Hybrid Stabilization Protocol for Cross-Chain Digital Assets Using Adaptor Signatures and AI-Driven Arbitrage

2025-06-06

AI Summary

Stablecoins face a persistent trilemma among decentralization, price stability, and regulatory compliance. This paper proposes a novel architecture integrating crypto-collateralized reserves, algorithmic Stable Futures Contracts (SFCs), and cross-chain liquidity pools to achieve strong pegging while preserving privacy and enabling compliance. We introduce adapter-signature atomic swaps and zero-knowledge regulatory proofs (zkSNARKs) to realize verifiable compliance without revealing user identities—a first in stablecoin design. Additionally, we develop an AI-driven delta-hedging agent and a DEX-based cross-chain arbitrage engine. Empirical evaluation demonstrates a 3.2× acceleration in price deviation convergence, a significant reduction in cross-chain liquidity concentration (HHI dropping from 4900 to 2400), and formally verified transaction atomicity under standard cryptographic assumptions.

Technology Category

• Multiagent Systems: Mechanism Design
• Game Theory and Economic Paradigms: Mechanism Design
• Philosophy and Ethics of AI: Safety, Robustness & Trustworthiness

Application Category

• Security and Privacy: Cryptocurrency and smart contracts
• Economics, Online Markets and Human Computation: Economic aspects of blockchain and cryptocurrencies
• Responsible Web: Algorithmic accountability and transparency on the web

Abstract

Stablecoins face an unresolved trilemma of balancing decentralization, stability, and regulatory compliance. We present a hybrid stabilization protocol that combines crypto-collateralized reserves, algorithmic futures contracts, and cross-chain liquidity pools to achieve robust price adherence while preserving user privacy. At its core, the protocol introduces stabilization futures contracts (SFCs), non-collateralized derivatives that programmatically incentivize third-party arbitrageurs to counteract price deviations via adaptor signature atomic swaps. Autonomous AI agents optimize delta hedging across decentralized exchanges (DEXs), while zkSNARKs prove compliance with anti-money laundering (AML) regulations without exposing identities or transaction details. Our cryptographic design reduces cross-chain liquidity concentration (Herfindahl-Hirschman Index: 2,400 vs. 4,900 in single-chain systems) and ensures atomicity under standard cryptographic assumptions. The protocol's layered architecture encompassing incentive-compatible SFCs, AI-driven market making, and zero-knowledge regulatory proofs. It provides a blueprint for next-generation decentralized financial infrastructure.

Problem

• Balancing decentralization, stability, and regulatory compliance in stablecoins
• Reducing cross-chain liquidity concentration with cryptographic design
• Ensuring atomicity and privacy in cross-chain digital asset transactions

Innovation

• Hybrid protocol with adaptor signature swaps
• AI-driven arbitrage for price stabilization
• zkSNARKs for privacy-preserving compliance