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ADL Mechanism

Auto-Deleveraging (ADL) Description

 
Auto-Deleveraging (ADL) is a counterparty forced liquidation mechanism implemented to control the overall risk of the platform when extreme market conditions or force majeure events cause the risk reserve to be insufficient or decline rapidly. Each product line may correspond to one or more risk reserves. The ADL mechanism applies to perpetual and delivery businesses.

ADL Trigger Conditions

ADL will be triggered if any of the following conditions is met:
  • The entire risk reserve is lost.
  • Within a hours, the risk reserve drops by b% from its peak (statistics are calculated once per second, looking back a hours).
  • Within c time period, the number of times the insurance fund loses e USDT exceeds d times.
    • For example: Within 4 hours, the number of times the insurance fund loses 5,000,000 USDT exceeds 3 times.
  • The accumulated unprocessed liquidation orders in the insurance fund pool reach a value of K.

ADL Closure Conditions

ADL will be closed only when all the following conditions are met simultaneously after being triggered:
  • The risk reserve rises back to above n USDT.
  • Within c time period, the number of times the insurance fund loses e USDT is less than d times.
  • The risk reserve rises back to above f% of its peak (the peak refers to the peak value of the risk reserve when ADL is triggered).
  • The accumulated unprocessed liquidation orders in the insurance fund pool are lower than the value of K.

Ranking Mechanism and Indicator Light Rules

1. Calculation Rules for Leverage Return

CM Users

  • Profitable Positions:Leverage Return = Position P&L Rate × Account MMR
  • Loss-Making Positions:Leverage Return = Position P&L Rate ÷ Account MMR

PM Users

  • Profitable Users:Leverage Return = Position P&L Rate × |Currency Net Delta|
  • Loss-Making Users:Leverage Return = Position P&L Rate ÷ |Currency Net Delta|
    • Note: If Currency Net Delta = 0, the user will not be included in the ranking.

2. Calculation Formula for Position P&L Rate

  • Long Positions: (Mark Price - Opening Price) ÷ Opening Price
  • Short Positions: (Opening Price - Mark Price) ÷ Opening Price

3. Ranking Rules for Users to Be Deleveraged

  • CM users and PM users are sorted into separate deleveraging queues using different calculation rules.
  • For each queue, users are sorted in descending order of leverage return, with profitable positions ranked before loss-making positions.
  • ADL Counterparty Deleveraging Order: CM Profitable Counterparties > PM Profitable Counterparties > CM Loss-Making Counterparties > PM Loss-Making Counterparties

4. Indicator Light Rules

There are a total of 5 ADL indicator lights, and the number of lit lights is determined by the user’s leverage return ranking:
  • Top 20% in leverage return ranking: 5 lights on
  • Top 20% - 40% in leverage return ranking: 4 lights on
  • Top 40% - 60% in leverage return ranking: 3 lights on
  • Top 60% - 80% in leverage return ranking: 2 lights on
  • Top 80% - 100% in leverage return ranking: 1 light on

Note: Option contracts are not subject to ADL.

Deleveraging Quantity

  • CM Users: Deleveraging is conducted directly according to the assigned quantity.
  • PM Users: Deleveraging Quantity = min[(abs(Position Delta), abs(Currency Net Delta), Current Unprocessed Forced Liquidation Quantity in Insurance Fund)] ÷ Contract Face Value(Where: Position Delta refers to the position quantity of the "trading pair to be deleveraged" for the user; Currency Net Delta refers to the position quantity of the portfolio unit where the trading pair is located)

ADL Execution Price

1. Long Positions in the Insurance Fund

ADL Execution Price = max(Latest Mark Price, Average Holding Price of the Insurance Fund Pool)
  • If the latest mark price ≤ average holding price of the insurance fund pool, liquidation is conducted at the average holding price of the insurance fund pool.
  • If the latest mark price ＞ average holding price of the insurance fund pool, liquidation is conducted at the latest mark price.

2. Short Positions in the Insurance Fund

ADL Execution Price = min(Latest Mark Price, Average Holding Price of the Insurance Fund Pool)
  • If the latest mark price ≥ average holding price of the insurance fund pool, liquidation is conducted at the average holding price of the insurance fund pool.
  • If the latest mark price ＜ average holding price of the insurance fund pool, liquidation is conducted at the latest mark price.

3. User Restrictions

  • Users subject to ADL cannot place orders, cancel orders, or close positions during the ADL period.
  • If there are pending orders during the ADL execution period, there is no need to cancel the pending orders.
  • Users in a liquidated state cannot be subject to ADL.
 

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