Why Is It Crucial for an Exchange to Have a Healthy, Well-Funded Insurance Fund?

A healthy insurance fund is the primary defense against systemic risk on a leveraged trading platform. It ensures that negative balances from bankrupt positions are covered without resorting to disruptive mechanisms like Auto-Deleveraging (ADL) or socialized losses.

A well-funded reserve instills confidence in traders, stabilizes the market during volatile periods, and guarantees that profitable traders receive their full expected earnings.