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MUFEX is a decentralized cryptocurrency derivatives trading platform that does not engage in any trading activities. Therefore, it is crucial to protect the interests of both traders and the platform, and to avoid any party suffering contract losses.
During forced liquidation, MUFEX uses an insurance fund to reduce the likelihood of triggering automatic deleveraging. If forced liquidation cannot close the position at a price better than the bankruptcy price, the insurance fund is utilized to cover the loss caused by the liquidation, preventing the activation of the automatic deleveraging mechanism.
Mechanism of the Insurance Fund
During liquidation, the balance of the insurance fund will increase/decrease depends on the price difference between the final executed price and its bankruptcy price of that liquidated position.
- When liquidations can be executed in the market at a price better than the bankruptcy price, the remaining margin will be added to the insurance fund.
- Vice versa, when the final executed price is worse than the bankruptcy price, the contract losses will be covered by the insurance fund.