Insurance funds in their current state have significant issues, the largest of which is insolvency risk. That is when there is a market movement which causes trades to become bankrupt. The counterparty to the trade must still earn profit, but if there is no money on the other side this is impossible. Insurance funds attempt to patch this by having a pool of capital that can fill the gap financially between a trade's bankruptcy price and the price at which it can exit the position to another solvent trader.
Creating a DeFi primitive that has insolvency risk is like having a Uniswap pool that only sometimes sends you back tokens when you swap. Traders must always receive what they deserve or else the system is not a reliable building block.
Futureswap does not need an insurance fund due to risk tranched ADL. ADL is a way of closing trades by skipping the Uniswap pool and closing the trade against a counterparty trade on Futureswap.
For example, a 10 ETH long trade needs to close and for whatever reason cannot close on Uniswap. If 10 ETH short were also closed out to match the closing 10 asset long, then this is a valid change. Futureswap LPs have not gained or lost any exposure without swapping in Uniswap. This was not an ideal situation for the short that was forced closed by the long (although they may have been nowhere close to their liquidation price). In most situations the short that was forced closed will receive a superior price than they could have if they had naturally closed the trade themselves. The protocol emits events with relevant information.
Most traders will be able to avoid being ADL'd. Trades are ADL'd based on risk tranches. This means that ADL starts at the highest leverage (most risky) trades and closes them first, working its way down the risk ranks until enough exposure has been closed. This means that a 75x trade would have a significantly higher risk of being ADL'd than a 10x trade.
When a trade is closed by ADL due to a liquidation, the trade being liquidated gets closed near its bankruptcy price instead of its liquidation price. This means that if a trade is going to be liquidated with 4% collateral remaining the trades that are being ADL'd will get closed at a ~3 - 3.5% better price than if they closed on the market. This is to compensate them for being forced closed. If you had a 20x trade open that was ADL'd this means that you earned 60-70% (20x * 3%) profit from being ADL'd compared to closing on your own.
ADL is triggered by a closing trade not being able to sell/buy the needed asset through Uniswap. The most likely cause of this is that Futureswap does not have the tokens that Uniswap needs to complete the trade and thus Uniswap reverts. Other triggers include Uniswap not having enough liquidity itself, reverting for unknown reasons, or the trade being bankrupt.
If a trade cannot be liquidated while it still has enough collateral to cover its loss, then it is considered a bankrupt trade. This trade should be liquidated at its bankrupt price via ADL. This is not good for the trade getting forced closed as they are likely receiving a worse price than they would if they closed their trade themselves. If there are no other trades to ADL against, then the bankruptcy falls to Futureswap LPs loss and nothing else happens.