# Default Fund

The Pascal Protocol employs an on-chain Default Fund as a crucial safeguard mechanism, designed to mitigate the risks associated with bankrupt traders and ensure the full payout of profits to successful traders. In instances where the protocol fails to liquidate the positions of a defaulting trader or when their account balance turns negative after market liquidation, the trader is deemed bankrupt, with the protocol taking control of the remaining positions.

### **Managing Bankruptcy Losses**

To manage losses from bankrupt traders, Jetstream relies on two primary measures:

1. **Default Fund:** This fund, maintained by the Pascal Protocol, is key in guaranteeing the full payment of profits to the money traders and compensating for any additional losses incurred by defaulting traders.
2. **Counterparty Liquidation:** As a last resort, if the Default Fund cannot be utilised, the protocol selects traders with opposite positions based on their profitability to liquidate bankrupt traders' positions. These positions are then automatically liquidated to offset the losses incurred by the defaulting trader.

The primary purpose of the Default Fund is to limit occurrences of counterparty liquidations. The Default Fund addresses this by utilising the accumulated Liquidation Fee from non-bankrupt traders to cover the losses of bankrupt traders with negative balances after market liquidation, thus ensuring full pay out of profits to successful traders.

### **Platform-Specific Default Funds**

For platforms like Jetstream, the Pascal Protocol maintains its own Default Fund, isolating risks and mitigating the impact of platform-specific risks on other platforms. While Platform operators do not directly manage the Default Fund, they are responsible for setting risk parameters that ensure the fund's consistent growth and its adequacy in extreme market conditions.  The Platform operator does not own or control the relevant Default Fund, it is decentralised on the Pascal Protocol.

The Pascal Protocol implements stringent measures to preserve the Default Fund's stability. Usage restrictions include limits on the fund's depletion during a single liquidation event (commonly capped at 10% of the fund's size) and aggregate usage over a 24-hour period (typically limited to 25% of the fund's size from 24 hours prior). These measures are crucial to maintaining the fund's stability and availability, particularly during turbulent market periods. The Platform operator sets these utilisation parameters.


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