Insurance Fund Specifications

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The PowerTrade Insurance Fund aims to maintain a reliable and orderly trading environment, especially during times of high market volatility or unforeseen market conditions. It plays a critical role in maintaining a level of stability on the platform, and is a significant contributor to PTF token burn operations.

The fund is designed to act as a buffer against unexpected market volatility to prevent Auto Deleveraging (ADL), which could adversely impact profitable traders. In doing so, it aims to ensure that losing traders are not liable beyond the margin posted, while still allowing profitable traders to realize their expected profits.

The Insurance Fund (IF) contributes to platform stability in several ways:

  1. Preventing Auto Deleveraging (ADL): In volatile market conditions, positions may be liquidated to prevent further losses. The IF steps in to cover the deficit between the liquidation price and the market price, preventing ADL which could adversely affect profitable traders.

  2. Liquidation Management: The Liquidation Engine, funded by the IF, intervenes when a trader's position reaches the liquidation price. It attempts to close the position at the best possible price to minimize the loss and the impact on the market, which in turn aids in keeping the trading environment stable.

  3. Absorbing Shock from Extreme Market Events: The IF acts as a buffer to absorb financial shocks from extreme market movements. By doing so, it prevents a cascade of liquidations and ADL, ensuring that traders can continue to trade confidently.

  4. Maintaining Solvency: By managing liquidations efficiently and preventing ADL, the IF helps in ensuring that the platform remains solvent even during adverse market conditions.

Operational Fund Mechanics

We’ve implemented several operational mechanics to ensure the effective management and growth of the Insurance Fund:

  1. IF Allocation and Growth:

    • A portion of platform trading fees is allocated to the IF until a designated risk coverage threshold is met. Further, the IF grows from liquidations executed at a price better than the bankruptcy price.

  2. Maintenance and Liquidation Margins:

    • Each trade is associated with a Maintenance Margin and a Liquidation Price, acting as safeguards to ensure positions are closed out before a total loss occurs.

  3. Liquidation Engine:

    • The Liquidation Engine intervenes in positions that reach the Liquidation Price, with an aim to mitigate full liquidation by adjusting the Maintenance Margin requirement where possible. It aggregates liquidated positions and attempts to close them at the best possible price to preserve the IF size.

The PowerTrade Insurance Fund (IF) is a cornerstone in maintaining a stable and reliable trading platform. The robustness of the Insurance Fund is directly correlated with the stability and reliability of the PowerTrade platform.

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