Auto-deleveraging (ADL)
Auto-Deleveraging is the final safeguard in Margin Trade’s risk system. It ensures platform solvency when market liquidations cannot fully close an under-collateralized account due to insufficient liquidity or extreme volatility.
When ADL Triggers
ADL activates only if:
The account value becomes negative after liquidation attempts, and
There are insufficient counterparties in the book to absorb the remaining position.
In a perpetual market, every long is matched by a short. If one side becomes insolvent, the system must reduce the exposure of profitable traders on the opposite side to rebalance total notional and maintain a zero-sum system.
ADL Ranking and Selection
When ADL is triggered, profitable accounts are ranked by a priority index that combines profitability and leverage:
adl_index = (mark_price / entry_price) * (notional_position / account_equity)Traders with the highest ADL index (most profitable and most leveraged) are deleveraged first.
Their open position size is reduced or closed at the current mark price against the insolvent account.
This reallocation ensures total system equity remains constant and prevents any bad debt.
While ADL can close positions at less favorable prices, affected users typically still retain net profits overall. The mechanism is mechanical, transparent, and verifiable onchain.
Design Principles
Transparency: All ADL and liquidation events are published onchain and visible in the Margin explorer.
Fairness: ADL only affects users on the profitable side and only when absolutely necessary.
System Solvency: No bad debt is ever socialized. A trader with no open positions can never lose funds due to others’ liquidations.
Determinism: ADL operates automatically and without discretionary intervention.
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