ADL Ranking

ADL Ranking stands for Auto-Deleveraging Ranking. It is a critical risk management mechanism used in cryptocurrency derivatives exchanges, particularly those offering perpetual futures.

When an insurance fund is insufficient to cover losses from a bankrupt trader's position, the exchange must close that position to prevent a socialized loss scenario. The ADL system automatically selects counterparty traders to take over the bankrupt position based on a ranking system.

This ranking is typically determined by two main factors: the trader's profitability and the amount of leverage they are using. Traders who are highly profitable and using high leverage are prioritized to be deleveraged first.

This ensures that the market remains solvent without requiring all users to share the losses. It is a controversial but necessary feature in high-leverage environments.