Alternative to ADL

For those from tradfi unfamiliar with crypto perps: ADL (Auto-Deleveraging) is the exchange's "waterfall" mechanism. profitable traders get forcibly closed to cover defaults from losers, avoiding bad debt but socializing losses without consent. It is a coverall for anything not handled by IM. It's cheap, but in markets that are typically MM short and Retail long, every time the market comes off we see masses of under collateralised retail. We have variations on this theme, but it is essentially why these markets don't work for hedging or stat arb.

The ADL debate raging on X right now is fascinating (Gauntlet)@tarunchitra proves no policy perfectly balances solvency, fairness, and revenue in perps' loss distribution. (Paradigm) @danrobinson clarifies it's forced trades at bankruptcy price (zero-sum, but winners forfeit delta without consent). (Hyperliquid)@chameleon_jeff nails the build side: 10/10 cascade "net made users millions" at favourable marks, treating HLP symmetric. (Also means some users lost millions, and others missed out on P&L but that isn't said)

All sharp contributions, but we're missing the forest: ADL patches a 2017 regulatory-dodge hack—perps as pseudo-quanto products, fragmenting hedging, forcing directional risk into OTC and concentrating liquidity fails. A poor product that enabled a regulatory dodge.

Futures scale better, but default funds are capital-hungry, complex, MMs in crypto are not FCM-eager to contribute. The existing FCM space can't step into this, no infrastructure, no booking systems, no pricing, no risk appetite. We face continued fragmentation of liquidity under every model I see proposed. Coordination by Tradfi aware entities, combined with new approaches to real-time risk, securitisation of tail risk, and tokenised collateral are needed.

What if we evolved beyond? Accessible clearing without lockup, markets pricing tail risk, a post default fund, post-ADL world. My feature post covers the fourth way.