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ADL is the final circuit breaker. It’s triggered when the Backstop accumulates irrecoverable losses that threaten protocol solvency.

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When ADL Triggers

When ADL triggers:
  1. The system identifies the most profitable opposing positions
  2. These positions are force-closed at the bankruptcy price (the price at which the Backstop Liquidator would lose exactly the insurance fund amount specified for that market)
  3. Total open interest in the market is reduced
Closing at bankruptcy price rather than mark price ensures losses are bounded to the insurance fund. ADL is rare and only occurs in extreme scenarios. If your position is closed by ADL, your profit up to the bankruptcy price is realized.

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How Positions Are Selected

ADL targets positions based on profitability and leverage. Positions with higher unrealized profit relative to margin used are selected first. This means highly leveraged profitable positions are more likely to be ADL’d than lower-leverage positions with similar profit.

Liquidations

The two-stage liquidation process before ADL

Margin

How margin requirements work