The recent depegging of ezETH has prompted discussions across the DeFi community about how different protocols respond to such crises. Arkis's response and risk management practices offer insight into our structured approach to safeguarding investments and ensuring stability across our operations.
Core Principles and Risk Management Strategies
Lender Protection and Risk Analysis
At Arkis, protecting the interests of lenders is foundational. By prioritizing lender security, we ensure the stability and sustainability of investments, which is crucial in maintaining trust and operational integrity. This principle guides our transaction design, particularly in our service to institutional lenders and borrowers, where transactions are crafted on an Over-The-Counter (OTC) basis. Each transaction is meticulously defined by both parties to match risk preferences and financial goals, ensuring clarity and mutual comfort prior to engagement.
Our centralized risk and margin engine facilitates greater control over data through tailored oracle management. This setup enhances our adaptability and accuracy in risk assessments, a critical factor when dealing with varied asset characteristics. The Arkis Risk Team further supports this structure by conducting in-depth analyses of on-chain token liquidity and estimating potential market impacts should portfolio liquidations occur. This comprehensive evaluation helps prevent scenarios where excessive leverage could lead to significant market disturbances during volatile periods.
Valuation Adjustments and Liquidation Protocols
Integrating with the 1inch protocol allows us to manage asset swaps and price estimations effectively, minimizing the impact of liquidations. This method uses liquidity-weighted price estimates to keep our portfolio valuations responsive to market conditions, an essential feature during periods of high volatility.
We also implement proactive valuation adjustments through stress tests, applying valuation haircuts based on the borrowed asset. These preemptive measures are designed to trigger liquidations early, providing a safety margin that helps preserve capital. For example, borrowing wETH using ezETH as collateral involves a 10% valuation haircut, whereas borrowing USDT requires a 30% haircut.
Support Systems and Ethical Practices
Asset Manager Support and Operational Flexibility
Arkis offers prime brokerage-like support to our Asset Managers, ensuring they receive timely margin calls and advice to maintain healthy leverage levels. Asset Managers benefit from the flexibility to enhance their margin accounts using any whitelisted ERC-20 token, providing immediate improvements in their risk positions. This feature is crucial for managing risk dynamically and effectively in real-time market conditions.
Ethical Liquidation Practices
Arkis does not profit from liquidations. Our approach to handling liquidations internally avoids the need for external liquidators, reducing costs and focusing on equitable outcomes for all parties. After lenders are repaid, Asset Managers retain any remaining value.
Conclusion
The challenges posed by events like the ezETH depeg highlight the importance of robust risk management and the need for continuous innovation in DeFi. Arkis is committed to evolving responsibly, ensuring that our growth in TVL reflects our maturity and capability to manage risks effectively.
About Arkis
Arkis offers multichain, undercollateralized leverage powered by portfolio margin. Author Oleksandr Proskurin is the Co-founder and Chief Product Officer.
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