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# Insurance Fund

The insurance fund provides a capital buffer to keep the exchange solvent and fair. Capitalizing the insurance fund is a cost shared by all liquidated positions. In return, traders have the peace of mind knowing that they will always receive the profits they deserve. The insurance fund is a crucial component of any exchange that allows for leveraged trading. It is the first line of protection against system-wide capital drawdowns that result from negative-equity liquidations.
Insurance Fund: When positions are liquidated, liquidator receives 70% the liquidation fees, i.e. equity at liquidation. The remaining 30% is deposited into the Insurance Fund. If the position collateral is not enough to pay for all of the liquidation fees, capital from the Insurance Fund is drawn to compensate for the difference.
$\text{Equity at Liquidation}=\text{Position Margin }+\text{Unrealized PnL}$
Liquidator Premium: in positive-equity liquidations 70% of the equity will flow to the liquidator.
Insurance Fund Premium: in positive-equity liquidations 30% of the equity will flow to the liquidator.