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

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.

@article{you2025_2506.05708,
  title={ Hybrid Stabilization Protocol for Cross-Chain Digital Assets Using Adaptor Signatures and AI-Driven Arbitrage },
  author={ Shengwei You and Andrey Kuehlkamp and Jarek Nabrzyski },
  journal={arXiv preprint arXiv:2506.05708},
  year={ 2025 }
}