Credit Limits beyond Full Collateralization in Decentralized Micropayments: Incentive Conditions

Computer Science > Computer Science and Game Theory [Submitted on 28 Apr 2026] Credit Limits beyond Full Collateralization in Decentralized Micropayments: Incentive Conditions Chien-Chih Chen, Wojciech Golab In decentralized non-custodial micropayments, the central challenge is not whether payments can be executed directly, but under what conditions such systems can offer credit limits without requiring full collateral backing. Existing approaches typically tie available credit to posted collateral, causing liquidity requirements to scale with transaction volume and settlement exposure and limiting the practical usefulness of credit-based micropayments. This paper characterizes the incentive conditions under which credit-based non-custodial micropayments can operate beyond full collateralization while remaining incentive compatible. We model repeated buyer--merchant interactions under public monitoring and identify the roles of bounded exposure, verifiable settlement outcomes, and continuation value in deterring strategic default under non-custodial execution. The resulting characterization clarifies the trade-off between capital efficiency and the enforcement conditions required to sustain under-collateralized credit expansion without custodial trust. As an illustrative application-layer instantiation, an Arbitrum Nitro prototype provides execution-level evidence that the settlement, commitment, and incentive-enforcement paths of a credit-limit-based design can be realized with low on-chain overhead. Comments: 12 pages, 3 tables Subjects: Computer Science and Game Theory (cs.GT); Cryptography and Security (cs.CR) Cite as: arXiv:2604.25913 [cs.GT]   (or arXiv:2604.25913v1 [cs.GT] for this version)   https://doi.org/10.48550/arXiv.2604.25913 Focus to learn more Submission history From: Chien-Chih Chen [view email] [v1] Tue, 28 Apr 2026 17:57:50 UTC (93 KB) Access Paper: HTML (experimental) view license Current browse context: cs.GT < prev   |   next > new | recent | 2026-04 Change to browse by: cs cs.CR References & Citations NASA ADS Google Scholar Semantic Scholar Export BibTeX Citation Bookmark Bibliographic Tools Bibliographic and Citation Tools Bibliographic Explorer Toggle Bibliographic Explorer (What is the Explorer?) Connected Papers Toggle Connected Papers (What is Connected Papers?) Litmaps Toggle Litmaps (What is Litmaps?) scite.ai Toggle scite Smart Citations (What are Smart Citations?) Code, Data, Media Demos Related Papers About arXivLabs Which authors of this paper are endorsers? | Disable MathJax (What is MathJax?)