ADL

Auto-Deleveraging

In the world of cryptocurrency trading, risk and volatility are ever-present companions. As traders engage in leveraged positions, the potential for substantial profits and losses is amplified. To maintain the integrity of crypto exchanges and ensure fair trading practices, Auto-Deleveraging (ADL) emerges as a crucial mechanism.

Objectives

The primary objective of Jungle is to minimize the occurrence of ADL, as it can be an unwelcome outcome for traders. However, given the inherent volatility of the crypto markets and the high leverage offered to users, it is impossible to entirely eliminate the need for auto-deleverage liquidations.

Mechanism

When ADL is triggered, Jungle smart contract employs a ranking mechanism called ‘ADL indicator’ to deleverage counterparties. This ADL indicator is determined by factors such as leverage, unrealized profit and loss (uPnL), margin and margin rate. In essence, the higher a trader's ADL indicator is, the higher their ranking, making them more likely to be subjected to ADL. The mechanism works differently for isolated margin and cross margin, and only isolated margin is covered for now:

$$ADL Indicator = uPnL Rate / Margin Rate, when uPnL Rate>0$$ $$ADL Indicator = uPnL Rate \times Margin Rate, when uPnL Rate ≤ 0$$ $$Margin Rate= (Margin + uPnL-Close Fee) / Notional \,Value\, of\, Position$$

Execution

1. User Interface Each position is categorized into one of five percentiles, indicating the likelihood of ADL in ascending order:

   [0, 20%)
   
   [20%, 40%)
   
   [40%, 60%)
   
   [60%, 80%)
   
   [80%, 100%]

2. Rules:

   • ADL indicators reaching the fourth and fifth percentiles, as well as positions undergoing automatic deleveraging, will trigger corresponding email notifications.

   • or the positions that have undergone ADL, no fees will be taken.

   • Those whose positions were liquidated will be tagged as ‘Takers’, and the counterparties, ‘Makers’.