ADL
AZEx employs an Auto-Deleveraging (ADL) mechanism to ensure system stability and risk control in extreme market conditions. This mechanism is triggered when liquidity is insufficient or when excessive imbalances in risk exposure arise.
How ADL Works
Liquidity Monitoring: The protocol continuously calculates the net long and short positions to determine the maximum available liquidity.
Trigger Conditions: ADL activates when:
Liquidity becomes critically low.
Risk exposure from imbalanced positions exceeds safe thresholds.
Deleveraging Process:
Open positions are ranked based on maximum net profit.
Positions with the highest profitability are closed sequentially.
The process continues until the system regains a controlled and balanced risk profile.
Key Benefits
Mitigate Systemic Risk: Prevents cascading failures during extreme volatility or liquidity crises.
Fair Mechanism: Prioritizes the highest net profit positions for deleveraging, minimizing the impact on the broader user base.
Enhanced Stability: Maintains a healthy ecosystem, ensuring smooth operation for traders and liquidity providers alike.
ADL is a vital safeguard that protects both users and the protocol, ensuring consistent and reliable performance in all market conditions. While rarely activated, its presence reinforces trust and resilience within the AZEx platform.
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