Insurance pool

The insurance pool is a separate liquidity pool that earns protocol fees and liquidation penalties in return for system risk management. Currently, the insurance pool is accumulating liquidity at 50% of all trading fees collected by the platform.

Governance can change this weight based on the information and considerations outlined in the risk management section.

The insurance pool is a liquidator of last resort: when there is not enough liquidity in the system, the pool steps up to liquidate risky positions. It receives up to a 5% profit margin by doing so. The amount of liquidity required to be held in the insurance pool can be efficiently measured when we calculate how much liquidity the system lacks under specific market stress scenarios.