How Do Exchanges Use 'Auto-Deleveraging' (ADL) in Extremely Volatile Markets? ⎊ Path

How Do Exchanges Use ‘Auto-Deleveraging’ (ADL) in Extremely Volatile Markets?

Auto-deleveraging (ADL) is a risk management system used by exchanges when their insurance fund is insufficient to cover losses from a liquidated position. In an ADL event, the positions of profitable traders are reduced (deleveraged) to cover the shortfall of the liquidated account.

This is a last-resort measure to prevent the exchange's solvency from being compromised.

Do Decentralized Cryptocurrency Exchanges (DEXs) Utilize a Similar Guarantee Fund Mechanism?

How Does the Exchange’s Insurance Fund Relate to Losses from Market Manipulation or an Attack?

What Is “Deleveraging” and How Is It Managed by Exchanges?

What Is ‘Auto-Deleveraging’ (ADL) and How Is It Used by Crypto Exchanges?

How Do Exchanges Prevent ‘Socialized Losses’ That Can Occur from Large Liquidations?

What Is the Purpose of an Exchange’s Insurance Fund in the Crypto Futures Market?

Can a Stop-Loss Order Prevent an ‘Auto-Deleveraging’ Event on a Futures Exchange?

Explain the Function of the “Insurance Fund” in a Centralized Derivatives Exchange

Glossar

Insurance Fund

Fund ⎊ In the context of cryptocurrency derivatives, options trading, and financial engineering, an Insurance Fund represents a dedicated pool of assets designed to mitigate systemic risk within a specific protocol or trading environment.