What are BIB Insurance Funds?

Insurance funds are safety nets that protect bankrupt traders from adverse losses and ensure that the profits of winning traders are paid out in full. The primary purpose of an insurance fund is to limit the occurrences of counterparty liquidations. In counterparty liquidations, positions of opposing traders are automatically liquidated to cover for a bankrupt trader’s position. In these situations, opposing profitable positions with high leverage are likely to receive counterparty liquidations. Insurance Funds solve this issue by using the collateral from non-bankrupt users’ fees to cover the losses of bankrupt users (negative balance accounts).

How do BIB Insurance Funds work?

In cases where a trader in liquidation (defined as collateral < maintenance margin) has less than 0 USDT after all his positions are liquidated, or is otherwise unable to liquidate positions, the trader is bankrupt, and BIB will take over the remaining positions.

In the majority of these cases, BIB will use the Insurance Fund to take over the positions and offload them onto the market gradually. The Insurance Fund will collect liquidation fees from users that do not result in bankruptcy. If the insurance fund is unable to accept positions from the liquidations, counterparty-liquidation will occur.

The Insurance Fund will be subjected to the following rules:

The fund will have a maximum net notional position check. The fund will not be allowed to exceed a predefined position notional on the market; by default, this is 100% the size of the insurance fund. Any position that would increase beyond the max notional will be subjected to counterparty-liquidation. The insurance fund will offload positions according to a pre-set algorithm. All events that generally require intervention by the insurance fund will go into counterparty-liquidation before the fund can take positions.