> ## Documentation Index
> Fetch the complete documentation index at: https://docs.priest.trade/llms.txt
> Use this file to discover all available pages before exploring further.

# Insurance Fund

> The insurance fund is an on-chain safety reserve. Its job is to absorb losses when a liquidated position falls below zero equity before i...

The insurance fund is an on-chain safety reserve. Its job is to absorb losses when a liquidated position falls below zero equity before it can be closed.

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## Isolated per market

Instead of one giant pool where an exploit on a micro-cap coin could drain funds from everyone else, Priest.trade keeps **a separate insurance reserve for each individual market**.

* What happens in one meme coin market stays in that market.
* Big, liquid markets build up their own independent safety nets.
* You can inspect any market's insurance balance on-chain at any time.

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## Where the money comes from

A market's insurance reserve grows in three ways:

1. **10% of all trade fees:** Every time someone opens or closes a trade on that coin, 10% of the platform fee goes directly into that market's insurance reserve.
2. **Liquidation penalties:** When a position is liquidated with equity left over, a portion of the remainder goes into the reserve.
3. **Pre-graduation pool corrections:** If someone tries to mess with the Uniswap pool price right before graduation, the engine's rebalancing swap extracts the difference and sends it to the insurance reserve.

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## When it gets used

If a market moves so fast that a trader's position gets liquidated at a price worse than zero equity (bad debt):

1. The market's insurance reserve pays the shortfall.
2. If the insurance reserve is emptied on a graduated market, the **Counterflow Vault** steps in to cover the rest.
3. Solvent traders never take haircuts or auto-deleveraging under normal conditions.

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## Headroom cap

The contract guarantees that insurance money cannot be drained by ordinary payouts:

* You can only withdraw collateral or claim trading profits from surplus headroom — never from funds tagged for insurance or unpaid creator fees.

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## See also

* [Liquidations](https://docs.priest.trade/core-concepts/liquidations.md) — when insurance steps in.
* [Counterflow Overview](https://docs.priest.trade/vaults/counterflow-vault.md) — the secondary liquidity backstop.
* [Fees](https://docs.priest.trade/trading/fees.md) — where trading fees go.


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