Insurance Fund

The exchange insurance fund is the reserve kept to cover any unexpected losses that occur from leveraged trading. The insurance fund prevents traders from getting bankrupt during liquidation.

Insurance funds play a crucial role in cryptocurrency derivatives exchanges and protocols. Insurance funds comprise funds from liquidation penalties, exchange fees, and various other means.

It is the task of the exchange operators and protocol designers to keep the insurance fund's health in check while offering leveraged trading to the users. This helps in ensuring solvency for the exchange.