Why Are Socialized Losses Considered More Detrimental to Market Sentiment than ADL?

Socialized losses are considered more detrimental because they affect all profitable traders on the platform proportionally, regardless of their individual risk or leverage. This broad, system-wide penalty is seen as unfair and unpredictable, eroding trust in the exchange's risk management capabilities.

ADL, while disruptive, is targeted only at the highest-risk, most profitable traders, making it a more contained and acceptable mechanism.