Automatic Deleveraging Mechanism (ADL): why exchanges are forced to close positions

In October 2025, the crypto market experienced an extraordinary shock when futures positions worth more than $19 billion were closed in just one day. According to the reports, 1,618,240 traders were liquidated in one day, indicating a critical state of the market. The Automatic Deleveraging Mechanism (ADL) has become an important tool in a time when the financial situation on the exchange is deteriorating, allowing profitable positions to be closed to avoid the platform's bankruptcy.

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ADL is activated only when other ways to cover the financial deficit are not possible. It is a method that "penalizes" traders' profitable positions and is used to ensure liquidity on the exchange and maintain its solvency. When the market is in a volatile state, insufficient liquidity and order slippage can lead to outstanding debt that needs to be compensated. That is why there are insurance funds of exchanges that cover losses arising from the liquidation of traders' positions. These funds, in particular, receive additional resources from successful liquidations.

Based on the experience of the October crash, which proved to be beneficial for some insurance funds, it is important to realize that ADL is a critical component for the stable operation of crypto exchanges, which plays a crucial role in maintaining their reputation and consumer confidence. Future market developments should consider how the ADL mechanism will be used to respond to volatile conditions and its impact on trading theory or practice.