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We make the best effort to make WOWswap as safe as possible for everyone, but in case of a black swan event some trades theoretically can be liquidated too late, so to mitigate possible losses for liquidity providers the protocol builds up the insurance fund, which receives 2.5% of every swap’s net profit.
If a token’s price drops significantly below the liquidation price of a particular swap, then, after liquidating this swap, the liquidity pool might incur a loss. Since token prices can change dramatically as a result of one sale transaction or within one block, it is technically impossible to liquidate all leveraged trading positions without losses.
Therefore, WOWswap protocol created an internal insurance fund, which receives a small portion of profit from every profitable leveraged swap and uses these funds to cover losses caused by certain liquidated swaps.