The Insurance Fund is designed to use the margin from fees on non-bankrupt clients to cover losses when the client accounts go below 0 in value. The primary purpose of the Insurance Fund is to limit the occurrences of ADL.
- In cases where a trader in liquidation (defined as collateral < maintenance margin) has less than 0 USDT after all his positions are liquidated, or is otherwise unable to liquidate positions, the trader is bankrupt, and Coinstorewill need to take over the remaining positions.
- In the vast majority of these cases, Coinstorewill use the Insurance Fund to take over the positions and offload them onto the market slowly. The Insurance Fund will collect liquidation fees from clients that do not result in client bankruptcy. If the insurance fund is unable to accept positions from the liquidations, ADLwill occur.
The Insurance Fund will be subjected to the following rules:
The fund will have a maximum net notional position check. The fund will not be allowed to exceed a predefined position notional on the market; by default, this is 100% the size of the insurance fund. Any positions that would increase beyond the max notional will be subjected to ADL. The insurance fund will offload positions according to a preset algorithm. All events that normally require intervention by the insurance fund will instead go into ADL before the fund could take positions.
The default leverage of the insurance fund is 1x.