Insurance Fund & Backstops

The Insurance Fund is the final backstop to protect the protocol from bad debt in "black swan" events.

  • Capitalization: The fund is capitalized via a share of all trading fees and liquidation penalties, ensuring it grows organically with platform activity.

  • Function: In the rare event a liquidation results in a loss greater than the user's collateral, the Insurance Fund covers the deficit, protecting LPs from socializing losses. If the Insurance Fund were ever depleted, the Junior Tranche of the LP Vault would act as the ultimate backstop.

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