Risk & Vault
Risk Management
Three layers protect platform solvency — liquidation engine, insurance fund, ADL.
Three layers protect platform solvency. The insurance fund exclusively covers liquidation deficits — it is never used for vault market making losses.
Layer 1 — Liquidation Engine
Runs every 100ms. When margin falls below maintenance, position is taken over and closed on the orderbook. Partial liquidation for large positions.
Layer 2 — Insurance Fund
Absorbs liquidation deficits. Funded by 20% of fees (non-negotiable) + liquidation surplus + 10% of vault excess profits. Target: 5% of total OI.
Layer 3 — Auto-Deleveraging
Last resort when insurance fund is empty. Force-closes most profitable opposing positions. Extremely rare — minimized by conservative leverage and adequate insurance sizing.
Position limits
- No single user >10% of OI on one side
- Total OI cannot exceed 20× insurance fund balance
- One-sided OI >70% triggers liquidity rebalancing alerts
Related
- Margin & Leverage — what triggers liquidation
- Fee Buffer — separation between insurance and vault
- Vault Risk Management — protecting LPs separately