Liquidation
Liquidation is the core safety mechanism that protects Liquidity Providers’ capital when a borrower’s position becomes unhealthy. On Arkis, liquidation is automated, transparent, and portfolio-aware. Liquidation is triggered when the Risk Factor of a Margin Account falls below 1.0, indicating that, under stress conditions, the account no longer sufficiently covers the borrowed amount.
How Liquidation Works on Arkis
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.
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.
Execution
Plan is sent to the Executor microservice.
Executor compiles the plan into an onchain 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 onchain confirmation and fallback retries).
Key Properties of Arkis Liquidation
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.
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
User Notifications & Transparency
Margin Calls and Liquidation Warnings are pushed via Arkis Web Portal and alerting system.
Liquidation events are fully auditable onchain.
Smart contract logs contain execution traces of all liquidated positions.
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