How Does the ADL System Differ from the Clawback Mechanism Used in Some Traditional Finance Settings?
The ADL system is an automated, real-time risk management process in futures trading that forces a position reduction to cover a specific counterparty loss. It is a systemic solution to negative equity.
A clawback mechanism in traditional finance is usually a contractual provision that allows an employer to recover past bonuses or compensation, often related to misconduct or misstated earnings, making it a retrospective penalty rather than a real-time risk tool.
Glossar
Clawback
Mechanism ⎊ A clawback mechanism in cryptocurrency derivatives markets represents a risk management protocol designed to cover losses incurred by a defaulting trader when the exchange's insurance fund is depleted.
ADL System
Framework ⎊ The ADL System, within cryptocurrency derivatives and options trading, represents a structured approach to algorithmic delta hedging, specifically tailored for assets exhibiting non-standard price behavior or limited liquidity.
Clawback Mechanism
Recapture ⎊ A contractual provision allowing the CCP or designated resolution authority to reclaim funds or assets distributed during the initial phases of a default management process if the final realized loss proves to be lower than initially estimated.