The Reverse Kelly Automated Market Maker (rkAMM) is introduced, the core engine of the proposed lending framework for decentralized credit and provides the foundational financial engineering required to bridge the 2 trillion global supply chain finance gap using permissionless blockchain infrastructure.
Abstract
Decentralized Finance (DeFi) lending protocols currently rely on heuristic, utilization-based bonding curves that mandate severe over-collateralization, systematically excluding under-collateralized assets like corporate invoices. This paper introduces a mathematically optimal pricing mechanism for decentralized credit: the Reverse Kelly Automated Market Maker (rkAMM), the core engine of our proposed lending framework. By inverting the Kelly Criterion, traditionally used for optimal bet sizing, we construct a dynamic interest rate discovery protocol that explicitly prices individual loan risk. The rkAMM ingests real-time Probability of Default (PD) streams from an off-chain Explainable AI oracle and dynamically calculates the exact interest rate required to sustain target liquidity provider (LP) yields. We mathematically derive the Reverse Kelly pricing function ($r = \frac{y + PD}{1 - PD}$), proving its strictly convex superiority over Aave and Compound's static utilization curves in managing capital efficiency. Furthermore, we deploy the rkAMM architecture via Solidity smart contracts, optimizing for gas-efficient 1e18 (WAD) floating-point arithmetic. To ensure decentralized transparency, our simulation infrastructure leverages MLflow for tracking yield hyperparameters, Data Version Control (DVC) linked to DagsHub for versioning Real-World Asset (RWA) data arrays, and localized edge-inference via Ollama (Llama-3) and Hugging Face (FinBERT) for zero-cost predictive modeling. Monte Carlo simulations across 10,000 macroeconomic stress scenarios confirm that the rkAMM maintains protocol solvency and stabilizes LP yields at 12-15\% net of expected credit losses. This work provides the foundational financial engineering required to bridge the \$2 trillion global supply chain finance gap using permissionless blockchain infrastructure.
The framework of loss-versus-rebalancing (LVR) is used to study how the total worst-case loss to the subsidizer is distributed across price states or over time and extended to dynamic liquidity management, showing that liquidity levels can be adjusted over time to implement a prescribed target expected cumulative loss...
C. Moallemi, D. Robinson, Brian Z. Zhu· 0 citations
This paper investigates the optimal surplus management problem of an insurance company operating in a financial market with stochastic interest rates and jump-driven liabilities. The insurer dynamically allocates its surplus between a risky stock and a risk-free zero-coupon bond while facing insurance claims modeled by...
Nader Karimi, F. Shokrollahi, Masoumeh Shahmoradi· 1 citation
Classical portfolio theory frequently assumes frictionless markets, but in reality, transaction costs, like fees and market impact, can erode returns and cause excessive turnover. Incorporating these costs transforms rebalancing from a mechanical rule into a strategic decision: determining exactly when and how much to...
The rapid growth of retail investors in Indonesia, from 2.48 million in 2019 to over 20 million by 2025, underscores an urgent need for empirically grounded portfolio optimization frameworks adoptable into practical tools such as robo-advisory systems. This study applies the Markowitz Mean-Variance model to construct a...
Irfan Andi Pramudya, Intan Shaferi· The International Conference...· 0 citations
We estimate Kyle's (1985) price-impact coefficient $\lambda$ directly from daily equity order flow and test its ability to forecast the cross-section of subsequent stock returns. Using CRSP data from 2020 to 2025, we construct firm-month measures of signed order flow and two estimators of $\hat\lambda_{it}$: a within-m...
Irene Aldridge· 0 citations
We use cookies to run the site and, with your consent, for analytics and to show ads.
See our Cookie Policy.