How Do Exchanges Replenish or Grow Their Insurance Funds?
Insurance funds primarily grow from the residual margin left over after a successful liquidation. When a trader's position is liquidated, the process aims to close the position at the bankruptcy price.
If the exchange manages to execute the trade at a better price than the bankruptcy price, the excess margin remaining after the trade is deposited into the insurance fund. Some exchanges may also allocate a portion of trading fees to the fund.
Glossar
Funding Rate Mechanism
Mechanism ⎊ Funding Rate Mechanisms within cryptocurrency derivatives represent periodic payments exchanged between traders holding opposing positions in perpetual contracts, designed to anchor the perpetual contract price to the underlying spot market.
Insurance Funds
Resilience ⎊ Within cryptocurrency derivatives and options trading, insurance funds represent a structured mechanism designed to mitigate systemic risk and enhance market stability, particularly in volatile conditions.