Insurance Funds act as safety nets to mitigate the impact of counterparty liquidations, protecting traders from significant losses due to bankrupt positions and ensuring that profits are fully paid out to winning traders. A trader's position is liquidated if their available collateral falls below the required margin. A position is considered bankrupt if, after liquidation, the trader's asset balance is less than zero or if the position cannot be liquidated.
GRVT’s Insurance Funds will take over bankrupt positions, covering the losses and retaining any profits generated from these positions.
How does GRVT’s Insurance Funds work?
GRVT’s Insurance Funds are set up separately among different contracts:
BTC-USDT perpetual
ETH-USDT perpetual
For each of the insurance funds, the balance will be in USDT.
We execute some manual management to protect our insurance funds (e.g., regular rebalance, maintenance and initial margin adjustment).
There are three key methods we use to protect our insurance funds:
Insurance Fund Rebalance
We track the P&L of each insurance fund.
On a regular basis, we rebalance among different insurance funds if some of them incurred profits and others incurred loss, i.e.,
Take the sum of the profits earned by the insurance funds (in profit)
Allocate this amount of profits to the other insurance funds (in loss) in proportion to their loss
Trigger ADL
We can also trigger ADL to better protect the insurance fund when it has just gone bankrupt or its balance has significantly dropped in the past few hours. Doing so will not liquidate in the positions on the order book.
Maintenance and Initial Margin Adjustment
We track each liquidation in the past:
Contract
Size which has been liquidated
Profit or loss incurred to the insurance fund
Considering a contract with a history of frequent losses in its insurance fund, we may increase the MMR & IMR in the future.