ADL is activated under the following conditions on Flipster:
- Insurance Fund is Depleted: When the insurance fund balance is $0.
- Backstop Liquidity Provider cannot take positions: When the backstop liquidity provider is unable to absorb the liquidated positions.
Activation Condition Example:
- Trader A has the highest liquidity priority ranking and holds a short position on BTCUSDT perpetual swap contracts with an average entry price of 35,000 USDT.
- ADL forces the positions to be closed at the bankruptcy price of 30,000 USDT.
- Trader A incurs an opportunity loss of 1,000 USDT because the position was forced to close at 30,000 USDT instead of the market price of 29,000 USDT.