UXD's insurance fund exists for the benefit of UXD holders, so that they do not have to pay the negative funding rate from the delta-neutral position, if such negative funding rates occur. The insurance fund may also be used in the case of an exploitative hack that results in undercollateralization of UXD's stablecoin. The insurance fund will be managed by the forthcoming UXP DAO. With the introduction of the Asset Liability Management Module (ALM), UXD Protocol's insurance fund will act as the "equity/first loss" piece of the protocol, assuming initial losses that may occur from assets held.
UXD's insurance fund was initially capitalized at $57,086,131 as of 11/14/2021. This means that at its initial value, UXD's insurance fund could withstand -11.4% funding rates on $500 milllion of UXD for an entire year.
If the insurance fund is depleted, UXD will hold an auction of UXP tokens to replenish the insurance fund.