Auto-deleveraging (ADL) explained: who gets closed and why

Auto-deleveraging (ADL) is the last safety step of a derivatives exchange: when a liquidated account has lost more than its collateral, the exchange closes profitable positions on the other side to cover the gap. It is rare, it hits traders who did nothing wrong, and on Hyperliquid it follows a published ranking formula.

This guide explains where ADL sits in the liquidation process, how Hyperliquid decides whose position is closed, what that means for the trader on the receiving end and how to spot it in market data.

Where ADL sits in the liquidation chain

Every perpetual futures market has two sides of the same size. When one trader's loss is larger than their collateral, someone has to absorb the difference, or the winning side cannot be paid in full. Exchanges stack several layers in front of that point. On Hyperliquid there are three:¹²

1. Liquidation on the order book. When an account's equity falls below its maintenance margin, the exchange sends market orders for the position to the book. Most liquidations end here, and any collateral left over stays with the trader.
2. Backstop liquidation. If equity falls below two thirds of the maintenance margin and the book could not close the position, the liquidator vault, part of HLP, takes it over together with its margin.
3. Auto-deleveraging. If an account's value, or the value of an isolated position, becomes negative, the loss is closed out against traders on the opposite side.

Steps one and two use the liquidated trader's own collateral. Step three is the only one that reaches into other people's positions, which is why it comes last. Hyperliquid's documentation describes ADL as the final safeguard of the platform's solvency, and states an invariant behind it: a user who has no open positions never shares in the platform's losses.²

How Hyperliquid chooses whose position is closed

When ADL is needed, Hyperliquid ranks the users on the opposite side of the underwater position by their unrealised profit and the leverage they use. The sorting index is documented as:²

(mark_price / entry_price) * (notional_position / account_value)

The two factors have a plain meaning:

• mark_price / entry_price measures how far the price has moved from where the position was opened. For a long, a value above one means the position is in profit.
• notional_position / account_value is the effective leverage of the account: the size of the position relative to the equity behind it.

Positions with the highest index are closed first, at the previous mark price, against the underwater account. That settles the loss without bad debt. Positions that the liquidator vault took over in a backstop liquidation get no special treatment in this queue.²

The example shows the logic of the formula: a modest gain on a highly leveraged account can rank above a large gain held with little leverage.

What ADL means for the trader who is deleveraged

For the profitable trader, ADL is not a liquidation. The position is closed at the previous mark price, so the profit up to that price is realised and kept.² What the trader loses is the position itself, at a moment they did not choose:

• The trade is over. A trader who wanted to keep the position open has to open a new one, at whatever price the market then offers.
• Hedges come apart. If the position was one leg of a hedge, for example a short perpetual against a spot holding, the other leg is now unhedged.
• It happens in fast markets. ADL only becomes necessary when liquidations could not be absorbed by the book or the backstop, which by its nature happens during sharp moves with thin liquidity.

On the ranking side, the formula makes the exposure concrete: the more leverage an account runs and the further a position is in profit, the higher it stands in the queue.

ADL on HIP-3 markets

Builder-deployed (HIP-3) markets add one layer of their own. Each HIP-3 dex has a fully onchain backstop liquidator that takes over positions eligible for a backstop liquidation from that dex. It only accepts assets with cross margin enabled, and according to Hyperliquid this makes ADL on those assets much rarer during high volatility. Each of these backstop liquidators is an independent user and itself falls back to ADL to keep its dex solvent.³

Assets without cross margin keep the usual chain, so on those markets ADL stays the step after the book.

Centralised exchanges

Centralised exchanges have auto-deleveraging rules of their own. Triggers and ranking are set out in each exchange's documentation and differ from venue to venue, so a place in the queue on one exchange says nothing about another. Unlike on Hyperliquid, their positions and accounts are not public, so ADL there cannot be observed position by position from outside.

How to spot ADL in the data

ADL leaves a recognisable pattern on Hyperliquid, because positions are public: during heavy liquidations on one side, several profitable positions on the other side shrink or disappear at the same time, without their owners trading. Our security feed runs a detector for exactly that pattern and lists matches as "Possible ADL" on Security news. It is an inference from the positions of tracked wallets and the liquidations of the same minutes, labelled as such, not a confirmation by the exchange.

Liquidations themselves are shown on our liquidations page, with the method behind the totals on the liquidations metric page.

Common questions

Is ADL the same as being liquidated? No. A liquidation closes a losing position whose margin is used up. ADL closes a profitable position on the other side, at the previous mark price, to cover a loss that liquidation could not.²

Can a trader with no open positions lose money through ADL? No. Hyperliquid states that a user with no open positions never shares in the platform's losses.²

Does the backstop vault protect positions from ADL? It absorbs losses first, but ADL remains the fallback when an account's value turns negative, and positions the vault took over are ranked like everyone else's.¹²