Insurance Funds
Planned backstop layer for handling residual bad debt after LP liquidation has already done its job.
Overview
Avana's first line of defense is conservative collateral valuation, capped exposure, and timely liquidation. A future insurance fund would sit behind those controls as a last-resort backstop for situations where liquidation cannot fully close a bad debt.
This page describes a planned protection layer. It should not be read as a promise that a live insurance fund currently exists on every deployment.
Purpose
The purpose of an insurance fund is to contain protocol-level bad debt after liquidation has already attempted to recover value from fees and principal. In an LP-backed lending system, this means covering residual shortfalls that remain after the supported unwind path is exhausted.
Funding Approach
If activated, the fund could be capitalized through governance-approved treasury allocations, reserve contributions, or a dedicated safety module. The exact mix is a risk governance question and should be published with the program terms.
Activation Path
- • Detect a residual shortfall after an allowed liquidation path has completed.
- • Verify that the shortfall fits the fund's approved coverage policy.
- • Execute the recapitalization or deficit-coverage path defined by governance.
- • Publish a post-incident summary describing the trigger, response, and follow-up controls.
Coverage Boundary
A protocol insurance fund should be narrowly scoped. It is best understood as a system backstop for qualifying bad debt, not as a blanket guarantee against user trading losses, impermanent loss, market moves, or every third-party failure in DeFi.