Liquidation

Liquidation is the core safety mechanism that protects Liquidity Providers’ capital when a borrower’s position becomes unhealthy. In Arkis, liquidation is automated, transparent, and portfolio-aware, and is triggered when the Risk Factor of a Margin Account falls below the configured liquidation threshold.

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When Does Liquidation Occur?

A Margin Account becomes eligible for liquidation when:

• A Risk Factor < 1.0 indicates that, under stress conditions, the account no longer sufficiently covers the borrowed amount.

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How Liquidation Works in Arkis

1. Risk Factor Breach Detection

   • The Margin Engine re-evaluates all Margin Accounts every 30 seconds.

   • If Risk Factor < Liquidation Threshold, a liquidation plan is generated.

2. Liquidation Plan Creation

   • All positions across DeFi protocols (e.g., Pendle, Curve, Uniswap) are scheduled to close.

   • Assets are swapped (if needed) to the base token of the borrowed asset (e.g., USDC, ETH).

   • Target currency is returned to the Liquidity Pool via smart contracts.

3. Execution

   • Plan is sent to the Executor microservice.

   • Executor compiles the plan into an on-chain transaction and submits it to the Ethereum network (or supported EVM chain).

   • Collateral is liquidated through whitelisted venues, following smart contract logic.

   • Execution is monitored in real-time (with on-chain confirmation and fallback retries).

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Key Properties of Arkis Liquidation

Property	Description
MEV-Resistant	Liquidation logic is designed to avoid predictable pricing patterns or sandwichable sequences.
Multi-Protocol Aware	A liquidation can span multiple DeFi protocols in a single plan (e.g., unwind Curve LP, sell on 1inch).
Failsafe & Retryable	Executor retries failed transactions and supports fallback execution logic.
Configurable Liquidation Fees	Per-Agreement fee settings (e.g., 5–10%) for compensating LPs and covering slippage.

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Liquidation Example

An Asset Manager opens a $5,000 ETH position with 5x leverage:

• Collateral: $1,000 worth of Curve LP tokens

• Borrowed Amount: $4,000 USDC

• Stress-Tested Value: $3,900 (due to slippage, LP discount, market volatility)

• Risk Factor = 3,900 / 4,000 = 0.975

If the Liquidation Threshold = 1.0, this account becomes eligible for liquidation.

• Arkis Margin Engine detects the breach.

• Executes a plan to:

  • Unstake and break Curve LP

  • Sell assets on 1inch to recover USDC

  • Return repaid principal to the Liquidity Pool

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User Notifications & Transparency

• Margin Calls and Liquidation Warnings are pushed via Arkis Web Portal and alerting system.

• Liquidation events are fully auditable on-chain.

• Smart contract logs contain execution traces of all liquidated positions.