CEX-DEX Portfolio Margin v2
Last updated
Last updated
introduced a solution for undercollateralized leverage in DeFi by allowing Asset Managers to collateralize onchain positions—including yield-bearing assets from platforms like Curve and Uniswap—to gain leveraged exposure. Through dynamic collateral locking within Margin Accounts, Arkis improved lender security and execution control.
However, over the past year, it became clear that DeFi liquidity alone isn't enough. Asset Managers still turn to centralized exchanges for deeper liquidity, lower execution costs, and more sophisticated risk management. Centralized perpetual futures, in particular, remain a popular tool for hedging directional exposure and maintaining delta neutrality.
With Arkis v2, the protocol evolves to support both onchain and off-chain exposures by integrating perpetual futures and other CEX instruments into its portfolio margining framework. This expanded design enables more accurate risk modeling and unlocks greater capital efficiency across the full spectrum of a manager’s strategy.
Key features from v1 have been refined and, in some cases, decommissioned to reduce complexity:
Phasing Out the Liquidation Matrix: The previous reliance on a market impact factor, used in conjunction with 1inch Protocol for liquidations, has been replaced with a more streamlined Liquidity Risk Manager.
Partial Withdrawal: Asset Managers can now withdraw part of their position if the Margin Account is overcollateralized. A "Withdrawal List Tokens" is maintained, and a "Withdrawal Haircut" is applied during risk calculations to guard against liquidity manipulation.
Liquidity Risk Manager: This module continuously monitors token liquidity and TVL. It issues liquidation signals when liquidity drops below preset levels and enforces Exposure Constraints by checking that Asset Managers’ positions conform to risk limits. (See image below.)
Arkis is transitioning towards a semi-permissionless framework.
All users must undergo KYC and be properly onboarded and whitelisted.
The updated architecture now supports multiple liquidity pools with distinct parameters (e.g., stress-tested matrices, borrow APYs, and whitelisted tokens/protocols) so that institutional lenders and borrowers can operate with a higher degree of flexibility.
This architecture is inspired by models like Morpho Blue, where participants can independently define and adjust market liquidity pool parameters.
Each Lending Pool within Arkis is characterized by parameters, including:
Unique Pool ID
Maximum Loan-to-Value (LTV) Ratio
Borrowed Asset Type
Whitelisted Tokens and Protocols
Supply/Borrow APY and Interest Rate Model
Stress-Tested Matrix, Risk Factor thresholds, and Liquidation Fees
Exposure Constraints, Withdrawal Haircut, and N BLOCKS delay for Partial Withdrawals
Arkis v2 integrates perpetual futures to enhance portfolio margin calculations and facilitate delta-neutral strategies. This allows Asset Managers to hedge directional exposure using centralized futures while benefiting from the yield on DeFi positions.
Perpetual futures positions contribute to both the realised and unrealised profit and loss (P&L) of an Asset Manager’s portfolio:
Unrealised P&L: The fluctuating value of open positions, based on current prices.
Realised P&L: Gains or losses converted to a fixed value when positions are closed.
Funding P&L: Fees exchanged between long and short positions based on periodic funding payments (e.g., every 8 hours on exchanges like Binance, OKX, and ByBit).
For example: If a trader opens 100 BTC-USDT perpetual contracts at $60,000 and the price increases to $61,000, they accrue an unrealised profit which becomes realised if they close a portion of the position. Funding fees further impact the net performance.
The v2 update introduces a unified risk framework that aggregates:
Onchain (DEX) Exposure: Positions on DeFi protocols that are subject to on-chain pricing and stress tests.
Off-Chain (CEX) Exposure: Perpetual futures and other centralized exchange positions integrated via API endpoints.
For example: Arkis retrieves the "Value Margin" from OKX (using GET /api/v5/account/balance and adjEq field) and Bybit (using GET /v5/account/wallet-balanceand totalMarginBalance field).
The Margin Engine aggregates these exposures using stress-tested matrices that incorporate both positive and negative scenarios. Two matrices—Ω+ (for positive stress testing) and Ω- (for negative stress testing)—are applied. We will denote the Positive and Negative Portfolio Stress-tested Values at time t as STPVt+ and STPVt-. The final stress-tested portfolio value is determined as the minimum of these two values:
STPVt = min(STPVt+ - STPVt-)
Where:
STPVt⁺ = Positive Spot Stress-Tested Value + Positive Futures Stress-Tested Value
STPVt⁻ = Negative Spot Stress-Tested Value + Negative Futures Stress-Tested Value
Asset Managers may hold both spot and futures positions, and delta-neutrality is rewarded with a higher Risk Factor. In a perfectly hedged scenario, positive and negative stress-tested values align.
Liquidation in Arkis operates across both on-chain and centralized components:
Onchain Liquidation (Margin Accounts): When the Risk Factor of a Margin Account falls below 1.0, the Margin Engine generates a liquidation plan. This plan instructs the Executor to sell collateral and repay borrowed funds using whitelisted protocols.
CEX Liquidation: For positions held on centralized platforms, Arkis revokes trading keys, liquidates open futures positions, and transfers funds from the CEX account to the corresponding Margin Account or Liquidity Pool. Key rules include:
Asset Managers can only transfer funds between the Margin Account and their whitelisted CEX account.
Upon liquidation, CEX trading capabilities are disabled to halt further exposure.
Arkis v2 improves capital efficiency and risk management through various strategies:
LST/LRT Carry Trade: “Buy the spot, sell futures” strategies are enhanced with yield-bearing tokens, yielding higher APYs compared to a naive approach.
Delta-Neutral Yield Farming: Hedge exchange rate risks from providing liquidity on protocols like Curve and Uniswap by simultaneously taking offsetting short positions on CEX.
Delta-Neutral Pendle PT Yield Farming: Exploit high APYs from Pendle PT tokens while hedging directional exposure through short positions, maintaining dollar neutrality.
Comparative backtests and equity curves illustrate that integrating both CeFi and DeFi components results in significantly improved performance.
14.7%
21.8%
32.4%
85.3%
For further details on specific configurations, REST API integrations, and quantitative examples, please refer to the full Margin Engine v2 whitepaper. For additional inquiries or to request a copy of the whitepaper, contact .
