Insurance Fund is one of the key elements in the overall design of the Spin internal economy which acts as a creditor of the penultimate instance.
Part of the Spin fees is sent to the Insurance Fund, which acts as a creditor of the penultimate instance. The functioning operative purpose of the Insurance Fund is to provide sufficient coverage for the liquidation process and mitigate an extreme price slide-off risk.
Theoretically, a situation is possible in which, due to increased volatility, the user will not be liquidated when M-uPnL > 0. In such a case, liquidation under standard terms will not be beneficial for the liquidators, so Spin will pay part (or all) of it from the Insurance Fund.
The amount of funds in the Insurance Fund correlates with the trading volumes on the platform. In case the Insurance Fund pool exceeds the target value, the surplus is distributed between the SPIN token stakers and the Treasury.
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 $100,000, regardless of trading volumes.