How Does a Funding Rate Mechanism Differ from an Insurance Fund?

The funding rate mechanism is a periodic payment between long and short traders in a perpetual futures contract, designed to keep the contract price pegged to the underlying asset's spot price. It is a peer-to-peer transfer.

The insurance fund, conversely, is a centralized pool of capital used by the exchange to cover liquidation deficits and prevent ADL. The funding rate is for price stability; the insurance fund is for risk management.