ADL and Insurance Fund

Overview

OBSDN uses a layered solvency model:

Normal liquidation execution
Insurance/backstop resources
Auto-deleveraging (ADL) only when required

Insurance Fund Role

The insurance fund absorbs negative-equity residuals from liquidations that close below the bankruptcy price.

Boundary:

Covers liquidation shortfalls where execution price is worse than bankruptcy price
Not sized to guarantee coverage in all extreme market scenarios

ADL Trigger

ADL is considered only if:

Liquidation + available backstop resources cannot fully absorb losses
Continuing without ADL would violate platform solvency constraints

ADL Counterparty Selection

When ADL is triggered, opposite-side positions are ranked by a composite priority score built from two factors:

Profit percentage relative to entry price: more profitable positions rank higher
Margin ratio (maintenance margin ÷ margin balance)

For positions in profit the two factors are multiplied; for positions at a loss the profit percentage is divided by the margin ratio. Positions with the highest score are reduced first.

User Impact

If your position is ADL-selected:

A portion of your position is force-reduced against the liquidating counterparty
Execution occurs at the system-determined ADL price
Realized PnL from the reduction is credited immediately