What is Auto-deleveraging (ADL)?

Auto-deleveraging, or ADL, is how a derivatives venue stays solvent when a liquidation goes wrong. Every perpetual position has a counterparty, so a long that loses more than its collateral leaves a short whose profit nobody can pay. Normally the gap never appears: the position is liquidated while there is still margin left. ADL is for the moments when prices move faster than liquidations can run.

It sits at the end of a chain. First the venue tries to close the failing position through the order book. If that does not work, a backstop takes it over: an insurance fund on centralized exchanges, the liquidator strategy inside HLP on Hyperliquid, the LLP on Lighter. Only if the position is still underwater after that does ADL begin, and positions on the profitable side are closed against it.

Venues choose whom to close by ranking. Hyperliquid documents its trigger as an account value or isolated position value that becomes negative, ranks traders on the opposite side by unrealized profit and leverage, (mark price ÷ entry price) × (notional ÷ account value), and closes the selected positions at the previous mark price. Centralized exchanges use similar rankings and show each position’s place in the queue. The most profitable, most leveraged positions go first.

For the trader on the receiving end, ADL is an exit nobody asked for. The profit is realized, but the position is gone at a price the trader did not pick, and a hedge can lose one of its legs in the middle of the move it was meant to protect against. After a violent market it is worth checking that every position you think you hold still exists. TrueHold reads positions directly from Hyperliquid, Lighter and connected exchanges, so a leg closed by ADL disappears from the total as it does on the venue.