ZUBR forms the Insurance Fund to prevent its clients from Auto-Deleveraging.
The losses from the forced closure of the client’s position at a price worse than the liquidation price are covered from the Insurance Fund. The Insurance Fund is financed by ZUBR out of its revenues and proceeds from the forced closings of clients’ positions at a price better than the market price.
ZUBR’s risk management system is designed to prevent the balance of its client dropping below zero. However, virtual assets are highly volatile and often experience significant price movements. Under certain market conditions, it might be hard to find a counterparty to liquidate the client’s position in the market. In that case, the Insurance Fund is reduced by the amount of the loss once the liquidation engine fully closes the position.
Under normal market conditions, the Insurance Fund is expected to grow continually as clients get liquidated. In other words, the Insurance Fund grows when users are liquidated before their balance reaches a negative value. However, in more extreme cases, the liquidation engine may not be able to close all positions, and the Insurance Fund will be used to cover potential losses. Being highly unlikely, it might happen during periods of high volatility or low market liquidity.