Insurance Funds
Planned backstop layer for handling residual bad debt after the normal LP liquidation path has already run.
Overview
Avana's first lines of defense are conservative collateral valuation, bounded exposure, and timely liquidation. A future insurance fund would sit behind those controls and come into view only when liquidation still cannot fully close bad debt.
Insurance funds are a planned protection layer. A live insurance fund may not exist on every deployment today.
Purpose
An insurance fund would exist to absorb qualifying residual protocol bad debt after the supported liquidation path has already tried to recover value from fees and principal.
Funding Approach
If activated, the fund could be capitalized through governance-approved treasury allocations, reserve contributions, or a dedicated safety module. The exact funding mix is a risk-governance decision 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
Coverage should stay narrow. The target is qualifying protocol bad debt after liquidation, not a blanket guarantee against user trading losses, impermanent loss, market moves, or every third-party failure in DeFi.