Insurance

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title: Insurance Vaults

Insurance vaults provide counter-liquidity and earn fees. However, the insurance vault is not used to provide liquidity, as it is supplied by losing positions and paid out to profitable positions. If the liquidity from losing traders exceeds the payouts to profitable ones within a 3-day period, this liquidity is transferred to the insurance vaults, with 30% of it going to the DePerp ecosystem's revenue.

If an insurance event occurs and the loss-making positions exceed the profitable ones, the insurance reserve pays out from its liquidity. However, the insurance reserve is also subject to risks from potential downturns

Example Formula:

1. Formula to determine net liquidity:

   $$L_{\text{net}} = L_{\text{loss}} - P_{\text{profit}}$$

2. Condition for transferring liquidity to insurance vaults and revenue distribution:

   $$\text{If } L_{\text{net}} > 0, \text{ then } \begin{cases} \text{To insurance vaults} &: 70\% \times L_{\text{net}} \\ \text{To DePerp revenue} &: 30\% \times L_{\text{net}} \end{cases}$$

Example:

Let:

$$L_{\text{loss}} = 1000 \quad \text{(liquidity from losing positions)}$$ $$P_{\text{profit}} = 600 \quad \text{(payouts to profitable positions)}$$

Then:

$$L_{\text{net}} = 1000 - 600 = 400$$

And distribution:

$$\text{To insurance vaults: } 0.70 \times 400 = 280$$ $$\text{To DePerp revenue: } 0.30 \times 400 = 120$$