Insurance Fund (IF)

Insurance Fund

Protection Mechanism

Zealous Swap implements an insurance fund as a protective mechanism for users against potential protocol exploits or security incidents. This provides an additional layer of safety while simultaneously enhancing protocol liquidity.

How It Works

The insurance fund operates through a carefully designed mechanism:

• A portion of trading fees from the protocol treasury is allocated to the insurance fund. Specifically, 5% of the protocol's monthly revenue is dedicated to building and maintaining the fund.

• These contributions are held as LP tokens, further enhancing protocol liquidity. The fund maintains assets in both KAS and Zealous Swap's native token (ZEAL), aligning with the protocol's core ecosystem.

• Unlike protocol-owned liquidity, these LP tokens can be liquidated when necessary to address emergency situations. The fund serves as a critical risk mitigation tool, capable of covering losses from potential protocol hacks or unexpected security incidents.

• The fund can accommodate various tokens including KAS and Zealous Swap's native token, providing flexibility in emergency liquidity and risk management.

Dual Benefit

The insurance fund provides two key benefits:

• User Protection - Creates a safety net that can be deployed in case of security incidents. It provides comprehensive coverage against potential protocol exploits, restoring user confidence during unexpected challenges.

• Enhanced Liquidity - By holding assets as LP tokens, the insurance fund contributes to deeper liquidity and better trading experiences. When not used for emergency purposes, it can act as an additional liquidity buffer and potentially be converted to Protocol Owned Liquidity (POL) to further strengthen the protocol.

Governance

In the future, governance mechanisms will allow the community to set parameters for when and how the fund can be utilized. This includes defining the conditions for fund deployment, potential conversion strategies, and overall management of the insurance resources.

Strategic Approach

The Insurance Fund goes beyond simple protection. If the accumulated funds exceed the necessary risk management threshold, a portion can be strategically converted into Protocol Owned Liquidity, supporting the platform's long-term stability and financial health.

Summary

Overall, the IF not only reinforces the protocol’s security against hacks and liquidity issues but also allows for strategic reinvestment to bolster the platform’s health over time.