arXiv Computation and Language By Abhay Chaturvedi, Shreya Bhattacharya, Rashmika Gopalkrishnan, Peter van der Putten

DTOC: Dynamic Tool Output Compression for Adaptive Context Management in AI Agents

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The paper introduces Dynamic Tool Output Compression (DTOC), a framework that manages context in large‑language‑model agents by storing full tool outputs in external memory and inserting compact placeholders into the active context. DTOC treats context updates as explicit, reversible operations within the agent’s reasoning loop, allowing selective reconstruction of compressed outputs when needed. Experiments on the DeepSWE benchmark show that for responsive models such as Sonnet 4.6 and GPT‑5.4, DTOC reduces input tokens and agent steps while significantly improving solve rates and lowering cost per solved task, with ablation studies confirming the importance of reversibility for maintaining performance.

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