A Smart-Contract to Resolve Multiple Equilibrium in Intermediated Trade
Fuente:
arXiv
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| Hauptverfasser: | , |
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| Format: | Preprint |
| Veröffentlicht: |
2025
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| _version_ | 1866910144422477824 |
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| author | Aronoff, Daniel Townsend, Robert M. |
| author_facet | Aronoff, Daniel Townsend, Robert M. |
| contents | We construct an empirically founded model of a repo trade intermediated by two broker-dealers and prove multiple equilibrium and the existence of equilibrium at the joint profit maximizing volume of trade. We then present a smart contract that resolves multiple equilibrium by requiring each broker-dealer to report its client schedule and its minimum hurdle spread, and implementing a selection rule that filters out hurdle-infeasible outcomes. Whenever there exists an equilibrium that exceeds both hurdle spreads, the protocol selects the joint profit maximizing feasible trade and thereby avoids a collapse to no trade. The smart contract is a machine executed algorithm which eliminates the need for trust. Hardware and cryptography are used to prevent leakage of broker-dealer client trade schedules, and to enable privacy-protected auditing with zero-knowledge proofs of the integrity of computations. The outcome can be implemented by a myopic strategy where a broker-dealer truthfully reports its own variables without anticipating its counterparty's reports. This minimizes cognitive and computational complexity, thereby making our smart contract suitable for real-world deployment. |
| format | Preprint |
| id |
arxiv_https___arxiv_org_abs_2505_22940 |
| institution | arXiv |
| publishDate | 2025 |
| record_format | arxiv |
| spellingShingle | A Smart-Contract to Resolve Multiple Equilibrium in Intermediated Trade Aronoff, Daniel Townsend, Robert M. Theoretical Economics Computer Science and Game Theory 91-08, 91-10 J.4 We construct an empirically founded model of a repo trade intermediated by two broker-dealers and prove multiple equilibrium and the existence of equilibrium at the joint profit maximizing volume of trade. We then present a smart contract that resolves multiple equilibrium by requiring each broker-dealer to report its client schedule and its minimum hurdle spread, and implementing a selection rule that filters out hurdle-infeasible outcomes. Whenever there exists an equilibrium that exceeds both hurdle spreads, the protocol selects the joint profit maximizing feasible trade and thereby avoids a collapse to no trade. The smart contract is a machine executed algorithm which eliminates the need for trust. Hardware and cryptography are used to prevent leakage of broker-dealer client trade schedules, and to enable privacy-protected auditing with zero-knowledge proofs of the integrity of computations. The outcome can be implemented by a myopic strategy where a broker-dealer truthfully reports its own variables without anticipating its counterparty's reports. This minimizes cognitive and computational complexity, thereby making our smart contract suitable for real-world deployment. |
| title | A Smart-Contract to Resolve Multiple Equilibrium in Intermediated Trade |
| topic | Theoretical Economics Computer Science and Game Theory 91-08, 91-10 J.4 |
| url | https://arxiv.org/abs/2505.22940 |