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.

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.