> For the complete documentation index, see [llms.txt](https://docs.wasabi.xyz/perps-lite-paper/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://docs.wasabi.xyz/perps-lite-paper/insurance-fund.md).

# 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.