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# Insurance fund

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

**Insurance**is a key element in the overall design of the Spin internal economy. The functioning operative purpose 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 to the tokenomics model of Spin.

Theoretically, there could be a possible situation where the client, due to increased volatility, will not be liquidated if M – uPnL > 0. In this case, liquidation on standard terms will not be beneficial to the liquidators, so the insurance fund will partially repay users' debt to the protocol and liquidator.

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: Alice’s collateral is 1000.00 USDC with an unrealized PnL (uPnL) of -1200.00 USDC. Bob liquidates her position, 1000.00 USDC is in the vault already and the insufficient amount of 200.00 USDC for the vault + reward for the liquidator is being repaid by the Insurance Fund.

The funds inside Insurance should correlate with the trading volume of Spin. In case the Insurance Fund exceeds the range, a surplus is added to the treasury fund.

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 – 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 token sale.

**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 proceeds from the liquidation fines and the surplus of the insurance fund are distributed to the treasury fund.