The Insurance Fund
What backs kUSD today
kUSD is backed by the USDC held in the PSMs, published hourly as psm_solvency_ratio and recomputable from public on chain reads. The Insurance Fund at 0xE8799FCF327C6D2f78103a3c9308C93592A30403 is deployed and holds a zero balance today: no USDC, no WETH, no ETH. The hourly signed attestation at kerne.fi/api/por/signed publishes it as insurance_fund_usd, and the balance is a direct on chain read that needs no cooperation from Kerne.
The sections below set out the designed mechanism. Until the fund holds capital, count only the USDC in the PSMs when you assess the backing. Where a loss would land in the meantime is set out under Loss Allocation in Risk Disclosures.
Swap fees accrue inside the live mint PSM, readable there as accruedFees. The PSM's fee destination is the treasury rather than this fund, so a route from protocol revenue into the Insurance Fund is design intent and is not wired today.
When the Insurance Fund Deploys
The Insurance Fund can be deployed in two scenarios:
- Collateral shortfall: If an exchange failure, oracle error, or extreme market event reduces collateral backing below 100%, the Insurance Fund is the first capital source drawn to restore full backing before any user experiences a loss. Individual claims are capped at 50% of the total fund balance per event to prevent full depletion.
- Peg defense: If kUSD trades below $0.99 on secondary markets and the Peg Stability Module capacity is exhausted, the Insurance Fund can be deployed to buy kUSD in the open market, defending the peg.
Governance and Access
Insurance Fund deployment is governed by a multi signature wallet requiring multiple approvals. No single individual can access these funds unilaterally. Deployment has no timelock, so an approved deployment executes immediately. The deployment criteria are defined in advance and enforced by smart contract logic.
Important Limitations
A funded Insurance Fund would provide material protection without guaranteeing full coverage in every scenario. At a zero balance it provides none, so leave it out of any assessment of Kerne until it is funded. The intent is that it grows with protocol revenue, which needs a fee route that is not wired yet. It is not equivalent to FDIC insurance or any government backed guarantee.
The Peg Stability Module
The Peg Stability Module (PSM) allows direct 1:1 conversions between kUSD and USDC at the tiered PSM fee. This creates a structural arbitrage floor: if kUSD trades below $1.00 on a DEX, traders can buy kUSD and use the PSM to convert it to USDC at $1.00, capturing the difference. This arbitrage pressure continuously supports the peg from below.
The PSM has a capacity cap to prevent it from being used as a zero slippage swap at scale, which would drain protocol reserves. The cap is set by governance and scales with protocol maturity.