How Does the Size of the Insurance Fund Relate to the Exchange’s Maximum Allowable Leverage?

The size of the insurance fund is directly related to the exchange's risk appetite and, consequently, its maximum allowable leverage. A larger, healthier insurance fund allows the exchange to offer higher leverage, as it has a greater capacity to absorb the increased risk of negative balances.

Conversely, an exchange with a small fund must offer lower maximum leverage to mitigate the risk of ADL or socialized losses.