Insurance Fund

  • Updated

What is an Insurance Fund?

When the markets are highly volatile, it may be the case that liquidators are unable to liquidate positions before the value of some accounts go below zero. The insurance fund provides a safety net and maintains solvency by ensuring that profitable positions can be paid out in full and liquidated traders do not end up with bad debt. 

A trader will only get liquidated when the margin ratio is below 6.25%. Based on the margin ratio of the trader, the insurance fund and liquidators are incentivized with a small fee for dealing with almost insolvent positions.

However, if the trader's remaining margin is insufficient to cover fees for insurance fund and liquidators, there is bad debt and assets are drawn from the insurance fund to fill the gap.

The insurance fund balance is shared across all markets on Perp v2, where 20% of the trading fees accrue to the insurance fund (passed via this governance vote). For successful collateral liquidations, a 5% fee is charged by the insurance fund. 

How can I track the Insurance Fund balance for Perp v2?

You can track Perp v2’s insurance fund balance in real-time on Dune Analytics: https://dune.com/yenwen/perpetual-protocol_2

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