How Arkis defines risk

In digital asset markets, risk is rarely defined upfront. It emerges from fragmented accounts, venue-specific margin rules, and loosely connected positions across CeFi and DeFi - and from how those positions behave under changing market conditions and shifts in collateral quality. A trader may hold collateral on one exchange, deploy it into multiple protocols, and hedge exposure elsewhere without a single system capturing how those pieces interact. Risk is not defined in one place - it is inferred, often too late.

Most infrastructure adapts by improving monitoring or tightening execution controls. Arkis takes a different approach: risk is defined upfront through explicit constraints on what capital can do, where it can go, and who it can face. Those constraints are enforced by the system and continuously evaluated as positions evolve.

This is not a single mechanism, but a system that operates in layers. At its center is the Market - the bounded environment that holds capital and defines the risk parameters for that capital. Around it, Arkis’s infrastructure enforces those constraints wherever capital is deployed, and the Margin Engine evaluates exposure as it evolves under changing conditions and collateral quality.

This series breaks down how that system works, starting with how risk is defined.

Defining a Market

Every position in Arkis starts inside a Market: a walled garden defining what capital can interact with — assets, venues, and counterparties (see docs.arkis.xyz). This is where counterparties define how capital can be used: what is allowed, what is not, and under what conditions it can move. That definition remains consistent as the position evolves, and Arkis ensures those rules are enforced wherever the capital is deployed.

In practice, the flow is simple: counterparties define the rules, Arkis connects capital across venues, and the system enforces and monitors those rules as the position evolves. The Market is a single boundary that groups capital, rules, and counterparties into one unit of risk. Once that boundary is defined, the next question is how capital behaves within it.

Isolation by design

A common challenge in multi-venue strategies is shared capital, where the same collateral supports positions across different venues. These positions may appear independent, but they are linked — when one leg moves, the impact propagates.

Arkis breaks that coupling by isolating capital at the Market level. Allocated capital cannot be reused elsewhere, and its state does not depend on activity outside of it, eliminating shared margin between Markets. This makes risk explicit. Exposure no longer needs to be reconstructed across disjoint trading venues and accounts, it can be evaluated directly within that boundary. That isolation is not just structural - it determines how capital can be used in practice.

Constraining execution

Because the boundary is defined upfront, it also constrains execution. Every interaction must fit within the Market's security rules, and anything outside that scope is not accessible.

This applies across both on-chain and off-chain activity. Access is scoped through predefined accounts and transfer rules, while on-chain interactions are routed through contracts that enforce the same logic. Rather than detecting invalid behavior after the fact, the system limits what can happen in the first place. In practice, Arkis ensures that capital moves within the defined scope and that those rules are respected at every step. This establishes the boundary of risk but risk itself is not static.

From definition to enforcement

Defining and enforcing rules is only the first step. As positions evolve, they must be evaluated continuously. 

This is the role of the Margin Engine. It takes the parameters defined for the Market and evaluates the position in real time under changing conditions and shifts in collateral quality, including stress scenarios. It connects what was defined upfront with how the position behaves over time, providing a consistent view of risk across all connected venues. This definition also forms the perimeter that Arkis's security architecture is built to protect. 

We'll cover how this works in the next piece.