What is an insurance fund and why do we need it? 🔑

The implementation of the insurance system is one of the distinguishing points of RiskSwap. The insurance system is closely tied up with the tokenomics model of RiskSwap as the users can vote on the use of Insurance Fund. The goal of the insurance system is to provide sufficient coverage for the liquidation process and mitigate an extreme price slide-off risk.
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There are two streams that fund the insurance: trading fees and liquidation fees. The funds in the insurance fund will be increasing in proportion to the open interest on the platform, which in turn will make the platform more sustainable. In the case of the insurance fund exceeding the range, the surplus will be distributed to the treasury fund.
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Ideally, the insurance fund should have enough liquidity to cover liquidations of counterparties in a trade. The minimum level of liquidity in the insurance fund is set at $200,000, and this money will be filled with the money raised in the IDO. After the platform launch the insurance fund should reach 5% of the average open interest represented by the notional value of trades for 7 days.
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To find out more about our platform, see our Gitbook: https://docs.riskswap.com