov 25, 2023

Memory as a Wasting Asset: Pricing Flash Endurance for Embodied Agents, and the Limits of Doing So

A robot's flash endurance is a non-renewable stock: every persisted write spends one of a few thousand program/erase cycles and never refills, yet no fielded robot memory system prices which memories are worth an erase cycle. We treat embodied memory as depreciating capital and price that stock with a single endurance shadow price η, which makes cost-minimizing placement across a RAM / on-board NVM / cloud hierarchy a threshold in a wear-augmented per-byte index. The index is cost-optimal whatever the sign of the value-write association χ; only when χ> 0 does the optimum turn non-monotone, sending a robot's most valuable memories off its flash. The pivot is thus empirical, and we measure χ on real robot logs at a pre-specified gate: its sign is a property of the deployment regime -- positive on recurrent long-horizon manipulation (hatχ approx +1.0 times 10^{-3}, replicated at full power), null on a shorter-horizon suite, and negative on non-recurrent teleoperation. Two boundaries scope the result. The endurance budget is dormant on premium 3,000-P/E TLC at datasheet prices and binding on the commodity QLC/eMMC (sim1,000 P/E) that cheaper edge robots run. And where it binds, a learned wear-aware controller only ties price-based routing on task value, because realized value is tier-invariant across RAM, NVM, and cloud: the rent governs device lifetime and cost, not task performance. Whether wear-aware placement improves task value remains open -- χ is measured against a value proxy, and the non-monotone optimum, while proven, is not yet observed in data.

  • 1 authors
·
Jun 15

Bayesian Algorithms for Kronecker-structured Sparse Vector Recovery With Application to IRS-MIMO Channel Estimation

We study the sparse recovery problem with an underdetermined linear system characterized by a Kronecker-structured dictionary and a Kronecker-supported sparse vector. We cast this problem into the sparse Bayesian learning (SBL) framework and rely on the expectation-maximization method for a solution. To this end, we model the Kronecker-structured support with a hierarchical Gaussian prior distribution parameterized by a Kronecker-structured hyperparameter, leading to a non-convex optimization problem. The optimization problem is solved using the alternating minimization (AM) method and a singular value decomposition (SVD)-based method, resulting in two algorithms. Further, we analytically guarantee that the AM-based method converges to the stationary point of the SBL cost function. The SVD-based method, though it adopts approximations, is empirically shown to be more efficient and accurate. We then apply our algorithm to estimate the uplink wireless channel in an intelligent reflecting surface-aided MIMO system and extend the AM-based algorithm to address block sparsity in the channel. We also study the SBL cost to show that the minima of the cost function are achieved at sparse solutions and that incorporating the Kronecker structure reduces the number of local minima of the SBL cost function. Our numerical results demonstrate the effectiveness of our algorithms compared to the state-of-the-art.

  • 2 authors
·
Jul 27, 2023

Nautilus Compass: Black-box Persona Drift Detection for Production LLM Agents

Production LLM coding agents drift over long sessions: they forget user-specified constraints, slip into mistakes the user already flagged, and confabulate prior agreements. White-box approaches such as persona vectors require model weights and so cannot be applied to closed APIs (Claude, GPT-4) that most users actually interact with. We present Nautilus Compass, a black-box persona drift detector and agent memory layer for production coding agents. The method operates entirely at the prompt-text layer: cosine similarity between user prompts and behavioral anchor texts, aggregated by a weighted top-k mean using BGE-m3 embeddings. Compass is, to our knowledge, the only public agent memory layer (among Mem0, Letta, Cognee, Zep, MemOS, smrti verified May 2026) that does not call an LLM at index time to extract facts or build a graph; raw conversation text is embedded directly. The system ships as a Claude Code plugin, an MCP 2024-11-05 A2A server (Cursor, Cline, Hermes), a CLI, and a REST API on one daemon, with a Merkle-chained audit log for tamper-evident anchor updates. On a held-out test set built from real Claude Code session traces and labeled by an independent LLM judge, Compass reaches ROC AUC 0.83 for drift detection. The embedded retrieval pipeline scores 56.6% on LongMemEval-S v0.8 and 44.4% on EverMemBench-Dynamic (n=500), topping the four published EverMemBench Table 4 baselines. LongMemEval-S 56.6% is ~30 points below recent white-box leaders (90+%); we treat that as the architectural ceiling of the no-extraction design. End-to-end reproduction cost is $3.50 (~14x cheaper than GPT-4o-judged stacks). A paired cross-vendor behavior A/B accompanies these numbers as preliminary system-level evidence. Code, anchors, frozen test data, and audit-log tooling are MIT-licensed at github.com/chunxiaoxx/nautilus-compass.

  • 1 authors
·
May 10

Efficient Modulation for Vision Networks

In this work, we present efficient modulation, a novel design for efficient vision networks. We revisit the modulation mechanism, which operates input through convolutional context modeling and feature projection layers, and fuses features via element-wise multiplication and an MLP block. We demonstrate that the modulation mechanism is particularly well suited for efficient networks and further tailor the modulation design by proposing the efficient modulation (EfficientMod) block, which is considered the essential building block for our networks. Benefiting from the prominent representational ability of modulation mechanism and the proposed efficient design, our network can accomplish better trade-offs between accuracy and efficiency and set new state-of-the-art performance in the zoo of efficient networks. When integrating EfficientMod with the vanilla self-attention block, we obtain the hybrid architecture which further improves the performance without loss of efficiency. We carry out comprehensive experiments to verify EfficientMod's performance. With fewer parameters, our EfficientMod-s performs 0.6 top-1 accuracy better than EfficientFormerV2-s2 and is 25% faster on GPU, and 2.9 better than MobileViTv2-1.0 at the same GPU latency. Additionally, our method presents a notable improvement in downstream tasks, outperforming EfficientFormerV2-s by 3.6 mIoU on the ADE20K benchmark. Code and checkpoints are available at https://github.com/ma-xu/EfficientMod.

  • 7 authors
·
Mar 28, 2024

HAWQV3: Dyadic Neural Network Quantization

Current low-precision quantization algorithms often have the hidden cost of conversion back and forth from floating point to quantized integer values. This hidden cost limits the latency improvement realized by quantizing Neural Networks. To address this, we present HAWQV3, a novel mixed-precision integer-only quantization framework. The contributions of HAWQV3 are the following: (i) An integer-only inference where the entire computational graph is performed only with integer multiplication, addition, and bit shifting, without any floating point operations or even integer division; (ii) A novel hardware-aware mixed-precision quantization method where the bit-precision is calculated by solving an integer linear programming problem that balances the trade-off between model perturbation and other constraints, e.g., memory footprint and latency; (iii) Direct hardware deployment and open source contribution for 4-bit uniform/mixed-precision quantization in TVM, achieving an average speed up of 1.45times for uniform 4-bit, as compared to uniform 8-bit for ResNet50 on T4 GPUs; and (iv) extensive evaluation of the proposed methods on ResNet18/50 and InceptionV3, for various model compression levels with/without mixed precision. For ResNet50, our INT8 quantization achieves an accuracy of 77.58%, which is 2.68% higher than prior integer-only work, and our mixed-precision INT4/8 quantization can reduce INT8 latency by 23% and still achieve 76.73% accuracy. Our framework and the TVM implementation have been open sourced.

  • 11 authors
·
Nov 20, 2020

Efficiently Training Deep-Learning Parametric Policies using Lagrangian Duality

Constrained Markov Decision Processes (CMDPs) are critical in many high-stakes applications, where decisions must optimize cumulative rewards while strictly adhering to complex nonlinear constraints. In domains such as power systems, finance, supply chains, and precision robotics, violating these constraints can result in significant financial or societal costs. Existing Reinforcement Learning (RL) methods often struggle with sample efficiency and effectiveness in finding feasible policies for highly and strictly constrained CMDPs, limiting their applicability in these environments. Stochastic dual dynamic programming is often used in practice on convex relaxations of the original problem, but they also encounter computational challenges and loss of optimality. This paper introduces a novel approach, Two-Stage Deep Decision Rules (TS-DDR), to efficiently train parametric actor policies using Lagrangian Duality. TS-DDR is a self-supervised learning algorithm that trains general decision rules (parametric policies) using stochastic gradient descent (SGD); its forward passes solve {\em deterministic} optimization problems to find feasible policies, and its backward passes leverage duality theory to train the parametric policy with closed-form gradients. TS-DDR inherits the flexibility and computational performance of deep learning methodologies to solve CMDP problems. Applied to the Long-Term Hydrothermal Dispatch (LTHD) problem using actual power system data from Bolivia, TS-DDR is shown to enhance solution quality and to reduce computation times by several orders of magnitude when compared to current state-of-the-art methods.

  • 4 authors
·
May 23, 2024

Harnessing Deep Q-Learning for Enhanced Statistical Arbitrage in High-Frequency Trading: A Comprehensive Exploration

The realm of High-Frequency Trading (HFT) is characterized by rapid decision-making processes that capitalize on fleeting market inefficiencies. As the financial markets become increasingly competitive, there is a pressing need for innovative strategies that can adapt and evolve with changing market dynamics. Enter Reinforcement Learning (RL), a branch of machine learning where agents learn by interacting with their environment, making it an intriguing candidate for HFT applications. This paper dives deep into the integration of RL in statistical arbitrage strategies tailored for HFT scenarios. By leveraging the adaptive learning capabilities of RL, we explore its potential to unearth patterns and devise trading strategies that traditional methods might overlook. We delve into the intricate exploration-exploitation trade-offs inherent in RL and how they manifest in the volatile world of HFT. Furthermore, we confront the challenges of applying RL in non-stationary environments, typical of financial markets, and investigate methodologies to mitigate associated risks. Through extensive simulations and backtests, our research reveals that RL not only enhances the adaptability of trading strategies but also shows promise in improving profitability metrics and risk-adjusted returns. This paper, therefore, positions RL as a pivotal tool for the next generation of HFT-based statistical arbitrage, offering insights for both researchers and practitioners in the field.

  • 1 authors
·
Sep 13, 2023

Dynamic Collateral Control for Permissionless Spot Perpetual Basis Trading

We study permissionless spot--perpetual basis trading in decentralized finance as a collateral control problem. The strategy holds spot inventory, hedges directional exposure with a short perpetual, and allocates capital between spot inventory and derivative margin under on-chain liquidity and execution frictions. The paper delivers three results. First, it solves a static control problem for the collateral share and shows that the risk-constrained formulation provides a more robust operating benchmark relative to the economic optimum. In comparative calibration, the required collateral rises monotonically under volatility stress. The collateral is the lowest for BTC and increases significantly for long tail assets such as LINK and DOGE. Second, the paper derives an asymmetric dynamic extension in which the lower boundary of intervention is solvency driven, and the upper boundary is determined by a trade-off between carry-loss and the cost of rebalancing. Monte Carlo simulation shows that the lower boundary remains structurally relevant, whereas meaningful interior upper triggers survive mainly in the regimes with high carry and low costs. Third, the paper validates an execution-aware implementation with live routed execution and historical backtests. The execution layer shows that the realized wedges are significant, but become worse in the case of selling the basis. This justifies a minimum effective rebalancing size and a positive execution buffer. The historical validation shows that in the case of a fixed control rule the realized performance is predominantly explained by the funding environment.

  • 4 authors
·
May 5