Why Do Most Major Exchanges Prefer the ADL System?
Major exchanges prefer ADL because it targets the riskiest traders, minimizing the impact on the majority of users. It is perceived as a fairer system than socialized loss, which spreads the burden indiscriminately.
ADL also provides a clear, immediate closure price, which is simpler to manage than the potential clawback of a socialized loss.
Glossar
Major Exchanges
Liquidity ⎊ Major exchanges, functioning as central limit order books or increasingly, hybrid automated market makers, represent critical infrastructure for price discovery and efficient capital allocation within cryptocurrency, options, and derivatives markets.
Socialized Loss
Mechanism ⎊ Socialized loss, within cryptocurrency derivatives and options trading, describes the distribution of losses across a broader participant base than those directly holding a losing position, often amplified by leveraged exposure and cascading liquidations.
Immediate Closure
Liquidation ⎊ Immediate closure refers to the forced termination of a leveraged position by the exchange's risk engine when a trader's margin balance falls below the maintenance margin level.
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.