A safety net to maintain solvency of the system when an account has a negative balance
A high amount of leverage imposes high risk. During highly volatile market conditions, slippage and delayed execution can result in some accounts having a negative balance post-settlement. To ensure the solvency of the system in this event insurance fund is used as a backstop.
Insurance funds are safety nets that maintain the solvency of the system when an account has a negative balance. Losses from such liquidations are taken on by the insurance fund.
The insurance fund’s reserve is maintained using a portion of the liquidation penalty imposed post liquidation event. The insurance fund will be used before any deleveraging occurs.
The insurance fund account and its activities are publicly auditable and verifiable
The insurance fund is not to be decentralized, and the Zenith team will be directly responsible for deposits and withdrawals from the fund. In the future, it is possible that we will decentralize some aspects of the fund; however, initially, our priority is to ensure that underwater accounts are dealt with in a timely manner