Auto-Deleveraging (ADL) is a critical mechanism in perpetual contracts markets, acting as a last-resort tool to maintain system balance when liquidity is insufficient to cover liquidations. In these zero-sum markets, cash is redistributed among participants, and ADL is triggered when one side of the market depletes its funds. This process involves forcibly closing profitable positions, often targeting the most profitable, leveraged, or large positions, to ensure the system's solvency.
Despite its controversial nature, ADL is essential for maintaining the integrity of the perpetual contracts system. It operates without actual Bitcoin, relying instead on a pool of cash that is continually redistributed among market participants. This mechanism ensures that the market remains balanced and solvent, even in times of financial strain.
Understanding Auto-Deleveraging in Perpetual Contracts
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