Insurance Fund

The insurance fund is designed to protect and maintain the solvency of the protocol by absorbing any unexpected losses, particularly those that arise from the liquidation process.

When the market gets highly volatile, there is a possibility that positions have gone bankrupt before they get liquidated in time. This means the position's remaining collateral isn't enough to cover the liquidation penalty to insurance fund and liquidators, and this leads to bad debt being created, which will subsequently covered by funds from the insurance fund.

In the case where the insurance fund does not have enough funds to cover the bad debt, auto deleveraging is triggered where the losses are spread to the most profitable and leveraged positions.

Each trading pair has its own isolated insurance fund, which accumulates over time as the protocol accrues profit to insurance fund.