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What Are the Risks Associated with an IL Insurance Mechanism Failing?

Depletion of the fund, smart contract exploit, or governance failure, leading to uncompensated losses.
Greeks.Live28.10.25

What Are the Risks Associated with an IL Insurance Mechanism Failing?

If the IL insurance mechanism fails, LPs who relied on the compensation could suffer significant losses. Failure can occur if the insurance fund is depleted due to extreme market events, if the underlying smart contract is exploited, or if the governance mechanism votes to halt compensation.

This erodes LP trust and can lead to a mass withdrawal of liquidity.

What Is a “Smart Contract Exploit” and Its Financial Consequence?
What Are the Risks Associated with the Potential Failure of a Major CCP?
Can an External Attacker Exploit a Vulnerability in the Logic Contract before It Is Upgraded?
Do Decentralized Cryptocurrency Exchanges (DEXs) Utilize a Similar Guarantee Fund Mechanism?

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