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.
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.
Insurance Fund Simulations
In early 2022, UXD completed a research study detailing historical funding rates and what the performance of the insurance fund would have been in various historical market regimes. The results of the study were detailed in the below report:
Moreover, a summary of the findings can be found in the corresponding medium article.