The role of the Risk Buffer Fund (RBF) is to bear all of the temporary loss of LPs first when they act as temporary counterparties to the users and incur a loss, until the fund balance is exhausted. The presence of the RBF significantly reduces the probability of LPs being impacted by temporary loss. In the case where the RBF has grown to a large scale, LPs can potentially use higher leverage without easily facing liquidation risk.
The income of the RBF includes three sources:
A portion of the trading fees that users pay when opening or closing positions, or when they are being liquidated.
The profits that LPs generate as temporary counterparties to traders.
When LPs get liquidated, their capital is directly transferred into the RBF.
If the size of the RBF becomes excessively large in the future, exceeding the demand for risk buffering, the surplus can be redistributed through DAO voting.