Insurance Fund

Tips: Understanding maintenance margin in ‘Tiered Liquidation' helps understand insurance Funds

What is the insurance fund?

The insurance fund is an insurance measure to reduce users’ and ensure that the profit of the profiteer can be fully cashed out. It often plays a great role in extreme market conditions.

How insurance funds are generated?

After the liquidation engine takes over the position, the profit from the position will be put into the insurance fund.

When a liquidation occurs, the liquidation engine will take over the user's position and the remaining maintenance margin at the takeover price. If the liquidation engine generates a surplus after processing the position, this part of the surplus will be fully put into the insurance fund, which is the only source of the insurance fund.

From:

Maintenance margin surplus for liquidated positions

Example: Maintenance Margin

How the insurance fund is used?

When a liquidation occurs, the liquidation engine will take over the user's position and remaining maintenance margin at the takeover price.

If the position continues to lose money after the system takes over, part of the losses will be compensated by the insurance fund, and this part of the compensation will be used to settle the profits of the profitable users. The rest of the position will be borne by the profitable users, which can be regarded as giving up part of the profits.

Used for:

Compensation for losses from forced liquidation

For more details, see: Socialized Loss System