Insurance Fund
A reserve fund used to cover losses from liquidations or system imbalances.
What is Insurance Fund?
An insurance fund on a Perp DEX is a pool of digital assets, often funded by trading fees or protocol profits, used to cover losses when a trader’s liquidated position cannot be closed profitably or when the liquidity pool faces a shortfall. For instance, Hyperliquid maintains an insurance fund to protect liquidity providers from losses due to extreme market volatility or failed liquidations.
The fund acts as a safety net, ensuring the protocol remains solvent and traders are not unfairly impacted by system failures. Smart contracts manage the fund transparently, and its balance is often publicly viewable. In some cases, like on dYdX, the insurance fund may also cover rare events like oracle failures, maintaining trust in the platform.
Related Terms
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Net Asset Value - the per-share value of an investment fund's assets minus liabilities, calculated daily to determine share prices.
Meme on Solana
Humorous digital assets on the Solana blockchain, often inspired by internet memes, leveraging low fees and high speed for rapid launches and trading.
Payment Service Providers (PSPs)
Intermediaries facilitating electronic transactions between merchants and customers.
Pendle
A DeFi protocol for tokenizing and trading future yields from digital assets, enabling users to separate principal from yield for fixed-rate strategies and speculation.
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PIPE
Private placement of public equity shares to accredited investors at a discount, for quick capital.