Risk Fund

Bad debt can occur when liquidators fail to function properly despite liquidation incentives. This failure can lead to under-collateralization, where the collateral value does not cover the borrowed amount, resulting in bad debt.

To address this issue, Evoq allocates a portion of the protocol reserve to a risk fund. This fund is designed to cover unexpected losses, ensuring the protocol remains stable and users are protected from financial losses. In this way, it helps maintain the health and reliability of Evoq.