# Risk Factor

The Risk Factor (RF) is the central solvency metric in the [Arkis Margin Engine](https://docs.arkis.xyz/home/concepts/margin-engine), representing the ratio of the [Stress-Tested Value](https://docs.arkis.xyz/home/concepts/stress-tested-value) of the collateral portfolio to the total borrowed amount within a [Margin Account](https://docs.arkis.xyz/home/concepts/margin-account).

#### **Definition**

<figure><img src="https://3978617066-files.gitbook.io/~/files/v0/b/gitbook-x-prod.appspot.com/o/spaces%2FJHNY2cWUA8ooxRaSq4DZ%2Fuploads%2FLblFSplzzHrK94IKB4MF%2FScreenshot%202025-04-08%20at%2017.21.32.png?alt=media&#x26;token=f94d8905-b79c-4947-ae1a-8e66b102f30e" alt=""><figcaption></figcaption></figure>

Where:

* Portfolio Stress-Tested Value is the sum of all collateral assets in the Margin Account, each discounted by a configurable stress factor.
* Total Borrowed Value is the current value of borrowed amount by Margin Account.

### **Interpreting the Risk Factor**

| **Risk Factor**      | **State**                 | **Action**                                            |
| -------------------- | ------------------------- | ----------------------------------------------------- |
| RF > Margin Call RF  | Healthy                   | Account is solvent                                    |
| RF <= Margin Call RF | **Margin Call Threshold** | Trigger alert, allow top-up                           |
| RF < 1.0             | **Liquidation Triggered** | Account is undercollateralized, liquidation initiated |

A Risk Factor below 1.0 implies that the account’s stress-tested collateral value no longer covers the borrowed exposure — thus, **Liquidation** must be executed to preserve solvency for liquidity providers.

### **Risk Factor in Context of Liquidation**

Arkis continuously monitors every Margin Account’s Risk Factor in real time (every 30 seconds). The liquidation pipeline is as follows:

1. **Pre-Liquidation (RF > Margin Call RF)**:
   * No action required — margin account is overcollateralized even under stress conditions.
2. **Margin Call (RF <= Margin Call RF)**:
   * The Asset Manager receives an alert.
   * They may respond by:
     * Repaying part of the loan
     * Posting more collateral
     * Closing positions
3. **Liquidation (RF < 1.0)**:
   * The account is deemed insolvent.
   * Arkis’s Margin Engine generates a liquidation plan.
   * Liquidation is executed on-chain via the Executor module, selling collateral and returning borrowed funds.