Insurance Fund

Unlike other leading perpetual exchanges, initial deposits on VDEX are never at risk, they are held in self-custody. The insurance fund exists to support the Virtual Market Maker (VMM) in absorbing liquidation risk.

Without the VMM and insurance fund, traders would need to recover losses directly from their counterparties. But in volatile or low-liquidity markets, the counterparty’s collateral may not be enough to cover realized losses. This could reduce a profitable trader’s returns, even though their own deposit is never at risk thanks to the Virtual Rollup.

With VDEX, liquidated positions are taken over by the VMM. While some liquidations may result in losses for the VMM, the insurance pool ensures the process is sustainable and net-profitable over time.

Who funds the Insurance Fund?

The insurance pool is funded by liquidations that drop below 67% of the maintenance margin.