How Are Insurance Funds Typically Capitalized and Managed?

Insurance funds are primarily capitalized by collecting a small portion of the fees generated from liquidated positions. When a position is liquidated, the exchange attempts to close it at a better price than the bankruptcy price.

Any surplus generated from this closure is added to the insurance fund. The exchange's risk management team manages the fund, monitoring its size and ensuring its stability.

They may occasionally adjust fees or liquidation parameters to maintain its health.