Risk Factor

The Risk Factor (RF) is the central solvency metric in the Arkis Margin Engine, representing the ratio of the Stress-Tested Value of the collateral portfolio to the total borrowed amount within a Margin Account.

Definition

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.

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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.

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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.