[TFIP-15.1]: Arkis as Tech Service Provider & Liquidation Agent

[serjxyz]

This is a follow-up to [TFIP-15] Arkis as Tech Service Provider & Liquidation Agent.

Summary

In light of Wallfacer’s failed bid to renew its contract with the DAO, a fresh proposal is needed to economize DAO resources and expand the opportunity set for the DAO.

Arkis has been observing TrueFi DAO for some time now, and we are excited to help. We see TrueFi as one of the essential pillars of the institutionalization of crypto and broader adoption of credit as a vital financial primitive in crypto. In a market dominated by a yield maximization profile, TrueFi plays an essential role at the capital formation layer in accelerating the maturity of decentralized finance. We believe the current status of DAO is an excellent opportunity to band together and connect your expertise with ours. TrueFi Credit formation infrastructure, Arkis’s collateralization and liquidation expertise and infrastructure, credit risk management of Cicada and Adapt3r’s RWA tokenization capability.

Arkis proposes to serve as a tech service provider and Prime Broker/Liquidation Agent for TrueFi DAO, with a one-year commitment and six-month budgeting and review cycles. As of 27/08/2024, we are asking for remuneration of 13 million TRU tokens for the next six months of work.

Overview

This proposal aims to achieve two main objectives: (1) apply for the position of Technical Service Provider (TSP) and (2) establish the roles of Prime Broker (PB) and Liquidation Agent (LA) within the TrueFi DAO to facilitate capital-efficient collateralized lending. As a Technical Service Provider, Arkis will support other service providers within the ecosystem, including Adapt3r, Cicada, and others.

As a PB/LA, Arkis will assist the Credit Risk Manager in monitoring, alerting, and liquidating collateral supporting crypto lending deals underwritten by Credit Risk Managers on TrueFi.

Solution

Prime Broker-like services enhance the credit market for trading firms by implementing well-established financial rules to foster a more stable and secure cryptocurrency financial ecosystem. The DeFi Prime Broker model provides the security of over-collateralized lending with the capital efficiency of the under-collateralization model, restricted to the PB’s ecosystem.

About Arkis

Arkis is a DeFi Prime Broker founded in 2022, backed by gumi Cryptos Capital. We are an in-house team of experts in blockchain, trading, and margining infrastructure.

The Team

• Oleksandr Proskurin
  • Co-founder and CPO at Arkis
  • More than 10 years of algorithmic trading, HFT trading, and market-making experience and expertise in DeFi asset management. Responsible for shaping Arkis’ product feature line and creating the architecture and risk models for pricing and collateralization inside the Arkis Margin Engine.
• Aleksandr Kopnin
  • CTO at Arkis
  • Technology Strategist and R&D Executive with extensive experience defining and creating software systems based on emerging technologies. Created start-ups targeting various sectors of capital markets, including decentralized self-custody, digital assets clearing & settlement network, AML, DeFi assets management, and others.
• Serhii Tyshchenko
  • Co-founder and CEO at Arkis
  • TradFi Portfolio manager at +2B AUM funds for 7+ years and experienced fintech builder.

Arkis 1.0: a transparent, secure walled garden for decentralized OTC loans.

• Credit Providers: Earn passive yields on their assets with higher native returns compared to other lending protocols, backed by superior security guarantees.
• Onchain Credit Risk Managers: Deploy capital to designated borrowers in a zero-trust environment, benefiting from real-time risk factor monitoring and instant liquidation signals.
• Asset Managers: Leverage their collateral (ERC-20 tokens, LP positions, Pendle PT tokens) via Arkis smart contracts to obtain undercollateralized leverage with seamless Direct Market Access through Account Abstraction to integrated protocols.

Arkis team has built a system for safe, zero-trust, and robust credit provision on the Ethereum mainnet. The system includes:

• A set of smart contracts for safe, traceable funds allocation from Lenders’ wallets to Arkis Liquidity Pools (Deposit System) without any counter-party risk (trustless environment).
• Set of smart contracts through which Borrowers can interact within only whitelisted protocols and operations (Margin Accounts).
• A set of smart contracts for deploying capital from Arkis Liquidity Pools to Margin Account with collateral deposit from Borrower (Funds Allocation).
• A set of smart contracts to liquidate Margin Account positions if margin value drops below a certain level (Liquidation).
• dApp to facilitate both lend, borrow, and close Margin Account transactions.
• Arkis Risk Management system assesses each allocated Arkis Margin Account in real-time (24/7) and generates liquidation signals for unhealthy profiles.
• Arkis Analytics to monitor blockchain events and estimate position values and exposures for allocated Arkis Margin Accounts.

Arkis’s smart contracts system has been audited by Quantstamp and battle-tested on live transactions, facilitating over $5 million in transaction TVL. See the audit report here.

There are several examples of Arkis’s system at work on Ethereum Mainnet:

• Allocation
• Margin Accounts

Arkis 2.0: DeFi-CeFi Cross Margining

The Arkis team has extensive experience in portfolio risk assessment for both DeFi and CeFi assets and deep technical expertise in building credit solutions where both DEX and CEX are involved. Arkis 2.0. calculates portfolio margin by considering both CeFi and DeFi positions—the first Prime Broker capable of knowing when a hedge fund is delta-neutral. The user case might involve using existing TrueFi smart contracts architecture/T-bills product to build out the user case where on-chain collateral is used to borrow funds for CEX trading (market-making activities, for example).

Scope of Work:

Tech Service Provider

1. Initial Arkis Onboarding and knowledge transfer sessions
2. Milestone: Pool Launch (Partner Integrations for distribution)
   1. Onboard stablecoin distributors
   2. Amend the rewards model and integrate custom protocols if needed.
3. Milestone: Token distribution (Distributing token incentives on Arbitrum)
   1. Design & agree distribution model
   2. Implement a target distribution model (farming vs airdrop).
4. Milestone: Wallet / Interface Integrations
   1. Customize the yielding pool to integrate the CeFi protocol
   2. Add new wallet support
5. Milestone: Additional L2 deployments / Multichain Expansion
   1. Conduct research of L2 platform and network providers
   2. Add on-chain Liquidation / Liquidation Fund Contracts
   3. Modify TrueFi smart contracts & WebApp to support new L2 solutions
   4. Amend the business logic of TrueFi smart contracts to support native tokens
6. Milestone: tfBill / Fund Admin reporting
   1. Agree & design Advanced Reporting and Accounting requirements for service providers and lenders
   2. Implement UI for Lenders to get interest accrued for connected wallet

*Roadmap readjustment with regular cadence

---

Prime Broker and Liquidation Agent

Arkis will be the designated Prime Broker solution for TrueFi DAO’s efforts to deploy credit investments across DeFi. Arkis will build out guarded margin accounts for designated borrowers underwritten by Cicada Partners to facilitate safe credit provisioning on an ad-hoc basis.

Connect Letter of Credit and Credit Vaults to Arkis’s institutional lending desk with a pool of KYC/AML’ed borrowers managed by Cicada Partners. This will involve integrating protocols with strong Borrower-Lender PMF to run through LOC or Credit Vaults.

Prime Brokerage’s walled garden model allows credit providers to increase expected APY. With increased capital efficiency inside the Prime Broker walled garden, borrowers are ready to pay more.

Supporting Service Provider: Protokol

We will work with a web3 solutions partner that specialises in blockchain, smart contracts, DeFi, NFTs, and more. They have a solid track record of delivering custom Web3 and blockchain-based solutions for clients, including the European Commission, Club Dvin, and Logos DAO. This will be a strategic partnership with an experienced service provider to ensure we meet all milestones on schedule.

Protokol may supply Arkis with high-quality talent to ensure on-time completion of the tasks defined in this proposal, should additional talent be needed on an outstaff basis. This does not impact the proposed budget.

Proposal and Remuneration Model

1-year commitment with 6-month budgeting and review cycles.

• Roadmap for one year period.
• Detailed budget for the initial three milestones for six months of work.
• DAO commits resources for an initial scope of 6 months with 12-month planned roadmap**.**
• DAO estimates Arkis’s performance and delivery after six months of work and decides on further collaboration.

Under this approach, DAO remains flexible and does not take unnecessary risks. At the same time, the Arkis team does not need to put an extra premium on long-term planning and project estimation.

Proposal for the initial six months

1. 13,000,000 TRU tokens as of 27/08/2024 (subject to the exchange rate)

2. ~$1.25 million worth of TRU tokens as of 27/08/2024

3. Start date 01/09/2024*

4. Finish date 01/03/2025*

5. The cost model with the roadmap is attached below

   TrueFi TFIP-15.1 Proposal Cost Model

*This proposal starts in September, but all dates could be shifted

Base and Performance-based Remuneration for Prime Brokerage Services for the credit transactions to be reviewed on a case-by-case basis in further proposals

• PB commission or revenue sharing TBD

To ensure transparency and accountability in the scope of work assessment, the Arkis team is happy to provide timesheets detailing the number of hours each employee spends weekly.

Estimates are approximate but represent what we can work with. The final scope of work can be adjusted with the DAO, and an updated budget will be presented based on the current model and assumptions.

Arkis executives mentioned in the proposal are not included in remuneration but are responsible for fully representing DAO’s interests and managing the execution of the milestones.

Final Thoughts

The Arkis team has developed modular smart contracts and an on- and off-chain liquidation engine that can significantly enhance existing lending conversations with borrowers and open new opportunities with riskier credit profiles. The ability to manage collateral provides a valuable risk-adjusted service, allowing the DAO to justify higher fees to lenders.

We are excited to explore synergies between TrueFi DAO, Credit Risk Managers such as Cicada, and our Prime Brokerage infrastructure solutions, which empower lenders in a market burdened by constant liquidity crunches.

Index

References

• Product deck
• Whitepaper Margin Engine v1 - DeFi Prime Broker
• Whitepaper Margin Engine v2 - CeFi/DeFi Portfolio Margin
• Documentation
• Website

Case Study: Arkis <> Cicada test transaction

Overview:
Arkis successfully facilitated a decentralized over-the-counter (OTC) loan in a secure and transparent environment. We enabled a seamless transaction between Edge Capital and lenders, supported by robust risk management from Cicada Partners.

Entities Involved:

1. Borrower: Edge Capital
2. Risk Manager & Lender: Cicada Partners & Related Entities
3. Liquidation Agent: Arkis

Assets Used:

1. Margin Assets: Wrapped Ether (wETH) and Curve (CRV) tokens
2. Loan Asset: Tether (USDT)

Loan Details:

• Loan Value: $500,000 USDT
• Loan-to-Value (LTV) Ratio: 56%
• Value of Margin Assets: $393,700

Process Flow:

1. Loan Request: Edge Capital approached Cicada Partners requesting a $500,000 USDT loan.
2. Collateralization: Edge Capital provided wETH and CRV tokens, valued at $393,700, as collateral. This satisfied the required 56% LTV ratio, ensuring sufficient coverage for the loan.
3. Risk Management: Cicada Partners assessed the provided collateral and loan terms. The risk manager ensured the transaction met all necessary risk management criteria, on- and off-chain.
4. Loan Issuance: Upon approval, $500,000 USDT was disbursed to Edge Capital through Arkis’s walled garden account abstraction and liquidity pools smart contracts.

Yield Farming Activity:

• Edge Capital utilized the borrowed USDT and the margin assets to yield farm on whitelisted liquidity pools within the Convex protocol. This strategy involved providing liquidity and earning rewards through interest and token incentives, maximizing the returns on the borrowed funds and collateral.

Key Considerations:

1. Transparency: All transactions were recorded on the blockchain, ensuring transparency and traceability.
2. Security: Smart contracts facilitated the transaction, significantly reducing counterparty risk and ensuring the integrity of the collateral.
3. Compliance: Cicada Partners’s involvement ensured that all activities adhered to Arkis’s risk management standards and compliance protocols.

Outcome:
The case study highlights a successful transaction facilitated by Arkis:

• Loan Fulfilment: The loan was successfully disbursed to Edge Capital, allowing them to leverage additional funds for yield farming.
• Effective Use of Collateral: The provided margin assets secured the loan and met the required LTV ratio.
• Yield Farming Returns: Edge Capital engaged in yield farming on the Convex protocol.

Proposal Vote

• For
• Against

[christiancicada]

Cicada is supportive of this proposal. Please our comments here for our rationale that we wrote the first time Arkis posted.

[TylerEther]

Thanks for bringing this proposal to TrueFi. I love the idea of using walled gardens to enable undercollateralized leverage, as this supports safer and more efficient credit markets.

With that being said, I have some questions that may help voters and users better understand the system, if you don’t mind:

1. Can you elaborate on the legal handling of the IP?
2. Which protocols and CEXs are supported?
3. If I understand correctly, account health and the decision to liquidate are computed offchain. Can you elaborate more on this?
4. Are there any plans to open up the Liquidation Agent role in the spirit of decentralization?
5. Is there a place where we can analyze the performance of current and past deployments?
6. I see on Etherscan that the contracts are MIT-licensed. Is there a git repo where we can see everything together?
7. What happens after the 1-year commitment period?

Once again, I like what I see so far. Thanks again for presenting us with this opportunity.

[StrategoHoldings]

This interview with Serhii may provide some insights into Arkis and their teams thoughts as of 3mths ago

Shaping Institutional Finance with Arkis' DeFi Loans | Innovate & Grow Ep. 7

[serjxyz]

Hi @TylerEther, thanks for the thoughtful questions.

1. In terms of TSP engagement, we are happy to adhere to the previous handling of business (with Wallfacer) and follow the DAO lead here. Generally, I would say everything related to the identified scope of work accomplished with a dedicated budget according to the TrueFi roadmap belongs to the DAO. In terms of Arkis-specific prime brokerage services, let’s say, for instance, usage of the walled garden, DAO service providers, like credit risk managers such as Cicada, would use Arkis protocol as an instrument.

2. Currently, there are two types of transactions that we can facilitate: inside the walled garden and outside.
   Inside of the walled garden
   We can give up to 5x leverage to the borrower on connected protocols to trade via the Arkis smart contract. The current list of protocols is Curve, Convex, Pendle, 1inch, and Uniswap v3 (a new protocol is added monthly based on client needs).
   Regarding leverage, approximately 4- 5x for delta-neutral positions and 2- 3x for directional positions.
   Technically, Arkis can collateralize any ERC-20 token. Factually, only assets with sensible stress-tested value, shitcoins, will be discounted into oblivion. If we can liquidate it without much slippage, we can collateralize it. Liquidation mechanisms are our strongest suit, in general.
   Outside of the walled garden
   Arkis can also facilitate vanilla over collateralized transactions for our borrowers and lenders. We can accept collateral to our smart contracts and allow the withdrawal of funds to borrowers’ wallets. LTV varies from 50-86%. The usual use case is sending different kinds of yield-bearing tokens as collateral and withdrawing funds to improve the margin on CEXes.
   The most popular assets to use as margin or collateral: Curve LP, Pendle PT, s/USDe, USD0/++, deUSD, wETH, LRTs.

About CeFi, we are currently onboarding as a master broker with OKX and Binance, we also just finished onboarding with Bybit. This will enable us to open sub-accounts for borrowers and connect our margin engine, and liquidate positions. The most important user case here is to provide CeFi DeFi portfolio margin. Tests are currently scheduled for November. Another critical point here is that, at this point, our roadmap is entirely driven by our users and their needs. Working this closely with TrueFi DAO would mean that our roadmap would also adhere to the needs of DAO and its borrowers.

3. Yes, our margin engine is a 24/7 off-chain service that calculates the portfolio value of a user. The reason why it is offchain is because onchain computations can not sustain complex stress-test and scenario analysis computations used in state-of-the-art margin systems like SPAN (The Standard Portfolio Analysis of Risk, https://www.cmegroup.com/solutions/risk-management/performance-bonds-margins/span-methodology-overview.html). Arkis Margin Engine was built on foundations laid by TradFi margin systems as SPAN which rely on complex scenario analysis. Even though the calculations are off-chain, Arkis’ margin engine calculations are transparent regarding methodology and approach (v1/v2 whitepapers of Arkis’ Margin Engine are public). Furthermore, Arkis’ clients get real-time risk-factor / stress-tested portfolio values updates (via WebSocket or Arkis Portal) to make sure that calculations run in expected, traceable format.
   Here is a diagram to show the high-level decomposition of the Arkis system. The risk Management platform is a low latency system that implements risk factor calculation accordingly to Whitepaper (DocSend).
   

   

4. Arkis’ mission is to decentralize prime brokerage as a concept. We don’t take counterparty risk as a centralized prime broker, rather positioning ourselves as an instrument that other credit-focused institutions can use to improve their operations and credit deals. However, we are completely driven by what the user currently needs. Currently, users need guidance. Once we can put the margin engine with a generation of liquidation plan on-chain, we will do it. We see this as a service provision, and we have built expertise and infrastructure that made us masters of collateralization and liquidation. We know how to access assets, price them, and create a liquidation mechanism, allowing us to be first on the market to collateralize new financial primitives. However, the long-term plan is for other people to use our infrastructure for their credit deals, thus being, in part, a liquidation agent.

5. Arkis does not currently store the full characteristics of past transactions (LTV, etc.) in centralized storage; however, all contract interactions are available on-chain, and the Arkis team is willing to provide detailed information with transaction description, use case, and metrics (LTV, collaterals).

6. Arkis v2 smart contracts under GPL-2.0, which reflects Arkis’ vision in terms of IP. Regarding Github, Arkis uses a private gitlab repo. However, we can share it if TrueFi requests it.

7. We review, evaluate performance, draft a further roadmap, and extend the contracts if all accomplished work is satisfactory. Overall, we are ready for a long-term multi-year commitment. This period felt like it would allow DAO to evaluate whether we are a good fit while also giving us enough time to hit the ground running and accomplish a lot in collaboration with other DAO partners. We are open to discussing a longer-term commitment if this is something DAO requires from the get-go.

[serjxyz]

I have been told that the attached cost model is easy to overlook, so I will add it again separately here. The budget proposal includes a dedicated professionals for DevOps, solutions architect, analyst, frontend, backend, blockchain, QA, PM, and UX. All of whom will work solely for the good of the TrueFi DAO. For more details, refer to this: TrueFi TFIP-15.1 Proposal (1).xlsx - Google Sheets

[rafaelcosman]

Hi @serjxyz - thank you for this very interesting proposal, I am very excited to see these new opportunities/partnerships coming into to the TrueFi DAO.

[sebdavies]

Arkis is legit. We’ve evaluated them as counterparties for our fund and will be clients as our asset base grows.

[serjxyz]

Thank you all for your thoughtful questions; it has been a while since our initial post, and the forum discussion has run its course. According to TFIP 16 & 16.1, 72 hours have passed since the original post, allowing the community time to review the proposals and the relevant thread.

Therefore, according to TFIP 16 & 16.1, the snapshot process is up for an additional 48 hours. In the meantime, I am happy to extend the discussion and answer all questions.

https://snapshot.org/#/truefi-dao.eth/proposal/0x1e501faca1d834da63e8bba3eb1993324c50c8706efb7fa0d617720a6ecb969d