# Compress What You See, Not What You Say: Anchored Context Distillation for Latent-Observation Software Engineering Agents

arXiv: https://arxiv.org/abs/2609.31430 · HTML: https://mlsanity.com/paper/2609.31430/

## Key facts

- No citing papers in the map yet (data through 14 Oct 2026).
- Placed in Software engineering coding agents, one of 16 directions in LLM agents and tool use.
- Builds on 40 of its 44 references that are in the map.
- First posted on arXiv 25 Sep 2026.

## Placed in

- LLM agents and tool use / [Software engineering coding agents](https://mlsanity.com/agents/software-engineering-coding-agents/)

## Builds on (most cited first, 30 of 40)

- [Training language models to follow instructions with human feedback](https://mlsanity.com/paper/2203.02155/) (2022)
- [Distilling the Knowledge in a Neural Network](https://mlsanity.com/paper/1503.02531/) (2015)
- [Overcoming catastrophic forgetting in neural networks](https://mlsanity.com/paper/1612.00796/) (2016)
- [SWE-bench: Can Language Models Resolve Real-World GitHub Issues?](https://mlsanity.com/paper/2310.06770/) (2023)
- [Learning without Forgetting](https://mlsanity.com/paper/1606.09282/) (2016)
- [Fine-Tuning Language Models from Human Preferences](https://mlsanity.com/paper/1909.08593/) (2019)
- [SWE-agent: Agent-Computer Interfaces Enable Automated Software Engineering](https://mlsanity.com/paper/2405.15793/) (2024)
- [MemGPT: Towards LLMs as Operating Systems](https://mlsanity.com/paper/2310.08560/) (2023)
- [A General Language Assistant as a Laboratory for Alignment](https://mlsanity.com/paper/2112.00861/) (2021)
- [OpenHands: An Open Platform for AI Software Developers as Generalist Agents](https://mlsanity.com/paper/2407.16741/) (2024)
- [On-Policy Distillation of Language Models: Learning from Self-Generated Mistakes](https://mlsanity.com/paper/2306.13649/) (2023)
- [Sequence-Level Knowledge Distillation](https://mlsanity.com/paper/1606.07947/) (2016)
- [Improved Knowledge Distillation via Teacher Assistant](https://mlsanity.com/paper/1902.03393/) (2019)
- [Born Again Neural Networks](https://mlsanity.com/paper/1805.04770/) (2018)
- [Learning to Compress Prompts with Gist Tokens](https://mlsanity.com/paper/2304.08467/) (2023)
- [LLMLingua-2: Data Distillation for Efficient and Faithful Task-Agnostic Prompt Compression](https://mlsanity.com/paper/2403.12968/) (2024)
- [LLMLingua: Compressing Prompts for Accelerated Inference of Large Language Models](https://mlsanity.com/paper/2310.05736/) (2023)
- [SWE-smith: Scaling Data for Software Engineering Agents](https://mlsanity.com/paper/2504.21798/) (2025)
- [AutoCodeRover: Autonomous Program Improvement](https://mlsanity.com/paper/2404.05427/) (2024)
- [In-context Autoencoder for Context Compression in a Large Language Model](https://mlsanity.com/paper/2307.06945/) (2023)
- [Compressing Context to Enhance Inference Efficiency of Large Language Models](https://mlsanity.com/paper/2310.06201/) (2023)
- [Scaling Long-Horizon LLM Agent via Context-Folding](https://mlsanity.com/paper/2510.11967/) (2025)
- [Learning by Distilling Context](https://mlsanity.com/paper/2209.15189/) (2022)
- [ACON: Optimizing Context Compression for Long-horizon LLM Agents](https://mlsanity.com/paper/2510.00615/) (2025)
- [xRAG: Extreme Context Compression for Retrieval-augmented Generation with One Token](https://mlsanity.com/paper/2405.13792/) (2024)
- [MemGen: Weaving Generative Latent Memory for Self-Evolving Agents](https://mlsanity.com/paper/2509.24704/) (2025)
- [AgentFold: Long-Horizon Web Agents with Proactive Context Management](https://mlsanity.com/paper/2510.24699/) (2025)
- [Self-Distillation Bridges Distribution Gap in Language Model Fine-Tuning](https://mlsanity.com/paper/2402.13669/) (2024)
- [The Complexity Trap: Simple Observation Masking Is as Efficient as LLM Summarization for Agent Context Management](https://mlsanity.com/paper/2508.21433/) (2025)
- [500xCompressor: Generalized Prompt Compression for Large Language Models](https://mlsanity.com/paper/2408.03094/) (2024)

## Abstract (arXiv)

Tool observations dominate the context of software-engineering agents, making long interaction histories costly to maintain. Existing context compression methods can discard information needed by later actions, while adapting agents to soft-token representations can compromise their original behavior. To reduce context while preserving action-critical information and agent behavior, we combine Latent Observations, Hard Actions (LOHA), a context layout that separates compressed history from text needed for exact reference, with Anchored Context Distillation (ACD), a training method that enables latent reading while constraining behavioral drift. LOHA compresses older tool observations into soft tokens while retaining the agent's own turns and the last K observations in text, providing compact access to historical information and exact access to recent content. To enable the agent to use this representation, ACD distills the base model's full-text predictions into the latent view while anchoring its behavior on plain-text inputs to the same base model. On SWE-bench Verified, K=3 reduces context per call by 43% for Qwen3-4B and 57% for SWE-Master-4B-RL, with resolve rates of 12.1% and 21.8% versus 14.5% and 27.5% for their uncompressed bases. A single-run recency sweep reaches 14.4% and 23.0% at K=8, with larger windows generally favoring task performance over compression. Under a 32K-token limit, Qwen3 with K=3 resolves 21.1% of a 199-instance subset versus 11.1% for the same adapted agent using full text. In concurrent single-GPU serving, it achieves 1.9 times that full-text agent's instance throughput.