Insurance π‘

The Insurance System is one of distinguishing points that make RiskSwap stand out.

Insurance is a key element in the overall design of the RiskSwap internal economy. The functioning operative deed of Insurance is to provide sufficient coverage for the liquidation process and mitigate an extreme price slide-off risk. The insurance system is being funded by two streams:

trading fees

liquidation fees.

Insurance funds will be growing proportional to the number of users trading on the platform, which in turn will make the platform itself more sustainable. The insurance system is closely tied up with the tokenomics model of RiskSwap.

Theoretically, a situation is possible in which, due to increased volatility, the client will not be liquidated if M βΒ uPnL > 0. In this case, liquidation on standard terms will not be beneficial to the liquidators, so it will be carried out by the protocol.

A user may be liquidated when his or her margin ratio is below 0.7. If the margin ratio is > 0, then his margin covers his losses. However, if prices go up or down sharply, then a situation may happen that the user was not liquidated in time, and the amount of his losses exceeds the amount of the margin on the account). In this case, the coefficient goes below 0.

Example: Aliceβs collateral is 1000.00 USDC with an unrealized PnL (uPnL) of -1200.00 USDC. RiskSwap buys out a position and takes 1000.00 USDC to close a position afterward and the surplus of 200.00 USDC is being repaid by the Insurance Fund.

The funds inside Insurance should correlate with the trading volume of RiskSwap. In the case of an Insurance Fund exceeding the range, a surplus is distributed among stakers.

The target value of the insurance fund is the amount of funds in the insurance fund sufficient to cover losses to counterparties in the event of potential liquidation of users with M βΒ uPnL < 0, calculated as 5% of the average OI (open interest) by notional value for 7 days.

The minimum target value of the insurance fund is $200,000, regardless of the trading volume. The amount will be allocated from the money collected at the IDO.

Level system for filling the insurance fund:

If the amount of funds in the insurance fund is <2% of the average OI of the platform for 7 days, then 20% of the commission income and 40% of the liquidation penalty are sent to the insurance fund.

If the amount of funds in the insurance fund >= 2% of the average OI of the platform for 7 days, then commission income will not be credited to it.

If the amount of funds in the insurance fund is >= 5% of the average OI of the platform for 7 days, then the proceeds from the liquidation fines and the surplus of the insurance fund are distributed between the RISK stakers and treasury at 62.5% and 37.5%, respectively.

Last modified 26d ago

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