Inventory Management for Tokenized-Stock AMMs: What Happens After One-Sided Trading?

An automated market maker (AMM) can retain substantial portfolio value while becoming less useful to the next buyer. The reason is inventory: trading changes which assets the pool holds.

For a Tokenized Securities Venue (TSV), the result can be an uneven trading service: a market that still accepts one direction of trade while offering much less capacity in the other. When buyers consume stock inventory, who obtains more, where does it come from, and what happens until it arrives?

The venue’s operations team needs a recovery process agreed with its liquidity partners before that shortfall occurs. The same discipline applies when selling consumes the payment asset.

Follow the inventory through a purchase

Consider a fee-free constant-product pool containing 5,000 stock tokens and $500,000 of a dollar-valued payment asset. Its initial price is $100 per token.

A buyer spends $50,000. With no other activity, the pool supplies approximately 454.55 stock tokens, following the constant-product calculation.

Before the purchase, the pool holds 5,000 stock tokens and $500,000, with a marginal price of $100 per token. After the purchase, it holds approximately 4,545.45 stock tokens and $550,000, and its marginal price has risen to $121.

The buyer’s average price is $110; $121 is the marginal pool price after the trade. The two measurements describe different things.

At an unchanged external valuation of $100 per stock token, the remaining assets would be marked at approximately $1,004,545. That accounting value does not mean the pool can repeat its original quote. It now has fewer stock tokens and a different pool price. This marked value is not a claim of sustainable profit: the example excludes arbitrage, fees and all subsequent activity.

One-sided trading creates a similar asset-mix issue in concentrated liquidity. A position can end up entirely in one asset at its range boundary. Other positions in the pool may still provide liquidity. The concentrated-liquidity model makes the location of that inventory as important as its total value.

Three responses do different jobs

“Rebalance” is too broad a word to describe the remedy on its own.

Reposition existing balances. Moving liquidity changes where the assets support trading. It can improve a quote near the chosen price, but it does not obtain additional stock.

Swap and redeploy. Trading through an available route changes the asset mix before capital is placed back into liquidity. The route still needs to be authorized, executable and economical within the mandate.

Add inventory. Bringing assets into the managed position can restore capacity without first selling another asset held there. That requires an approved source, committed capital and a known delivery time.

Trace the funds through recovery

Pool reserves are not a wallet balance that an operator can freely spend. A liquidity provider withdraws assets through its position’s withdrawal mechanism; in a constant-product pool, that ordinarily returns its proportional share of the reserves.

To isolate the arithmetic, assume the entire example pool belongs to one provider and can be withdrawn and redeployed. Ignore any permanently locked minimum liquidity, fees, intervening trades and settlement delays. The external stock price remains $100, and an approved source can deliver immediately at that price.

Under those simplifying assumptions, recovery would follow these steps:

1. Withdraw the managed liquidity, receiving approximately 4,545.45 stock tokens and $550,000 in payment assets. The withdrawn position no longer supplies trading capacity while this happens.
2. Buy approximately 454.55 stock tokens through the separate approved route for $45,454.55, using the withdrawn payment assets.
3. Reconcile the resulting portfolio: 5,000 stock tokens and approximately $504,545.45.
4. If the mandate calls for the original reserve configuration, redeploy 5,000 tokens and $500,000, leaving approximately $4,545.45 outside the pool.

All steps use unrounded quantities before display rounding. This is an illustrative reconciliation, not an available execution opportunity or an expected profit.

A provider owning only part of a pool can withdraw only its own entitlement. Redeployment must respect the remaining pool state and deposit rules; it cannot unilaterally reset the whole pool’s price. In practice, other liquidity, arbitrage, route prices and transaction costs change both the result and the recovery process.

The example also assumes the external price has not moved. If the stock’s market price has changed, restoring the old $100 pool price could create an uneconomic quote. The objective is to recover useful trading capacity around a current, valid reference within the mandate’s limits.

Assign each decision to an owner

The venue defines its market service and trading policy. The capital provider sets the exposure it accepts and supplies or approves funding. The authorized operator or strategy executes permitted actions. The inventory source determines what can actually be delivered and on which terms.

For example, a market may fall below its target buy-side depth. The approved response could be to source stock through a specified route within a cost limit. If that route is unavailable, the parties need a defined fallback rather than an open-ended instruction to restore liquidity at any price.

The fallback may change how liquidity is offered or trigger escalation under the venue’s policy. The ability to restrict or pause trading must be implemented at the relevant trading controls; pausing a manager is not necessarily enough.

A usable operating instruction connects a trigger to an authorized response:

When to act: Define a shortfall in the target buy or sell quote, an inventory limit or another explicit condition.

What may be done: Name the approved sources, eligible counterparties, maximum transaction size and total execution-cost limit.

Who provides funding: Identify available balances, authority to commit additional capital and limits on settlement exposure.

What happens on failure: Set retry limits, name the escalation owner and specify how the market may operate while recovery is pending.

When recovery is complete: Require fresh quotes to meet the agreed target and reconcile the inventory movements.

An alert saying “low stock” leaves these decisions unresolved. An agreed instruction makes the alert actionable without granting unlimited discretion.

Settlement time changes the funding requirement

An inventory source that promises delivery tomorrow cannot, without another arrangement, replenish a pool for a trade now.

Issuer minting or redemption processes may form part of a broader inventory supply chain. Their role depends on the asset structure, authorized counterparties and transaction design. They should not be assumed to be immediate or automatically available within a TSV’s secondary trade.

If stock or payment arrives later, someone must fund or carry the exposure in the meantime. The mandate should identify that party, the maximum exposure and what happens if settlement is delayed further.

Check prices before replenishing

Inventory quantities alone cannot determine whether a recovery trade is sensible. A last-traded reference, an indicative quote and an executable offer are different inputs.

Before acting, check reference-data age, trading status, route availability and the total cost of the proposed transaction. A stale value carried forward from a closed market should not silently become the assumed price for a live trade.

Example inventory management plan

Consider a venue preparing a tokenized-stock market with a concentrated-liquidity strategy. The following settings illustrate a written operating mandate. They are separate from the earlier constant-product example and are neither Steer defaults nor recommended limits for every market. The configuration must pass testing before launch.

Set the trading objective. During the agreed operating window, target $25,000 purchases and sales of an equivalent stock value within 1% of a designated external reference, including trading fees and transaction costs. Value sell orders using that reference when the quote is requested.

Define the inventory being monitored. Track the provider’s own stock and payment assets, including its share of pool reserves and available balances outside the pool. Exclude unsettled deliveries from available inventory. Calculate stock exposure as a percentage of this portfolio’s value using the same reference and payment-asset valuation method.

Set the triggers. Check both target quotes every 30 seconds. Start a recovery assessment if either quote breaches the 1% limit or stock exposure moves outside a 40%–60% band. Reject automatic recovery if the reference is more than five seconds old or the relevant market is stopped. A trigger starts an assessment; it does not authorize an unconditional trade.

Specify the response. Use the provider’s available balances to adjust placement where that can restore the service. If buying has depleted stock, purchase through the approved secondary-market route. If selling has depleted the payment asset, sell stock through that route. Aim to bring stock exposure back within 45%–55%, subject to the execution and funding limits below.

Commit the funding. The provider earmarks $100,000 of its own payment assets outside the pool for stock replenishment. Stock sales use its available tokens or assets withdrawn from its own positions. The automated mandate permits no borrowing and no use of another provider’s reserves.

Bound execution. Limit each external recovery trade to $50,000 of reference-value notional and cumulative recovery turnover to $100,000 in any rolling 24 hours. Count both purchases and sales, reserving capacity for pending orders. Allow no more than 0.50% adverse execution cost against the fresh reference, including fees and transaction costs. Larger actions require the capital provider’s designated approver.

Define failure handling. Use only the preapproved route and receiving accounts. If it is unavailable, exceeds the cost limit or has an unconfirmed transaction after 60 seconds, stop new recovery orders and alert the venue’s operations lead. Resolve pending transactions before retrying. The venue applies its tested reduced-capacity or trading-stop procedure while recovery is unresolved.

Confirm recovery. Reconcile assets, fees and pending orders, confirm stock exposure is within 45%–55%, and require both target quotes to pass three consecutive 30-second checks. The operations lead records completion; any trading restart follows the venue’s separate restart procedure.

This plan connects a measurable shortfall to a funded, limited response and a clear completion test. Steer’s supported strategy, execution, permissioning and accounting components can be scoped against those requirements, with each control verified in the selected deployment.

How Steer connects the recovery process

A recovery plan needs a connection to asset supply, a strategy for managing positions, clear execution authority and a record of what happened. Steer provides infrastructure across these functions.

Connect the operation to supported inventory routes. Steer’s hook architecture connects eligible orders to pool liquidity and supported issuer minting or redemption processes. Where an appropriate route is available, this can help connect trading demand to additional asset supply. For a TSV, the design must establish which activity belongs to secondary execution and which belongs to a separate replenishment process. The route’s counterparty, funding and settlement terms determine whether inventory can actually arrive when needed.

Configure the strategy’s response. Smart Pools and the Dynamic Rebalance framework provide controls for liquidity placement and adjustment, including configurable triggers and external-data inputs. These components let the team configure how managed positions respond to changing conditions. The integration should specify which withdrawal, swap and redeployment actions are supported and how they are tested.

Limit delegated authority. Matador provides programmable permissions for supported smart accounts. Teams can define authorized operators, permitted contract calls, value limits and conditions for routed actions. In a recovery workflow, that can bound what an operator or automated service may do with the managed account. Those policies must be connected to the actual execution path; they do not create inventory or ensure that a transaction completes.

Reconcile the result. Steer’s vault-accounting data includes managed holdings, share supply and accumulated fees. Combined with external-route receipts, transaction costs and post-recovery quotes, these inputs can help the venue and capital provider determine where the assets moved and whether the service was restored within its limits.

These components give a TSV team a basis for building a connected inventory operation. The first implementation should demonstrate the full sequence: detect the shortfall, apply the authorized response, reconcile the assets and reassess the trading service.

Measure whether recovery worked

A completed rebalance transaction is not the final success criterion. Requote the target buy and sell sizes after recovery. Check the resulting inventory, capital exposure and execution cost, and reconcile all transfers and fees.

Repeat the test with the main inventory route unavailable. That reveals whether the backup plan can restore the service, whether additional funding is needed, or whether the market must operate with reduced capacity.

The useful outcome is a recovery process with an owner, a cost limit and an observable result. That is what turns inventory monitoring into an operating capability.

Designing a liquidity mandate? Share the target trade size, capital limits and available inventory routes with Steer to scope the recovery workflow and its integrations.

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