Liquidation
Learn how loan liquidation works on Arkis.
What happens during liquidation in Arkis Protocol?
Arkis Protocol does not rely on external liquidators. Instead, all positions are liquidated following the process described below.
When the Maintenance Margin Liquidation Price is reached, all open orders are canceled, and Margin Account assets are no longer available to a trader.
During Liquidation, tokens need to be swapped into borrowed asset. Arkis uses the 1INCH protocol for token swap.
Step 1. Close liquidity pools and staking positions.
All liquidity pools, lending, staking, and farming positions are closed, and fees are claimed.
Step 2. Define liquidation routing.
For each token that needs to be converted into a borrowed asset, we use Liquidation DEXs, where a position will be liquidated. Currently, the Liquidation DEX list consists of 1inch protocol only.
Step 3. Bridging.
If tokens are located on a chain other than a reference exchange, Arkis Protocol uses bridges to transfer assets to the corresponding chains where Liquidation DEXs operate.
Step 4. Liquidation.
Tokens are swapped for the borrowed asset using the 1inch protocol.
Step 5. Return funds into Arkis Liquidity Pool.
Funds are returned to a liquidity pool used to fund the leveraged position. If the liquidity pool is located on a different chain - funds are bridged first to the designated chain.
Additional Q&A
What happens if the liquidated portfolio value is greater than the borrowed assets?
In cases where the liquidation of a portfolio results in a value that exceeds the amount of borrowed assets, the surplus is not retained as profit by the Arkis Protocol. Instead, this positive surplus is transferred to the Arkis Insurance Fund. The Insurance Fund is specifically designed to enhance the security of our liquidity providers' capital and to support the stability of the platform in adverse conditions. This ensures that excess funds are responsibly managed and used to safeguard against potential future losses.
What happens if the liquidated portfolio value is smaller than the borrowed assets?
Should the liquidation result in a portfolio value that is less than the borrowed assets, the negative difference is covered by the Arkis Insurance Fund. This mechanism protects the liquidity pools from losses that occur due to an insufficient liquidation value, ensuring that lenders do not bear the financial burden of under-collateralized losses.
What occurs if a DEX where a Margin Account operates is compromised, hacked, or funds are drained?
The Arkis Insurance Fund also plays a critical role in the event of a compromise or hack of a Decentralized Exchange (DEX) where a Margin Account is operated. In such scenarios, the fund is utilized not only to cover losses from inadequate liquidations but also to provide insurance against losses resulting from DEX hacks or exploits. This comprehensive coverage helps maintain trust and security within the Arkis ecosystem, providing a safeguard to both asset managers and liquidity providers.
Does Arkis Protocol profit from liquidations?
No, Arkis Protocol does not profit from liquidations. All liquidation fees, along with any surplus generated from liquidations, are deposited into the Insurance Fund. This policy is part of Arkis’s commitment to prioritizing the security of client funds over generating profit from traders' misfortunes. This approach underpins the robust risk management framework that Arkis employs to protect and secure investments across the platform.
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