Auto-Deleveraging ADL

Auto-deleveraging, or ADL, is a risk management mechanism used when the insurance fund is insufficient to cover losses from a bankrupt trader. Under ADL, the positions of the most profitable traders on the platform are automatically closed against the bankrupt trader's position to neutralize the risk.

This process effectively socializes the losses across the user base to ensure the exchange remains solvent. Traders are typically ranked by their profitability and leverage, with those most profitable and highly leveraged being at the highest risk of being deleveraged.

While ADL is a last-resort measure, it is necessary to prevent systemic failure in extreme market conditions. It provides a mechanism for the market to clear even when liquidity is exhausted.

The presence of ADL encourages traders to monitor their risk exposure and the overall health of the exchange's insurance fund.