Insurance Fund and ADL

Sharpe Perp is built on Orderly Network and therefore utilized Orderly's Insurance Fund to safeguard users.

Insurance Fund & ADL

The Orderly Insurance Fund functions as a safeguard to protect bankrupt traders from being insolvent.

​Protect bankrupt traders

An account is bankrupt if it has a negative total collateral value. Under this scenario, the Orderly Insurance Fund will take over all the account’s positions and debt to protect other users.

​Insurance Fund growth

In the majority of cases, Orderly Insurance Fund will collect part of liquidation fees from accounts that have enough margin. Over time, it should be growing. In the case of extreme market conditions, liquidators might not be able to liquidate positions in time. Some traders might become bankrupt, and this is where the Insurance Fund comes in and cover those losses.

​Claiming of non-liquidated positions

If an Account Margin Ratio is insufficient to cover the minimum liquidator fee, all the positions and the remaining USDC balance of the liquidated account are transferred to the Insurance Fund.

Liquidators can make a request to claim Insurance Fund positions at a discount. This discount is slightly less than the liquidator fee.

​Specifications

The Insurance Fund is a special account that does not share the same margin requirements as a standard account. Important parameters are :

  • min_insurance_fund_margin_ratio: corresponds to the maintenance margin ratio for the Insurance Fund

  • min_margin_ratio_solvency: refers to the lowest level of margin ratio that the Insurance Fund must maintain to avoid becoming insolvent.

​ADL

In the unlikely scenario where:

  1. Liquidators don’t take over liquidated positions

  2. No liquidators claim those positions on the Insurance Fund for some time, and

  3. The Insurance Fund Margin Ratio falls below the min_insurance_fund_margin_ratio,

ADL or Auto-Deleveraging will be triggered.

The process consists first in selecting the top traders with the most profit and leverage, then offsetting the positions of the insurance fund in each perpetual market, one by one.

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