Insurance Fund
Insurance Fund
The Insurance Fund is a core risk-management component in Kana Perps. It is designed to absorb losses from undercollateralized liquidations and provide a backstop for extreme market events.
Purpose
The primary role of the Insurance Fund is to ensure that the platform remains solvent and traders are protected even if a liquidated position's loss exceeds the user’s posted collateral.
Funding Mechanisms
The Insurance Fund is funded in two main ways:
Voluntary Contributions:
Any user can deposit funds into the Insurance Fund at any time.
These deposits are recorded and tracked separately from user trading balances.
The fund is denominated in
KanaUSDT.
Automatic Allocations from Liquidations:
During every liquidation, if the user has remaining collateral:
20% of that collateral is automatically added to the Insurance Fund.
The rest is distributed as per the standard liquidation logic (30% to the liquidator, 50% back to the user).
These contributions continue until the fund reaches its configured threshold cap.
Threshold and Admin Control
The Insurance Fund has a platform-wide threshold that defines the maximum reserve it should hold.
Once this threshold is reached:
Platform administrators are granted permission to withdraw excess funds for operational or treasury use.
Withdrawals can only occur after the threshold is met, ensuring that the fund remains adequately capitalized for risk protection.
Important: Admins cannot access or withdraw funds from the Insurance Fund before the threshold is reached, enforcing a strict safeguard for user protection.
Use During Insolvency
When a position’s losses exceed the user’s collateral, and liquidation is triggered:
The Insurance Fund covers the shortfall.
In such cases, no rewards are given to the liquidator.
The fund acts as a payer of last resort to ensure markets remain balanced and counterparties are not affected
Last updated