Insurance Fund
In Jungle perpetual trading, the insurance fund serves as a protective mechanism within the trading platform to cover unexpected losses caused by liquidation events. It's a reserve pool funded by a portion of liquidation fees.
When a position is liquidated due to a margin call or reaching the liquidation price, the platform uses the insurance fund to cover the losses if the market movement causes the liquidated position to be closed at a price worse than the liquidation price. This fund is vital for maintaining the stability and integrity of the trading platform. It helps prevent situations where the platform might not be able to cover the losses from a liquidation, ensuring that winning traders receive their profits and minimizing the risk of cascading liquidations affecting the entire system.
The insurance fund is a mechanism implemented by Jungle to safeguard the long-term stability of the platform. Its primary purpose is to address the risk of bad debt caused by positions not being liquidated in a timely manner, thus preventing potential losses due to position liquidations.
When a user's position triggers the liquidation warning threshold (0.8k), a kind reminder of voluntarily closing positions will be sent via email from Jungle to mitigate potential losses incurred during the liquidation process. Those who close positions will be entitled to the remaining assets, excluding losses and fees.
When a user's position triggers the liquidation execution threshold (k), the Jungle Exchange intervenes to forcibly liquidate the user's position. Subsequently, Net Value will be added to the Insurance Fund. This fund serves as a financial safety net, intended to cover losses arising from delayed liquidation or other unforeseen platform-related risks.
Here is two examples of insurance fund change.
During the initial stages of platform operation, our team will inject an initial amount of capital into the insurance fund to ensure system stability. As the platform matures and operates smoothly, a gradual reclamation of this initial investment will be scheduled.