Why Is ADL Considered a ‘Mechanism of Last Resort’?

ADL is a mechanism of last resort because it directly interferes with the positions of profitable traders, forcing them to take a reduced profit or position size against their will. This is highly undesirable as it introduces a non-market risk, potentially eroding trust in the exchange and market fairness.

It is only used when the primary risk mitigation tool, the insurance fund, has been exhausted and a deficit remains. The exchange prefers to use the fund to cover losses.