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.