Why Are Perpetual Futures Liquidation Profits Often Directed into the Insurance Fund?

Liquidation profits occur when an exchange is able to close a liquidated position at a price better than the bankruptcy price. This surplus margin is automatically transferred to the insurance fund.

The practice is essential for continuously replenishing and growing the fund. By directing these profits to the fund, the exchange ensures the capital pool remains robust enough to cover losses from other liquidations that result in negative equity, maintaining the overall stability and solvency of the derivatives platform.