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

**Published:** 2025-12-04
**Author:** Greeks.live
**Categories:** Path

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## 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?](https://learn.greeks.live/path/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?](https://learn.greeks.live/path/how-does-the-exchanges-insurance-fund-relate-to-losses-from-market-manipulation-or-an-attack/)

- [What Is “Deleveraging” and How Is It Managed by Exchanges?](https://learn.greeks.live/path/what-is-deleveraging-and-how-is-it-managed-by-exchanges/)

- [What Is ‘Auto-Deleveraging’ (ADL) and How Is It Used by Crypto Exchanges?](https://learn.greeks.live/path/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?](https://learn.greeks.live/path/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?](https://learn.greeks.live/path/what-is-the-purpose-of-an-exchanges-insurance-fund-in-the-crypto-futures-market/)

- [Can a Stop-Loss Order Prevent an ‘Auto-Deleveraging’ Event on a Futures Exchange?](https://learn.greeks.live/path/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](https://learn.greeks.live/path/explain-the-function-of-the-insurance-fund-in-a-centralized-derivatives-exchange/)

## Glossar

### [Insurance Fund](https://learn.greeks.live/area/insurance-fund/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)

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.

## Discover More

### [How Do Centralized Exchanges Differ from Decentralized Exchanges in Terms of Security Risks?](https://learn.greeks.live/path/how-do-centralized-exchanges-differ-from-decentralized-exchanges-in-terms-of-security-risks/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)
![How Do Centralized Exchanges Differ from Decentralized Exchanges in Terms of Security Risks?](https://learn.greeks.live/wp-content/uploads/2025/10/Deconstructed-Mechanism-Illustrating-High-Frequency-Quant-Execution-Via-Automated-Smart-Contract-Interfacing.webp)

CEXs face custodial 'honeypot' risks, while DEXs face smart contract vulnerabilities and user-side private key risks.

### [How Do Centralized Exchanges (CEX) and Decentralized Exchanges (DEX) Manage Insurance Differently?](https://learn.greeks.live/path/how-do-centralized-exchanges-cex-and-decentralized-exchanges-dex-manage-insurance-differently/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)
![How Do Centralized Exchanges (CEX) and Decentralized Exchanges (DEX) Manage Insurance Differently?](https://learn.greeks.live/wp-content/uploads/2025/10/Celestial-Arbitrage-Mechanism-Modeling-Lunar-Surface-Proximity-Dynamics-for-Decentralized-Finance-Structuring.webp)

CEXs use a centralized, exchange-controlled fund; DEXs use decentralized, community-governed staking pools or safety modules.

### [How Do Centralized Exchanges (CEX) and Decentralized Exchanges (DEX) Differ in Managing Margin Shortfalls?](https://learn.greeks.live/path/how-do-centralized-exchanges-cex-and-decentralized-exchanges-dex-differ-in-managing-margin-shortfalls/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)
![How Do Centralized Exchanges (CEX) and Decentralized Exchanges (DEX) Differ in Managing Margin Shortfalls?](https://learn.greeks.live/wp-content/uploads/2025/10/Xray-Visualization-of-Bifurcated-Digital-Asset-Settlement-Mechanisms-Leveraging-NonFungible-Token-Call-Options.webp)

CEXs use a centralized fund and fast off-chain engines, while DEXs use smart contracts and pooled liquidity with higher on-chain costs.

### [How Do Derivatives Markets Use the Concept of Blockchain Finality for Settlement?](https://learn.greeks.live/path/how-do-derivatives-markets-use-the-concept-of-blockchain-finality-for-settlement/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)
![How Do Derivatives Markets Use the Concept of Blockchain Finality for Settlement?](https://learn.greeks.live/wp-content/uploads/2025/10/Precision-Machining-of-Metallic-Substrates-Simulating-Blockchain-Settlement-Layers-for-Derivatives-Pricing.webp)

Finality provides the necessary certainty that recorded contract outcomes are irreversible, which is critical for secure and final settlement of derivatives.

### [What Are Some Practical Strategies for Overcoming Confirmation Bias When Trading Volatile Crypto Assets?](https://learn.greeks.live/path/what-are-some-practical-strategies-for-overcoming-confirmation-bias-when-trading-volatile-crypto-assets/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)
![What Are Some Practical Strategies for Overcoming Confirmation Bias When Trading Volatile Crypto Assets?](https://learn.greeks.live/wp-content/uploads/2025/10/Abstract-Depiction-of-Cross-Hedged-Digital-Asset-Volatility-Surface-and-Structured-Products.webp)

Actively seek dissenting opinions, keep a detailed trading journal, and use pre-set stop-loss orders to counter biased thinking.

### [How Do Decentralized Exchanges (DEXs) Handle Bid-Offer Spreads Differently than Centralized Exchanges (CEXs)?](https://learn.greeks.live/path/how-do-decentralized-exchanges-dexs-handle-bid-offer-spreads-differently-than-centralized-exchanges-cexs/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)
![How Do Decentralized Exchanges (DEXs) Handle Bid-Offer Spreads Differently than Centralized Exchanges (CEXs)?](https://learn.greeks.live/wp-content/uploads/2025/10/Liquidity-Pool-Dynamics-Visualization-Contrasting-Dark-Pool-Aggregation-with-Decentralized-Exchange-Spreads.webp)

CEXs use order books and market makers; DEXs use AMMs and liquidity pools, where price impact and fees replace the traditional spread.

### [How Does TWAP Help Mitigate Slippage in Volatile Cryptocurrency Markets?](https://learn.greeks.live/path/how-does-twap-help-mitigate-slippage-in-volatile-cryptocurrency-markets/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)
![How Does TWAP Help Mitigate Slippage in Volatile Cryptocurrency Markets?](https://learn.greeks.live/wp-content/uploads/2025/10/Ergonomic-Cryptocurrency-Wallet-Interface-and-On-Chain-Derivative-Execution-Stylus-Mechanism.webp)

TWAP reduces slippage by executing small parts of a large order over time, avoiding a single, market-moving trade.

### [How Do Options Traders Use the "Greeks" (E.g. Delta, Gamma, Vega) to Manage Risk in Volatile Crypto Markets?](https://learn.greeks.live/path/how-do-options-traders-use-the-greeks-e-g-delta-gamma-vega-to-manage-risk-in-volatile-crypto-markets/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)
![How Do Options Traders Use the "Greeks" (E.g. Delta, Gamma, Vega) to Manage Risk in Volatile Crypto Markets?](https://learn.greeks.live/wp-content/uploads/2025/10/Crystalline-Apex-Structure-Over-Pleated-Fan-Substrate-Representing-DeFi-Option-Vault-Volatility-Surface-Dynamics.webp)

The Greeks are risk metrics; traders use them to isolate and manage risks like price direction (Delta) or volatility (Vega).

### [How Do Exchanges Use Open Interest Data for Risk Management Purposes?](https://learn.greeks.live/path/how-do-exchanges-use-open-interest-data-for-risk-management-purposes/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)
![How Do Exchanges Use Open Interest Data for Risk Management Purposes?](https://learn.greeks.live/wp-content/uploads/2025/10/Close-Up-Macro-View-of-Decentralized-Exchange-Matching-Engine-Mechanism-Indicating-Order-Book-Depth.webp)

Exchanges monitor open interest to assess market depth and risk concentration, informing adjustments to margin and position limits.

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