A Tokenized Sovereign Debt Conversion Mechanism for Dynamic Public Debt Reduction

Kiarash Firouzi

Papers from arXiv.org

Abstract: In this paper, we present the Tokenized Sovereign Debt Conversion Mechanism (TSDCM), a smart-contracted instrument that, upon meeting both debt-to-GDP and GDP-growth thresholds, automates the retirement of sovereign debt. TSDCM initiates the conversion of a portion of outstanding bonds into performance-linked tokens by integrating a two-state regime-switching jump-diffusion framework into decentralized protocols. We prove finite-time activation and expected debt reduction through new propositions, establish the existence and uniqueness of the underlying stochastic processes, and introduce a main theorem that ensures a strict decline in expected debt levels. With significant tail-risk mitigation, calibration using IMF data and MATLAB Monte Carlo simulations shows a 20-25% decrease in expected debt-to-GDP ratios over a ten-year period. A transparent and incentive-aligned route to sustainable sovereign debt management is provided by TSDCM.

Date: 2025-07
References: View complete reference list from CitEc
Citations:

Downloads: (external link)
http://arxiv.org/pdf/2508.00019 Latest version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:2508.00019

Access Statistics for this paper

More papers in Papers from arXiv.org
Bibliographic data for series maintained by arXiv administrators ().