Each market carries its own insurance fund. It is not a shared protocol pool: a blowup in one market cannot drain the backstop of another.

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How it is funded

The fund is seeded at graduation. A slice of everything raised on the launch curve is carved off before the AMM is seeded:
With the illustrative insurance_share_bps = 1000, a market that raised 500 SOL graduates with a 50 SOL insurance fund. The lamports live in the market’s program-controlled SOL vault alongside AMM reserves, short collateral, and accrued fees; the program tracks each bucket in dedicated Market fields (insurance_lamports, fee_lamports, and so on), so insurance can never be spent as anything else.

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What it pays for

Liquidation shortfalls. When a position is so far underwater that its collateral cannot cover the liquidator’s target payout (debt value plus bonus), the fund tops up the difference:
This keeps liquidation profitable even for badly late liquidations, which keeps liquidators showing up. See Liquidations. Funding backstop (v1). Funding in v1 is applied as a debt adjustment on shorts rather than a direct transfer between longs and shorts. The insurance fund is the system-level backstop for that accounting: value that funding grants to one side is ultimately made whole at liquidation time, with the fund absorbing rounding and shortfall. A staked long pool that settles funding directly is planned for v2.

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When it runs dry

The fund is a buffer, not a guarantee:
  • Liquidator payouts are capped at collateral + available insurance. If both are exhausted, the liquidator gets less than the target and the incentive weakens.
  • Nothing else breaks: the market keeps trading, positions keep accruing funding, and the fund can be relevant again if it is replenished.
An empty insurance fund is the signal that a market’s parameters were too aggressive for its underlying (collateral ratios too low, a hedge reserve too large, or breaker too loose). Listing policy exists to prevent reaching this state; see Listing a Market.

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Replenishment

In v1 the fund only decreases after graduation; there is no inflow. Routing a share of ongoing AMM and curve fees into insurance_lamports is a planned change (see Roadmap). Until then, sizing the fund correctly at graduation and keeping hedge reserves conservative are the operative protections.

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Reading it

Market.insurance_lamports is the live balance. The Graduated event records the initial seed, and each Liquidated event lets you reconstruct drawdowns from payout versus collateral.