> ## Documentation Index
> Fetch the complete documentation index at: https://docs.fairground.fi/llms.txt
> Use this file to discover all available pages before exploring further.

# ADL (auto-deleveraging)

> What ADL is, when it triggers, and what happens to positions

ADL (auto-deleveraging) is a **last‑resort solvency mechanism**. It only occurs in extreme conditions, when losses from liquidations would otherwise consume too much of the market’s insurance fund budget.

## When ADL is used

Normally, if a liquidated position ends underwater, the [Insurance Fund](/trading/advanced/insurance-fund) covers the deficit so the system can settle and move on.

ADL is used when the protocol determines that the insurance fund budget for a market is at (or beyond) its risk limit for a specific close‑out.

## Triggering

The protocol periodically scans positions that are severely at risk. Those whose margin ratio has fallen well below the [liquidation](/trading/advanced/liquidation) level are candidates for ADL. The protocol then computes two values:

1. **Current deficit:** the insurance fund dollars needed to settle these positions at the current price.
2. **Shock deficit:** the insurance fund dollars needed if the price were to move an additional small percentage against these positions.

These are compared against the market’s **insurance fund budget** (a fraction of the total insurance fund allocated to that market):

* **Shock deficit ≤ budget:** No ADL action. The insurance fund can absorb even a short-term adverse price move, so normal liquidation handles it.
* **Current deficit ≤ budget, but shock deficit > budget:** ADL triggers **at the current price**. The insurance fund can cover current losses, but a further price move could exceed the budget so ADL acts preemptively.
* **Current deficit > budget:** ADL triggers at a computed **close‑out price** chosen so the market’s insurance fund allotment can exactly cover the settlement.
  * In this extreme case, the protocol may **halt trading** for the market.

## What happens when ADL triggers

When ADL triggers, the protocol acts on **one side of the market at a time** (e.g. all at-risk longs, or all at-risk shorts):

1. **Closes underwater positions** on the losing side.
2. Applies a **pro‑rata reduction** to *all positions on the opposite side* to offset the imbalance.

### How ADL is applied to winning positions

If you’re on the profitable side, your position is reduced by the **same percentage** as everyone else on that side.

<Tip>
  For example, if ADL needs to close an amount equal to **5% of the total open
  size**, then **every** position on the profitable side is reduced by **5%**.
</Tip>

## What you’ll see

* **Your position size decreases** (only if you are on the opposite side of the at-risk positions included in the ADL close‑out).
* The reduction happens at the **oracle price** (or the computed close‑out price in the extreme case).

## Relationship to liquidation

* Liquidation closes positions that are below maintenance margin. See [Liquidation](/trading/advanced/liquidation).
* The insurance fund covers deficits from **underwater** liquidations until the market reaches its risk limit. See [Insurance Fund](/trading/advanced/insurance-fund).
* ADL is what happens **after** that limit is reached: it reduces positions on the opposite side to offset the loss and keep the protocol solvent for the market.