The insurance fund is designed to manage losses during forced liquidations to maintain market stability.
During forced liquidation, the system settles positions at the bankruptcy price.
If the market price is worse than the bankruptcy price, the position’s margin may be insufficient to cover the required margin for liquidation.
In such cases, the insurance fund takes over the user’s position, covering losses that exceed the position’s current margin balance.
If the insurance fund is depleted and cannot cover all negative balance losses, the Automatic Deleverage (ADL) mechanism is activated.
ADL uses profits from other traders’ positions to offset the shortfall.
Last updated 1 month ago
