Insurance Fund

When the market is not balanced, meaning it leans heavily towards either buying (long) or selling (short), LPs face a unique scenario. They can earn higher interest due to increased demand for leverage, but this comes with a greater risk of accumulating bad debt if the market moves against them.

To manage this risk during times when the market is heavily polarized, a portion of certain fees generated through the protocol goes to the insurance fund.

The insurance fund serves as a protective buffer. It's designed to cover potential losses that might occur in extreme market conditions, thereby safeguarding the LPs' interests and the overall health of the protocol.