Exchanges maintain an insurance fund to cover losses when a liquidation cannot close at or above the bankruptcy price. The fund is capitalized by liquidation fees, clawbacks, and exchange contributions.

How the fund interacts with liquidations:

Surplus — if liquidation fills above bankruptcy price, profit goes to the insurance fund
Deficit — if it fills below, the fund absorbs the shortfall
Depletion — if the fund runs dry, ADL or socialized losses kick in

Scenario	Fill Price vs Bankruptcy	Who Pays
Normal liquidation	Above bankruptcy	Fund gains surplus
Fast market	At bankruptcy	No loss to either
Gap down	Below bankruptcy	Insurance fund covers
Fund depleted	Far below	ADL / socialized loss

Historical note: BitMEX's insurance fund peaked above 40,000 BTC in 2021, demonstrating how profitable liquidations can be for the exchange.