# Chain-of-Thought and Compressed Looped Transformers: A Memory-Budget Separation

arXiv: https://arxiv.org/abs/2605.30757 · HTML: https://mlsanity.com/paper/2605.30757/

## Key facts

- Cited by 2 papers in the map (data through 14 Oct 2026).
- Placed in Prompting and chain-of-thought reasoning, one of 17 directions in LLM reasoning.
- Builds on 23 of its 24 references that are in the map.
- First posted on arXiv 29 May 2026.

## Placed in

- LLM reasoning / [Prompting and chain-of-thought reasoning](https://mlsanity.com/lr/prompting-and-chain-of-thought-reasoning/)

## Builds on (most cited first, 23 of 23)

- [Training Large Language Models to Reason in a Continuous Latent Space](https://mlsanity.com/paper/2412.06769/) (2024)
- [Scaling up Test-Time Compute with Latent Reasoning: A Recurrent Depth Approach](https://mlsanity.com/paper/2502.05171/) (2025)
- [Chain of Thought Empowers Transformers to Solve Inherently Serial Problems](https://mlsanity.com/paper/2402.12875/) (2024)
- [Reasoning with Latent Thoughts: On the Power of Looped Transformers](https://mlsanity.com/paper/2502.17416/) (2025)
- [Looped Transformers as Programmable Computers](https://mlsanity.com/paper/2301.13196/) (2023)
- [Simple linear attention language models balance the recall-throughput tradeoff](https://mlsanity.com/paper/2402.18668/) (2024)
- [Zoology: Measuring and Improving Recall in Efficient Language Models](https://mlsanity.com/paper/2312.04927/) (2023)
- [The Parallelism Tradeoff: Limitations of Log-Precision Transformers](https://mlsanity.com/paper/2207.00729/) (2022)
- [Scaling Latent Reasoning via Looped Language Models](https://mlsanity.com/paper/2510.25741/) (2025)
- [Looped Transformers are Better at Learning Learning Algorithms](https://mlsanity.com/paper/2311.12424/) (2023)
- [LoopFormer: Elastic-Depth Looped Transformers for Latent Reasoning via Shortcut Modulation](https://mlsanity.com/paper/2602.11451/) (2026)
- [A Little Depth Goes a Long Way: The Expressive Power of Log-Depth Transformers](https://mlsanity.com/paper/2503.03961/) (2025)
- [PENCIL: Long Thoughts with Short Memory](https://mlsanity.com/paper/2503.14337/) (2025)
- [A Mechanistic Analysis of Looped Reasoning Language Models](https://mlsanity.com/paper/2604.11791/) (2026)
- [Simulation of Graph Algorithms with Looped Transformers](https://mlsanity.com/paper/2402.01107/) (2024)
- [Lower Bounds for Chain-of-Thought Reasoning in Hard-Attention Transformers](https://mlsanity.com/paper/2502.02393/) (2025)
- [Latent Chain-of-Thought? Decoding the Depth-Recurrent Transformer](https://mlsanity.com/paper/2507.02199/) (2025)
- [Exact Expressive Power of Transformers with Padding](https://mlsanity.com/paper/2505.18948/) (2025)
- [A Formal Comparison Between Chain of Thought and Latent Thought](https://mlsanity.com/paper/2509.25239/) (2025)
- [Memory-Efficient Looped Transformer: Decoupling Compute from Memory in Looped Language Models](https://mlsanity.com/paper/2605.07721/) (2026)
- [Adaptive Loops and Memory in Transformers: Think Harder or Know More?](https://mlsanity.com/paper/2603.08391/) (2026)
- [Revisiting associative recall in modern recurrent models](https://mlsanity.com/paper/2508.19029/) (2025)
- [Universal Transformers Need Memory: Depth-State Trade-offs in Adaptive Recursive Reasoning](https://mlsanity.com/paper/2604.21999/) (2026)

## Built on by (most cited first, 2 of 2)

- [Improving Test-Time Scaling with Adaptive Looped Transformers](https://mlsanity.com/paper/2609.35748/) (2026)
- [Storing Is Not Remembering: LSTM-UT and Bounded Gated Memory for Looped Transformers](https://mlsanity.com/paper/2609.19521/) (2026)

## Abstract (arXiv)

Chain-of-thought prompting and looped Transformers both give a fixed model more test-time computation, but they differ in what they remember. Chain-of-thought stores intermediate state in generated tokens that remain in the context, whereas a looped Transformer carries state through recurrent hidden activations. We argue that this persistent mutable memory is a central resource for test-time reasoning. We compare three memory regimes, the compressed latent loop, the full sequence-state loop, and the chain-of-thought scratchpad. Our main result shows that a compressed loop is limited by the size of its recurrent state. Running the loop longer adds computation but does not by itself create a growing scratchpad, so a loop with a small recurrent state remains a small-space reasoner even when run for many steps. Under a standard complexity assumption, such loops cannot decide problems that are P-complete under logspace reductions, whereas polynomial-length chain-of-thought can. The separation is specific to compressed loops, as full sequence-state loops carry state at every input position and live in a memory-rich regime closer to explicit scratchpads. Controlled pointer-chasing and associative-recall sweeps illustrate this memory-budget view, with performance sensitive to whether the persistent-state budget matches the task's working-memory demand.