ADL & Insurance Fund

ADL(Auto-Deleveraging)

Auto-Deleveraging is the ultimate safeguard mechanism that activates when a liquidated position cannot be fully closed in the market and the insurance fund is insufficient to absorb the shortfall. In such cases, the system offsets the bankrupt position against opposing traders’ positions.

The order in which traders are affected is determined by a ranking system that considers both profitability and leverage exposure. Traders with higher unrealized gains and greater leverage are given higher priority in the queue. Their positions are reduced at the prevailing reference price, ensuring that losses are contained and systemic risk is minimized.

ADL guarantees that platform solvency is preserved under extreme conditions, while ensuring that traders with no open positions are never impacted by losses.

Insurance Fund

The insurance fund is a reserve pool established by the platform to absorb losses that occur when liquidated positions cannot be fully closed due to insufficient market liquidity or extreme price swings. Its purpose is to prevent negative equity from spreading into systemic risk and to ensure that the platform and counterparties remain protected.

DipCoin implements a segmented insurance fund structure, consisting of a master account and multiple sub-accounts (active accounts). Each trading pair has its own dedicated sub-account, which operates independently from others. This design ensures that losses in one market do not affect the reserves allocated to another, providing strict risk isolation and greater transparency.

The balance of each sub-account reflects the platform’s available reserve for that specific market and changes in real time. Funding for these accounts is sourced from:

• Liquidation Premiums: When liquidations are executed at a price better than the bankruptcy level, the excess is retained in the insurance fund.

• Platform Contributions: Initial capital injections or allocations from future revenues, such as trading fees.

By maintaining independent insurance funds per market and replenishing them through liquidation premiums and platform support, DipCoin strengthens market resilience, enhances trader confidence, and upholds the stability of the trading environment.