Liquidations & ADL

Liquidations and Auto Deleveraging (ADL) are last-resort safety mechanisms designed to protect users, LPs, and the protocol during extreme conditions.

When Liquidations Happen

A liquidation is triggered when collateral value is no longer sufficient to cover the risk of open positions.

This typically occurs when:

• Interest rates move sharply against a position

• Collateral value drops (price, depeg, or haircut changes)

• Open positions and orders together exceed allowed risk limits

XCCY continuously evaluates:

• DV01 exposure of all positions

• Collateral value after default factors

• Worst-case execution of open orders

When the account’s risk exceeds safe thresholds, liquidation begins.

How Liquidations Work

• Positions are closed gradually, not all at once

• The protocol attempts to close positions at prevailing market prices

• Only the minimum amount required to restore safety is liquidated

Liquidations are deterministic and rule-based, not discretionary.

What Gets Liquidated

• Open orders are cancelled first to release blocked collatera

• Positions with the highest risk contribution are prioritised

• In Portfolio and X-Mode, risk is reduced account-wide, not per position

The goal is to stabilize the account, not wipe it.

Auto Deleveraging (ADL)

ADL is used only when normal liquidation is not possible.

This can happen when:

• There is no market bid or offer to close a position

• Liquidity is temporarily unavailable

• Market conditions are extremely volatile or fragmented

ADL ensures the system remains solvent even during severe dislocations.

How ADL Works

• Positions are reduced by offsetting against opposing positions

• Priority is based on risk contribution and leverage

• Only the amount necessary to restore safety is adjusted

ADL is transparent, proportional, and rare.

User Protections

XCCY is designed to minimise liquidation and ADL events through:

• DV01-based margining

• Portfolio and clustered risk netting

• Worst-case blocking for open orders

• Conservative collateral valuation

• XCCY Telegram bot for account monitoring & notifications

Most users will never experience ADL under normal market conditions.

Key Takeaways

• Liquidations occur when collateral no longer covers risk

• Positions are reduced gradually and fairly

• ADL is a last resort when markets cannot absorb liquidations

• Both mechanisms exist to protect users and the protocol

• No socialised losses under normal conditions