# Insurance Fund

**What is the Insurance Fund?**

The purpose of this insurance fund is to provide a safeguard, ensuring equitable closure of positions for all traders. Consequently, it fosters trust among larger traders, encouraging them to engage in trading activities on the LN Exchange.

**How is the Insurance Fund Generated?**

When the liquidation engine takes over a position, the profits generated from handling that position will be injected into the Insurance Fund. If the liquidation engine closes the position at a price better than the takeover price, the profit will be entirely injected into the Insurance Fund.

**How is the Insurance Fund Used?**

During liquidation, the liquidation engine takes over the user's position and remaining margin at the takeover price. If the position continues to incur losses after liquidation, this loss is regarded as a system liquidation loss. A portion of this loss will be compensated by the Insurance Fund, while the remaining part will be borne by the user.

All Perpetual contracts that use the same collateral share one Insurance Fund to cover potential losses and keep the system stable.

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