> For the complete documentation index, see [llms.txt](https://docs.bbx.com/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://docs.bbx.com/business/on-chain-perpetual-trading/insurance-fund.md).

# Insurance Fund

The insurance fund is a reserve mechanism designed to protect BBX markets from losses that exceed an individual trader's margin in a liquidation event.

**Purpose of the Insurance Fund**

* Absorbs liquidation shortfalls.
* Protects profitable traders from being liable for other traders' losses.
* Reduces the probability of triggering Auto-Deleveraging (ADL).

**How the Insurance Fund Works**

When a position is liquidated, the system attempts to close it at a price no worse than the bankruptcy price.

* If the actual fill price is better than the bankruptcy price, the remaining margin is contributed to the insurance fund.
* If the actual fill price is worse than the bankruptcy price, the insurance fund covers the shortfall.

**Bankruptcy Price**

The bankruptcy price is the price level at which a trader's entire initial margin is fully depleted.

When the price reaches the bankruptcy price:

* The trader's margin balance reaches zero.
* The position can no longer sustain further losses.
* Any further losses must be covered by the insurance fund or the Auto-Deleveraging (ADL) mechanism.

**Insurance Fund Depletion**

Under extreme market conditions, multiple large liquidations may occur simultaneously.

If losses exceed the available balance of the insurance fund:

* The fund balance may fall below a predefined safety threshold.
* The system will escalate to the Auto-Deleveraging (ADL) mechanism to maintain system solvency.