Current model approaches used to simulate the degradation of permafrost under a warming climate are highly simplistic since they only consider one-dimensional (top-down) thawing and ignore lateral processes such as soil erosion and mass wasting which are the most abundant forms of thaw in many regions. Thus, current model assessments are most likely far too conservative in their estimates of permafrost thaw impacts (Rowland & Coon, 2015). It therefore remains uncertain how climate warming and permafrost thaw will affect (i) the intensity of erosion and mass wasting processes and (ii) essential ecosystem functions, landscape characteristics, and infrastructure. It also remains unclear (iii) whether any erosion-induced landscape changes further accelerate permafrost thaw. In order to answer these critical questions, land surface models (LSMs) require a new level of realism in order to adequately project permafrost thaw dynamics. Within the PermaRisk project, the permafrost model CryoGrid3 is extended with an erosion scheme that allows to represent lateral mass movement processes within the limited framework of one dimensional LSMs. The new model will be applied and validated at three Arctic sites in Alaska, Canada, and northern Siberia. Furthermore, 21st century climate impact projections for the key sites are scheduled as a basis for thorough risk analyses concerning potential damages to critical ecosystem functions/services and infrastructure. We will present first simulations on rapid permafrost degradation processes with a special focus on thaw slumps at a test site in northern Canada. We expect the results to demonstrate the capabilities and the limitations of the new model.