If, after standard and backstop liquidations, a market still has unrealized bad debt that exceeds the Insurance Fund’s cap, the system escalates to ADL. ADL forcibly matches the underwater position (one that would create bad debt after backstop and insurance) with opposing profitable positions in solvent accounts in the same market. The system ranks underwater accounts by their bad debt risk, while profitable accounts are ranked by their unrealized PnL multiplied by leverage. This ensures the most at-risk positions are closed first, while the most profitable accounts are selected to absorb the losses. All ADL executions happen at the bankruptcy price of the underwater position, which is the price where the position’s losses exactly equal its margin. The size of each match is limited to min(abs(Q_under), abs(Q_opposite)) per transaction, keeping gas costs efficient at O(1) per position. ADL is completely protocol-driven. There are no separate penalties or fees - the underwater account simply forfeits its margin, and the profitable counterparties are adjusted at the bankruptcy price. The protocol automatically updates both accounts’ realized PnL and reduces their maintenance margin requirements.