Can an Exchange Switch between ADL and Socialized Loss Systems?
Yes, an exchange can switch its risk management system, but such a change is a significant operational and policy decision. Most major exchanges have permanently moved from socialized loss to the insurance fund and ADL model due to its superior efficiency and fairness.
A switch back would be highly unlikely and would likely be met with trader dissatisfaction.
Glossar
Risk Model
Calibration ⎊ A risk model within cryptocurrency, options, and derivatives contexts functions as a quantitative framework designed to assess and manage potential losses stemming from market fluctuations and instrument-specific characteristics.
Socialized Loss
Mechanism ⎊ Socialized loss, within cryptocurrency derivatives and options trading, describes the distribution of losses across a broader participant base than those directly holding a losing position, often amplified by leveraged exposure and cascading liquidations.