Penalty Distribution Logic

Penalty distribution logic determines how the funds collected from liquidation penalties are allocated within the platform. These funds may be distributed to the insurance fund, liquidity providers, or even the protocol treasury.

The logic is programmed into smart contracts to ensure transparency and automatic execution. It defines the incentive structure for various participants in the ecosystem.

Effective distribution logic aligns the interests of different stakeholders, such as ensuring that liquidity providers are compensated for the risk they take during market crashes. It is a critical aspect of the protocol's economic design.