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Q: Why do we have insurance funds?

Article author
Injective Protocol
  • Updated

During periods of high volatility in margin trading, the losing party on a trade might not be able to afford to pay the winning party if they run out of margin, i.e. the position becomes bankrupt. If the trader's position is liquidated and the new trader takes it over at a worse price than the bankruptcy price, the insurance fund is utilized to cover the resulting deficit.

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