Insurance Fund

An insurance fund is a safety net maintained by crypto derivatives exchanges. It absorbs losses that occur when liquidated positions are closed at prices worse than the bankruptcy price, preventing socialized losses among other traders.

How Insurance Funds Work

1. Trader is liquidated at their liquidation price 2. The exchange tries to close the position at the bankruptcy price 3. If the position is closed at a better price → excess goes to the insurance fund 4. If the position is closed at a worse price → the insurance fund covers the shortfall 5. If the fund is depleted → Auto-Deleveraging (ADL) activates

Insurance Fund Sizes (Approximate)

Why It Matters

A large, healthy insurance fund means:

• Lower chance of ADL affecting your positions
• Better market stability during extreme events
• More confidence in the exchange's risk management