> For the complete documentation index, see [llms.txt](https://docs.nara.io/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://docs.nara.io/nara-protocol/insurance-fund.md).

# Insurance Fund

## Insurance Fund

**The Insurance Fund is a protocol-managed, first-loss capital buffer that absorbs portfolio losses before any NaraUSD+ or NaraUSD holder does.** The Nara team funded it with $250,000 from its own treasury for the first year of operation, before the protocol had taken a single fee, and it grows continuously from a 10% share of all strategy yield. It is the first tier of the loss waterfall. It is finite, and it is not third-party insurance.

#### Why it exists

Payment financing is credit. Nara's underwriting is designed to keep realized losses near zero, but the risk framework starts from the premise that losses can occur. The Insurance Fund puts the team's own capital in the position that takes those losses first, ahead of every depositor. For an early holder, that is the difference between a promise and a funded commitment.

#### How it is funded

| Source                 | Amount or rate                                                             | Timing                                                                                   |
| ---------------------- | -------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------- |
| Team treasury seed     | $250,000                                                                   | Funded at launch for the first year of operation                                         |
| Yield share            | 10% of gross strategy yield, about 1% of assets a year at the target yield | Continuous. The only deduction from gross yield at launch; no performance fee is charged |
| Other approved sources | Protocol fees or other IC-approved sources                                 | If and when introduced                                                                   |

The yield share is why NaraUSD+ net yield is lower than the portfolio's gross yield; the realized net figure is on the [dashboard](https://app.nara.io/transparency). It is not a fee paid to the team and it does not leave the protocol: it stays inside the first-loss layer that protects the holders who funded it. On a 9% to 10% gross target it is roughly 1% of assets a year; the exact amount scales with realized yield.

#### Verify it yourself

| What to check       | Where                                                                                                                                                                                     |
| ------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| Current balance     | Shown as Reserve Fund on the [dashboard](https://app.nara.io/transparency)                                                                                                                |
| Coverage ratio      | Insurance Fund balance ÷ credit-portfolio exposure (liquid reserve excluded). Published live on the [dashboard](https://app.nara.io/transparency) and in the 7-day Insurance Fund report. |
| Yield share inflows | Each 10% retention is an on-chain transfer into the fund wallet, reconcilable against the exchange-rate updates.                                                                          |
| Draws               | Every draw is a 3-of-5 multisig transaction from the known multisig addresses and is listed in the draw log below.                                                                        |

**Draw log**

| Date | Amount           | Position | Reason | Disclosure |
| ---- | ---------------- | -------- | ------ | ---------- |
| —    | No draws to date |          |        |            |

This log is updated whenever a draw occurs; the current balance is on the dashboard.

#### When it is used

| Event                                                                                    | Insurance Fund used?                                                   |
| ---------------------------------------------------------------------------------------- | ---------------------------------------------------------------------- |
| Ordinary yield variation: lower utilization, lower rates, a higher liquid-reserve weight | No. This shows up as a slower rise in the NaraUSD+ rate, not as a loss |
| Delayed repayment within a position's cure and notice period                             | No, unless the delay becomes an impairment                             |
| Realized credit loss or impairment on a position                                         | Yes. The loss is charged to the fund first                             |
| Negative return on a reserve asset or a protocol event that creates a realized loss      | Yes, to the extent of the realized loss                                |

Drawing on the fund is a privileged action. It requires the standard 3-of-5 signing process through maker → reviewer → executor, every draw is an on-chain event, and any material draw is disclosed in the incident log within 7 days.

#### Sizing and replenishment

The seed is sized for the launch book. As TVL grows, the yield share grows with it. Nara's target coverage ratio is 2% of the credit portfolio exposure ; while the fund is below target, the full 10% share is retained. If a loss depletes the fund, the 10% share continues to rebuild it, and the coverage ratio on the dashboard shows the shortfall until it is restored.

#### What it is, and what it is not

* It is protocol-managed capital sitting in first loss. It is not insurance from a third party, not a guarantee of principal, and not a deposit-insurance scheme.
* It has a finite, disclosed size. A loss larger than the fund passes to NaraUSD+ holders. A loss larger than the fund plus the full value of NaraUSD+ reaches NaraUSD.
* It is one layer among several. Underwriting, knock-out gates, concentration limits, originator first-loss contributions negotiated at the position level, and the liquid reserve all sit in front of it.

The Insurance Fund is a risk-allocation design, not a promise that losses cannot reach holders. Read Capital protection and loss waterfall for the full waterfall with worked examples and Risks for what can trigger it.


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