ArcMark: Multi-bit LLM Watermark via Optimal Transport

Watermarking is an important tool for promoting the responsible use of language models (LMs). Existing watermarks insert a signal into generated tokens that either flags LM-generated text (zero-bit watermarking) or encodes more complex messages (multi-bit watermarking). Though a number of recent multi-bit watermarks insert several bits into text without perturbing average next-token predictions, they largely extend design principles from the zero-bit setting, such as encoding a single bit per token. Notably, the information-theoretic capacity of multi-bit watermarking -- the maximum number of bits per token that can be inserted and detected without changing average next-token predictions -- has remained unknown. We address this gap by deriving the first capacity characterization of multi-bit watermarks. Our results inform the design of ArcMark: a new watermark construction based on coding-theoretic principles that, under certain assumptions, achieves the capacity of the multi-bit watermark channel. In practice, ArcMark outperforms competing multi-bit watermarks in terms of bit rate per token and detection accuracy. Our work demonstrates that LM watermarking is fundamentally a channel coding problem, paving the way for principled coding-theoretic approaches to watermark design.