How Hyperliquid's ADL Queue Works
Auto-deleveraging is a last-resort solvency mechanism that reduces profitable opposing positions when liquidation and backstop processes cannot resolve an account deficit normally.
ADL matters precisely because a derivatives exchange can face a position whose collateral is insufficient after a violent move. Hyperliquid first uses its normal liquidation and backstop process. If residual insolvency remains under the protocol's conditions, auto-deleveraging can reduce positions on the profitable opposing side according to the system's ranking logic.
Why an exchange needs a tail mechanism
A liquidation engine assumes there is enough market liquidity to close an underwater position before losses exceed collateral. Gaps and thin books can violate that assumption.
Someone must absorb the residual loss or exposure. ADL makes that tail-allocation rule explicit rather than allowing an unbounded negative balance to remain.
Who can be affected
ADL targets opposing profitable/leverage-relevant positions according to the protocol's queue methodology. A trader can therefore be reduced even while their own account is healthy.
That is the defining ADL risk: profitable exposure may be forcibly closed because the system is resolving another participant's insolvency.
Why high leverage matters
A highly leveraged profitable position can rank differently from a low-leverage one because the system considers how efficiently deleveraging it resolves risk. The exact ranking should be read from live documentation.
Institutional risk systems should monitor ADL exposure as a venue-level tail risk, not only account liquidation probability.
Portfolio implication
If a strategy requires maintaining a hedge through extreme volatility, an ADL event can break the hedge at the worst time. Cross-venue hedges are especially vulnerable if one leg is forcibly reduced.
Stress tests should include unexpected partial or full closure of a winning derivatives leg.