How Is the Optimal Size of an Insurance Fund Determined? ⎊ Path

How Is the Optimal Size of an Insurance Fund Determined?

The optimal size is determined by the exchange's risk management team, considering factors like market volatility, average daily trading volume, maximum leverage offered, and the historical frequency and size of liquidation deficits. It needs to be large enough to cover the largest plausible deficit event but not so large as to be inefficient.

What Are the Pros and Cons of Sizing a Guarantee Fund to Cover the Default of the Largest One versus the Largest Two Members?

How Do CCPs Use Stress Testing to Determine the Appropriate Size of Their Default Fund?

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

How Do Exchanges Determine the Optimal Size for Their Insurance Fund?

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

How Is the Size of the Guarantee Fund Determined?

What Is the “Cover 2” Standard and How Does It Relate to the Size of a CCP’s Default Fund?

Differentiate between Historical and Hypothetical Stress Testing Scenarios

Glossar

Decentralized Insurance Fund

Pool ⎊ A Decentralized Insurance Fund is a capital pool, typically comprised of native protocol tokens or stablecoins, specifically designated to absorb losses from liquidations that fail to cover a defaulted derivatives position.