What is the Insurance Pool?
The Insurance Pool is a mechanism where a vault curator locks their own capital into the vault as a loss backstop. If the vault incurs bad debt and losses are socialized, the curator’s locked capital is used to make depositors whole — compensating them for the losses they incurred. In simple terms: the curator puts their own money on the line. When things go wrong, depositors are compensated from the Insurance Pool after the fact.How it works
A curator deposits capital into the vault and receives vault shares (kTokens), just like any depositor. These shares are then staked into a dedicated Insurance Pool with a mandatory 30-day cooldown — during which the curator cannot withdraw.1
Curator deposits
The curator deposits capital (e.g. USDC) into their own vault and receives vault shares.
2
Shares are locked
The shares are staked into the Insurance Pool with a mandatory 30-day cooldown.
3
Capital serves as a backstop
If the vault incurs bad debt, losses are socialized across the vault. The curator’s Insurance Pool capital is then used to compensate affected depositors.
4
Cooldown enforces commitment
The curator cannot withdraw during the cooldown window, ensuring their capital remains available through adverse conditions.
Why it matters
Skin in the game with a real backstop. The Insurance Pool financially aligns the curator with depositors:- If the vault incurs bad debt, the curator’s locked capital is used to compensate depositors after losses are socialized
- If the curator makes poor allocation decisions, their capital is on the line
- The cooldown prevents the curator from quietly exiting before depositors can react
- Accountability is enforced by code, not just promised