How Does an Exchange Prevent Cascading Liquidations during High Volatility?

Exchanges employ several mechanisms to mitigate cascading liquidations. These include using the Index Price for liquidation triggers instead of a single market's price.

They also use a Mark Price based on the Index Price to calculate margin requirements. Furthermore, a well-funded insurance fund absorbs losses, and in extreme cases, a mechanism like Auto-Deleveraging (ADL) is used as a last resort.