Insurance Fund
Function of the Insurance Fund
The primary role of the Insurance Fund is to act as the primary liquidator for margin positions experiencing insufficient collateral. When a user's collateral ratio (CR) falls below the established minimum collateral ratio (MCR), the Insurance Fund takes swift action to manage the risk by:
Taking control of the affected position: The Insurance Fund assumes responsibility for the under-collateralized position.
Facilitating liquidation: The Insurance Fund executes a controlled liquidation of the position to recoup any remaining value.
This proactive intervention by the Insurance Fund prevents the spread of financial losses and safeguards the financial well-being of the RateX user community.
Funding the Insurance Fund
To effectively fulfill its responsibilities, the RateX Insurance Fund relies on two main sources of income:
Trading Fee Allocation: A predetermined percentage of the trading fees generated from all transactions across RateX is systematically channeled into the Insurance Fund. This continuous inflow of funds strengthens the Fund's capacity to handle potential liquidation events.
Liquidation Surplus: Following a liquidation process, any residual value remaining from the user's margin is also added to the Insurance Fund. This additional resource further bolsters the Fund's reserves and enhances its resilience.
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